Octodec Investments Limited (OCT) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Octodec results announcement. [Operator Instructions] Please note that this call is being recorded. I would now like to hand the conference over to Jeffrey Wapnick. Please go ahead.

Thank you. Good morning, ladies and gentlemen, and welcome to the interim financial results of Octodec for the 6 months ended 29th of February 2020. We've prepared an agenda if the controller could just move from the introduction sheet to Page 2, where we've prepared an agenda. I will talk a little bit about Octodec, and I suppose everybody has been waiting for some feedback from Octodec which relates to COVID. We will then deal with the overview of the period and our performance. I'm going to ask Anthony Stein to then come in and deal with our results, the detail of our results as well as the number of measures that have been taken with regards to capital management. And I'll come back and perhaps deal with outlook. So in addition to Anthony Stein, our Financial Director, we also have on the background for question and answering, I have 2 senior executives with -- that work on the Octodec portfolio, namely [ Charlene Conradie ], who's responsible for the residential portfolio; and Daniel Swimmer, who deal with the leasing of Octodec. If we now fast forward to Page #4, Octodec at a glance. This is a page that we put in just every time because I know there may be 1 or 2 new people at this presentation. I just set out some basic factors about Octodec. Perhaps the most important is the fact that it is the management company, City Property, has 50 years of experience during that time. We've dealt with some tough situations and have survived. I'm not saying we've dealt with a COVID before. Just to remind you, if I could then ask the controller to move to Page 6, to remind you that this is a results presentation of Octodec. I do think that COVID has superseded, has taken over from these results. And most of you are probably more concerned about COVID, the impact of COVID on Octodec and the actual results. But I want to -- before we get into COVID, I want to say the following. I -- let us not forget about where South Africa is, where South Africa was as of the 29th of February 2020. South Africa was in a tough time, itself, in a very tough economic environment, threat of downgrades, problems with Eskom. The list is long. I don't have to repeat it. And so given that backdrop, I don't think -- I think that Octodec's results were very, very, very positive. However, subsequent to the year-end on the 26th of March, the country entered into a lockdown, and things changed very rapidly. And hence, I want to spend some time speaking about COVID before we start getting into the results of Octodec. I think that with Octodec, I'm sure, a number of the concerns relating to COVID relate to the fact that Octodec has a big number of both buildings as well as 40,000 tenants. And so operationally, it's quite a challenge -- it could be quite a challenge to manage the day-to-day operations of Octodec. Having said that, let's move onto the COVID-19 response. And my first line there, the unprecedented event is expected to continue to impact on our business with the future outlook being highly uncertain. I think I would like to highlight the fact that it is uncertain, but at the same time, remind you that the underlying assets of Octodec under tough times did perform. A task team has been put in place and is monitoring the situation on a daily basis. In that regard, I'm quite sure I'm not there normally am every morning on Microsoft Teams, we were discussing that those events -- those events would be last night's presentation by the State President, where he announced ZAR 500 billion worth of assistance to the economy. It's quite a bit to process before -- for me to process before this presentation, but I -- my high-level thought is that I was very pleased because the kind of assistance that government is looking to provide ZAR 500 billion worth is assistance that will go to the people that Octodec serves, the smaller tenants, the individuals who need assistance in today's time. We've implemented hygiene and safety measures as specified in the government directives. We have really active management and implementation of mitigating actions system in place, a lot of proactive engagement with staff, tenants, funders and other stakeholders, and cash flows on these on a daily basis. Turning to Page 7. Essential services has been maintained. We strategically are focusing around balance sheet management and liquidity planning to the best of our ability. I think something else I want to tell -- to put up is up to now, Octodec has recognized the need to not take any drastic action that will hurt those on the value chain down below, especially those small businesses that Octodec interacts with and staff. With regards to leasing, I think it is fair to tell everybody that, obviously, no new leasing activity is taking place. However, in addition, rate of collection in the short term, as a result of the uncertainty, has slowed down. On a positive note, however, with regards to governance -- government tenants, which comprise just under a 10% of Octodec's revenue today, we've heard no negative responses from government that would indicate that they're not paying their rent. And 100% of the rent -- of the payments have been received, say, for 1 or 2 tenants where they are -- we're in the middle of negotiations, where there's good reason why they should not have paid. But I'm assured that this will be resolved within the next few weeks and we will receive it. In addition to that, slightly -- or certainly at our last presentation, we indicated that there were 18 or 19 leases that were outstanding and hadn't been renewed. I'm pleased to report that these renewals have, say for 2, have all been done. With regards to residential and payments, residential tenants, we understand, are withholding their payments. Not all of them but there's certainly a sizable portion of them are holding cash because of uncertainty that COVID has introduced. Retail negotiations are very much underway. I don't want to get involved in the current negotiation that everybody knows about, where the Property Investors Group is meeting on a, I think, on a fairly regular basis with the national retailers to work out a fair settlement between on the retailer side, negotiating and then the -- on our side, on the landlord side, the fact that we still have certain commitments that we need to pay. I've just received an e-mail or rather an SMS from our staff indicating that some of the retailers are preparing to open their stores tomorrow. Whether this happens or not, I don't know, but it's from a reliable source. At shopping center level, we've been informed by the managers that they are preparing to open for tomorrow, albeit in a very limited way in the sense that it's baby goods and small Torannce clothing only. From our point of view, we are ready to negotiate, and we're in regular contact with our tenants, all of them, in fact. And we're providing relief to the smaller ones because we don't want unduly high vacancies when all of this shall pass. Moving on to Page 9, the balance sheet and liquidity, how we responded to that. I'm going to ask Anthony Stein, our Financial Director, to come in and talk to you about this. Anthony?

Hi. Good morning, everyone. Okay. So yes, I think -- good morning, everyone. I think one of our biggest challenges is to manage our -- safe environment, and we have seen a significant reduction in collections from our tenants. And so in this uncertain environment, we need to ensure that we have a very strong balance sheet to navigate the challenges ahead of us. And we've taken a number of steps already to ensure that we shore up our balance sheet. We -- what we've done already is we've cut that consistent repairs and maintenance costs and CapEx costs. I think what's important to note is that Octodec has a very large variable cost base with regards to repairs and maintenance. So we can cut that quite substantially. We've also continued with our strategy to further diversify funding just after year-end. We secured a ZAR 450 million loan from Absa on attractive terms. And we've made good progress in terms of proactively addressing our short-term expiries, which I'm going to get into that in a little bit more detail now. One of the levers that we've always had available to us is our dividends. We, on an annual basis, have been declaring 100% of our dividend out to shareholders. And this year, we achieved a ZAR 258 million dividend at -- rather, distributable income, which we've decided to retain. The Board has taken a prudent approach in -- with regards to our dividend, and it's something that we'll have to look at it at the end of the year. So for the interim period, there is no dividend. A number of steps have been put in place by government. Last night, our President spoke about a ZAR 500 billion stimulus package, which hopefully will be quite positive for our economy. The Reserve Bank has decreased interest rates this year by 2.25%, which will hopefully put a -- help in stimulating the economy better. But it is positive for us in certain respects. We've got around about 10% of our portfolio that's unhedged. So we will benefit from production. And as time goes on, as our hedges come in, we'll be able to take advantage of lower rates. The -- well, Jeffrey was talking about the tenant payment trends and the uncertainty around it. So we are closely monitoring the payment trends and the impact on our liquidity. The reductions for April, collections reductions were quite significant. What was quite interesting up until the 31st of March is that we didn't see any or any major reduction in our collections. In fact, we managed to invest around about 99% of what we would normally collect in a month. The relationships with our bankers are obviously very important to us, and we continue to proactively engage with them and have discussions around our cash flows and the impact of COVID on our debt covenants. The -- I think with COVID, a lot has changed in the world. Around the world, there have been many events that have been unprecedented, from stimulus packages released, to interest rates being at record low, oil being -- oil prices being at record low and so on. And I think what's going to happen is our base at 28th of February is really going to be reset. So we don't know what property valuations are going to look like post the COVID environment. So we are very closely and objectively evaluating what the impact will be on our valuations and, obviously, our covenants. A lot of time has been spent by us and also the Audit Committee in running different -- modeling different scenarios to see what the impact will be on our LTV and interest cover ratios. And I'm happy to report that on a worst-case scenario, we are comfortable that we have sufficient cash resources and unutilized banking facility to take us through the worst of this COVID scenario that we look in at as a business. And in total, at the date -- as we speak now, we've got around about ZAR 600 million of unutilized banking facilities. I think that's it for now.

Okay. Thank you. If I could ask the controller to please move on to Page #12 where we just provide a little bit of context to the period under review. I don't want to spend too much time here because I think all of this will come out when I do -- what we normally do where we go through the various sectors in which we operate, those same points come out again, but leave it there for you to study at your own time. Moving on then to Page 15, looking at the portfolio performance. I think that urbanization has -- is underpinning the sustainability of our existing portfolio and future growth potential. One of the things that I think that's going to act in our favor, perhaps in our favor is the question of connectivity. A lot of people -- we share that a lot of people who have moved back home as a result of COVID, going back to the rural areas, going back to the places where their families live. And now they're finding in the new world that they need more connectivity and having to return back to their homes in the cities to take advantage of connectivity. I think that, for us, is a good thing. The actual portfolio, very similar to that of last year with 65% of the portfolio, is in Tshwane. And Johannesburg, 33.5%. We continue to dispose of our -- moving to Page 16, Slide 16. We continue with our recycling of capital. And in the year and the 6 months that we're reporting on, 5 properties we transferred at a total sales price of 7 -- excuse me, ZAR 78.2 million. One of the inhibitors to sales is the reluctance of our banks to provide finance. We are seeing a change in the potential buyers. It's people -- a lot of people from up north are now coming to investigate opportunities in South Africa, but I think that they are coming unstuck when having to deal with the banks. The analysis of our portfolio on Page 17. The analysis of our portfolio, we've got the rental income as well as geographical, very similar to that of last year -- analysis by GLA, very similar to that of last year. Moving on to, like we always do, the analysis per sector. First of all, a lot of people are interested in hearing about our residential. Very similar kind of stats. If you study the slide on Page 19 -- controller if we move to Page 19, very similar kind of numbers to that of -- as at the 20 -- 31st of August 2019. But just a little -- to add a little bit more color to what we're talking about, affordability and uncertainty. That's the new word that remains a concern for our tenants. Our tenants are concerned just like the corporates, the more sophisticated businesses are very concerned about cash flows and making sure that they can meet their commitments operationally and financially. So, too, are our tenants. Our tenants are concerned that when this COVID comes to an end, will their job still be intact? And if it is intact, to what level will they be paid? It was mentioned in the last presentation at -- relating to our year-end results, increased competition we predicted. This has come to fruition now where some of our competitors have put in, I think the number is close to 2,500 units and will grow. This in the mean -- in the short to medium term, does have an impact on our -- on demand. People are looking for slightly cheaper rentals so they may move to that of our competitors. Secondly, our competitors have -- this is brand-new built accommodation. We visited them. I think that the standard is very high, and new stuff always seems to want to attract from -- is sometimes preferred over the slightly older stuff. Once again, we have, as mentioned previously, our rollout of WiFi will increasingly become more important going further. With regards to retail, demand in the CBD, yes, it is -- I'm sorry, the rentals in the CBD are under pressure. I think the retailers are exerting a tremendous amount of pressure on the landlords, not only in times of COVID, but before where they have been pressing for lower rentals. But demand is still there, certainly in the what we call the golden mile in Pretoria. There are no vacancies, but people are certainly pushing on the rentals. Johannesburg -- I think that was the situation in Pretoria. Johannesburg, similarly, but there, it -- once again, it's a lot more competitive. So our vacancies are up slightly in Johannesburg. Moving on to Page 22. I think the most important thing to mention here is the fact that it is very difficult for us to work with retailers and upgrade shops to the current demands because of COVID and our reluctance to enter into bigger projects. Moving on to 23, the shopping centers. All our shopping centers, I'm pleased to report, have done well and have shown good like-for-like growth. However, this point of phase is lockdown that's now happening between the landlords on the one side and the retailers on the other is putting a lot of pressure on Octodec. The sooner that some agreement can be found between our -- the landlords and the retailers, in my view, the better for both parties. Moving on to 24. I just talked a little bit about each individual one. Not much more to report, say, for the fact the Park Shopping Centre that was completed fairly recently, it was a fresh modern look, where we spent just over ZAR 40 million. I think we're very happy with the results. The building is well frequented. The number of visitors to the center is substantially up. And the parking lot is busy from 9:00 in the morning till 6:00 in the afternoon. Moving up to Slide 25. Not much more to report, say, for the work that's been done on government. Government have -- we've succeeded in reducing the number of outstanding leases. I think there are still 2 as well as these are PWD leases as well as 1 or 2 other major leases held with, what I call, quasi-government, SIU, Rentmeester Park. That lease has now been concluded. It was a risk for Octodec 9,000 square meters. We've now been awarded a 9,000 -- a 5-year renewal on this lease. I understand that there's a question out there relating to the pricing of this renewal. It -- I don't have the exact figure, but the rental that's now been negotiated and accepted is ZAR 91 a square meter, just over ZAR 91 a square meter. I repeat, which I think is positive, really grateful that government -- we've heard no noises from them that the -- that they won't pay rental. So government from being at one stage a highly risky kind of tenant is moving towards something we are grateful to have. Moving on to Page 26. Yes, with regards to the tenure of these leases, they are anything from 3 to 5 years. Moving from Page 26 to Page 27. Industrial, not that much to report, say, for the reduction in square meters. We're still finding the Octodec type of premises, which is more entry level, smaller type manufactories. Octodec doesn't get involved in the big DCs, which are very popular today, but rather the smaller-type businesses relating to entry-level type of tenants. These have performed well. Unfortunately, some of the -- I think, some of the negotiations, the stalemate that's been -- that we currently find ourselves with between the -- between landlords and retailers has now, I suppose, float down into the industrial sector, where a lot of the smaller industrial people are saying the retailers are not paying. We're, therefore, also preserving our cash, and we're not paying either. However, we are up -- our industrial sites are all well located. And I think that there's strong demand for all of these -- for most of these premises. Specialized and other in terms of the stock exchange regulations, we were required to disclose more detail than historically we have done. And so I think from our previous report, where we did the change, and this is a continuation with this. We get into analysis of the other type of premises. I think that the -- this is hotels, audio -- auto dealerships, health care facilities, education facility, places of worship, and we disclose now separately our parking. If we could move on to Page 30. What else I want to -- what I want to say to you is there are certain, within these specialized areas, education facilities, we -- that is, at the moment, suffering because students are not currently at the schools, and Technicons and consequently, a lot of them are private and therefore, not paying any rent. Vacancies by sector. I think, once again, reasonable results in terms of our vacancies, given where South Africa was. This is on Page 31. Moving on to our lease expiry profile, no major changes to the -- this lease expiry profile. For those of you that are not accustomed to Octodec, Octodec has historically worked with very low lease expiries. We believe that in the smaller tenants, a tenant that has reason to stay in the premises, he will stay. In other words, he's making money. He's doing his business. The problem comes, and now we're learning this very, very clearly. When a tenant doesn't have -- tenants, doesn't have the turnovers or the cash to pay his rent, the -- or even worse, he has the cash, but we're now learning that he doesn't pay and ignores his rental. For me, a little bit worrying that the sanctity of the lease is not always adhered to. Moving on to Page 33. Not much more to report other than that which I've already mentioned to you. 10 major lease expiries on Page 34. The first -- the second item there, Rentmeester Park, I did allude to it early on in my presentation. This now has been extended. This lease has been extended there. Those 9,317 square meters for 5-year renewal -- as part of the renewal that took an additional 771 square meters. And that really concludes analysis of results operationally. I want to ask -- call on Anthony Stein again to speak about the detailed results as well as capital management. I will be back to perhaps share some thoughts on the outlook when Anthony is finished.

Slide 36, which shows the distributable earnings. It's a simplified income statement. The performance for the 6-month period was moderate. It was in line with -- or approximately in line with what we -- or the guidance that we gave our shareholders for the year. We -- the guidance that we gave for the full financial year was to achieve distributions or distributable earnings of around about similar numbers to the previous financial year. So the distributable level, we were, for the half year period, down 5.5%. And the forecast for the full financial year, we were slightly below that guidance. Turning over to the balance sheet. In total, Octodec has got a reserve of ZAR 7.3 billion and an NAV of ZAR 27 per share, where our share is trading today significantly below that number. And I think it's just a reflection of the uncertainty of the financial markets at this point in time. And Page 38 shows a reconciliation of the NAV from the beginning of the financial year through to 29th February. We increased the equivalent of our distributable profit was ZAR 0.97. Revaluation of our property was at ZAR 0.804. Distribution that was paid in November 2019, that decreased our NAV of ZAR 0.99, and we ended the period at ZAR 27. And the cash flow for the period on 39, it indicates that Octodec has the ability to generate strong cash flow from operations with a total of ZAR 519 million. We spent ZAR 232 million on net finance costs. Dividends paid in November was ZAR 264 million. Proceeds from disposal at ZAR 78 million. Not much was spent on investing activities at ZAR 42 million, and we decreased our loans by ZAR 72 million. So overall net movements in our cash on our balance sheet was at 12 -- a reduction of ZAR 12 million. In terms of capital management, we have, over the last few years, set our LTV target at 35% to 40%. Obviously, in the COVID environment, it's going to be extremely challenging to keep it at anywhere close to those levels. It's very uncertain. And -- but we've managed to, at the end of the period, keep it below the 40%, LTV was at 39.3%. In terms of hedging, we have taken advantage of some of the lower interest rates that we've seen in the last couple of months and hedged up to 90% of our portfolio. At the end of February, it was at 91.7%. And our weighted term of swaps was at 2.6 years, and average term of our debt was in terms of number of years at 2.6 years. We've got unutilized banking facilities in place of ZAR 245 million as at the end of the year -- sorry, at the end of the period. Subsequent to the end of Feb, we secured an additional ZAR 450 million from Absa and increasing -- that increases our facilities -- available facilities in excess of ZAR 600 million. Page 41 just shows you the funding split amongst or between the various banks. From year-to-year, the slide showing you that there's not -- no material change. But obviously, with the additional diversification of funding that we've done, the new Absa loan, that will change slightly into the future. Page 42. We've done a lot of work over the last year in terms of terming up our expiry profile of our loans. And it's, I think, positive to note that we've only got 18% of our loans that expire in the 2020 financial year and 2021 financial year. The 2020 financial, ZAR 488 million. Of that, we've already refinanced ZAR 327 million. That's in place. And the balance is due in the next couple of months. And we don't anticipate any problems with these refinances into the future, especially with regards to the bank, the bank debt that we've got. Commercial paper, it is a bit -- the commercial paper that we got in place, it's short-term CPs. That market's a little bit fickle. So from time to time, we do see -- we do have to repay some of those loans, but we've managed our risk in that respect. And we've reduced, over time, the exposure to the debt capital market to a very manageable number of around about ZAR 500 million spread over a 3-year period. Interest rate hedging expiry profile. I mentioned to you that we've got 91.7% fixed. And I think as and when the hedges expire, you can see the expiry of these hedges, the profile, we will hopefully, at that point in time, be in a position where we are still in that -- the low interest rate environment that we're in today, and we'll be able to lock in much improved pricing. All right. Thank you. That's it from my side.

Okay. Thank you. Thank you, Anthony. I'm going to spend a few moments talking a little bit about outlook. And then I'm going to throw it open to the floor for some Q&A. I may bring in some of our team that are responsible for some of the areas within Octodec. In turning to Page 45, ongoing outlook, I think there's ongoing uncertainty. Economic and socioeconomic impacts will weigh down on the performance of the remainder for the year. And it's, therefore, very difficult for us to assess the impact of COVID-19 on our future earnings. On a positive note, however, I'm very comfortable that Octodec has the necessary machinery behind it to deal with some of the operational challenges that all of us property people will be faced with over the next few months. I'm really pleased, as mentioned, that government has attempted to revive the economy to the tune of ZAR 500 billion. And from listening to our State President last night, I am sure that -- I'm sure that a lot of that money is going to go to our tenants who are struggling to keep their businesses afloat. Further, I think that we've always been a business that has valued our relationships, our relationship with our tenants, our relationship with our financiers, our relationships with many of our suppliers, and I sincerely hope that these relationships, which have been tested over many years, will stand us in good stead to get through these tough times. I think one of the challenges, which I want to concern myself with, and that is what is life going to be like at the other end of the tunnel without getting too complicated. I think that the world that we're living in is going to change. But I remain very confident that Octodec, which is based on sound property fundamentals, will withstand COVID and hopefully be able to return to normal once this has passed. Therefore, those are my thoughts on outlook. I know that the team that are watching -- that the team that run Octodec, help me run Octodec are honestly in the background. I want to thank every one of you for your contribution. Contribution to the Board who've been supportive of the executive team through these really trying times. Thank you to you guys as well. But I now wish to thank -- wish to throw the -- throw it open to the floor. Any questions?

[Operator Instructions] We will go to the webcast questions first.

Thank you. Good day, everyone. We have our first question from Coronation Fund Managers. Of the disposals that have transferred, what was the average percentage, above or below book value? Have the transactions been done?

The ones that -- thank you for the question. The ones that we've done that we're disclosing in the presentation, those were done, cash received, they were transacted at very close to our book value. I think there was a small profit.

Thank you for that. The next question comes from Daniel King at Avior Capital Markets. He asked what is the current occupancy within the residential portfolio? And what occupancy are you expecting for May? That's the first question. His second question is, what percentage of total rent invoice for April across the entire portfolio has been collected to date?

Okay. If I could ask [ Charlene Conradie ] to comment on our vacancy in residential.

Okay. Thank you, J.P. Thank you for the question. Good morning, everyone. So the first question with regards to vacancies. Currently, it differs depending on the portfolio. So Victoria is sitting around 8%. Johannesburg is higher at around 16% for the reasons that Jeffrey mentioned when he gave an overview per sector. The Fields is at the lower vacancy of about 6%. In terms of how this is going to look into May, it's a bit uncertain at this point how that number will change. We have received a few notice to vacate, not material. But a lot of tenants also that wanted to vacate previously is remaining on due to the lockdown. So it is a bit difficult to answer that. It's just interesting to note that over and above our vacancy figures, as mentioned in the presentation, some of our tenants did go home for the lockdown period. So although the apartments are not vacant, they might not be occupied at this period during lockdown. And the second question with regards to -- just remind me now, again, it was the vacancies, and then it was the collections.

That's right.

I think that Daniel was asking about collections on the total portfolio.

That's right.

Okay.

Yes. So our collections on the total portfolio are materially down from a similar period in the last 3 or 4 -- average for the last 3 or 4 months. I think it would be inappropriate to disclose the exact percentage now because of a number of reasons. Number one, these first payments came through late last night, I understand, and the credit controllers haven't yet had an opportunity to process that. And so I'm not aware of that number. Secondly, there's been a -- government also promised us yesterday the receipt. I told you there were 2 receipts that were still outstanding. This is material money. That's not come in. And I am still waiting for the results of this breakdown in communication between the landlords and the retailers. And I think that once that is achieved, then it's going to materially affect our numbers because those are the areas where we were showing our biggest areas.

Thank you, Charlene and Jeffrey. We can go on to the next question. It's from Jackie Eberle from ALUWANI. What were the assumptions for the worst-case scenario mentioned by Mr. Stein when referring to liquidity and LTV covenant calculations?

Anthony, I think it's best you deal with that one.

Yes, so hi, Jackie. So the assumptions that we made switched over an 18-month period. And on average, we were assuming that we only come with around about 75% of our income over that period, which we -- it's such an uncertain environment. And I think a lot of what is going to play out into the future depends on how the -- how and when the lockdown is reduced. So they are positive scenarios.

Thank you, Anthony. We can go on to the next one. It's from Bjorn Samuels at Argon Asset Management. He says, on the government leases that were pending renewal and were subsequently renewed, what were the sort of reversions on these leases?

Can you repeat that, Louise?

Bjorn Samuels from Argon Asset Management has asked whether what the sort of reversions were on the leases that were recently renewed with government?

Right. So I don't have the average number, but there are the average percentage reduction. But the rental that government were offering is now ZAR 91 and a few cents, ZAR 0.31, a square meter. And in lieu of the size of the portfolio, we wanted to just take some risk off the table, and we agreed to this number.

Okay. Thank you, Jeffrey. The next question comes from [ Calvin ], and I can't see the surname, from [ Sansar ]. He asked 2 questions. First one, are you seeing any relief from municipality in reducing property rates? And the second one, do you see Octodec being able to benefit from any of the government assistance program?

So with regard to the first one with the municipal rates, I see there's the Property Investors Group are in contact with government on this particular one. Government has then deferred that situation down to the council. It's up to them to make those final decisions. And yes, there's been no further progress over there. I think that you're hearing different stories from different municipalities. For example, Johannesburg are saying something slightly different than that of Victoria. So that argument is still very much hanging in there. That debate is hanging in there. And then -- sorry, are we able to take advantage of some of the assistance that's offered by government. I'm assuming that this relates primarily to the relief that was announced last night by the State President. We currently -- we only got this last night, and the team are busy with it, investigating to see how we can benefit. There certainly are certain allowances that we would tend to take advantage of.

Thank you, Jeffrey. We've got a few more questions on the webcast line. The first one, I'll just mention is from [ Frias Matia ] of Absa. He's asked who is opening tomorrow? I assume he's referring to the retailers, if I'm not mistaken, and he's just asked that. It's not clear.

Yes. I don't want -- it's not 100% official, but there's one particular group that's opening 2 or 3 of their brands within some of our shopping centers from tomorrow morning. I prefer not to make a public statement until we're 100% certain as to what's happening. We, as landlords, can't police the situation, but we want to investigate, is this the right thing to do.

Okay. Thank you. The next question is from Paulo De Almeida from Clearance Capital. Actually 4 questions from him. The first one, could you talk to your REIT status? If you don't pay the full year distribution? Will you lose your REIT status? The second question...

Yes. So let me answer that one.

Okay.

Okay. Thank you. So we're in a fortunate position in that it's only -- it's our interim period. The REIT status would apply to the full financial year. So we can still look at where we -- obviously, as we understand, the impact of the COVID so far is a little bit better, we can look at our dividend policy at the end of the year. So there's no risk at this point of losing our REIT status. There is -- there are a number of discussions with the necessary regulatory bodies to relax some of the requirements regarding the REIT status, and that process is ongoing. But I think it's important for a company in this environment to act in a way that's prudent. The future is so uncertain, and I think we've got to do what's best for Octodec and ensure that we have a very strong balance sheet to take us through this crisis.

Thank you, Anthony. The second question from [ Paulo ] is have the 5 big retailers paid the rent? Or are they withholding rent while they negotiate with the industry body?

Sorry, I didn't hear the first part of the question.

He has asked if the big 5 retailers have paid their rent or if they are withholding the rent while they negotiate with the industry body?

They've locked down on paying rent. They haven't paid any rent.

Okay. Thank you. The third question, could you talk to the dialogue between Octodec and Eskom currently?

I -- maybe I'll ask Daniel Swimmer. Do you want to handle that one?

Sure. Good morning, everyone. As you saw probably in the presentation, Octodec only has one store with the Eskom Group left. One in Johannesburg, and currently, the rent reduction that's negotiated is in place. We have been talking to them prior to lockdown about their size reduction. But obviously, post lockdown, we've seen what we've been -- obviously, everyone has been involved in what's happening in the media and the potential closure of certain Eskom stores and their inability to reopen. So there hasn't been any engagement since lockdown, and we've only just been aware of their financial restrictions and the inability to pay rental. But in terms of the shop that they do occupy, we have been expecting for some time that either they'll decrease in their size, the lease had expired, or we are going to re-let the ground floor. And out of the large shop that they occupy, it's about 9,000, 9,500 square, and most of it is first, second, third and fourth floor that they don't really utilize, we'll easily be able to re-let the ground floor to add the tenants who we have interest from. It's approximately just more than 2,000 square meters, although some cost to subdivide, et cetera. But no further interaction with Eskom at this point.

Thank you, Daniel. If we can just go into the next question from [ Syed Farooq's ] question from [ Aon Investment Management ]. Please, could you comment on any LTV bank covenants or other covenants?

Anthony, can you take that one?

Okay. So our -- the most stringent of our bank covenants are at 2x ICR, 2x interest cover ratio, and LTV is at 50%. So at the end of the period, we -- for both of those covenants, we're well below the covenants, and there is a lot of hedging. That, obviously, with COVID, we're going to have to very closely monitor those and the different scenarios that we've done will assist us to, if need be, proactively approach the banks if we think we're going to breach any of the covenants.

Thank you, Anthony. There's one more question from Dineo Matjila from Meago Asset Management. Can you please expand on your worst-case scenario? Particularly in your worst-case scenario, how long does Octodec anticipate no rent payment from tenants?

Yes. So I mentioned earlier and over the 18-month period, we are assuming that around about 70%, 75% of our rentals are connected, on average, over an 18-month period. So basically, what we're saying in our worst-case scenario is that COVID impact is going to, in a big way, impact us in the country for over the 18-month period. But as I said earlier, it's just -- it's an unknown at this point. We've got to assume the worst.

Thank you. I think we can move to calls from the telephone. Irene, if you want to just open up those lines, please?

We have a question from Mweishö Nene of SBG Securities.

Just maybe 2 questions for Anthony. I see that your like-for-like number for your resi portfolio is about 0%. I just want to confirm if that's a top line number or that's an NOI number. And if it is an NOI number, please tell us what that is.

Okay. So that's not -- it's not an NOI number, it's top line revenue. The growth was at -- was 0%, and it's largely the vacancies that crept up during the period if we spoke about increased competition in the Johannesburg CBD. The NOI number, we don't give it per sector because, obviously, with our mixed-use buildings, it's very difficult to differentiate between a lot of our cost base as to which relates to different sectors within the mixed-use buildings. So we don't give those numbers.

Okay. Can you give us the NOI number for the whole group portfolio then?

The entire portfolio, if you look at the distributable earnings schedule, it's on Page 36. That's approximately net rental income from properties is 0.8% up, slightly up before admin costs.

Sorry, I missed that. I didn't get the number.

0.8% up.

Okay. And secondly, is it possible for you to give us the gross and net cost-to-income ratio on -- well, as best you can on the resi portfolio and if you can on a group level.

Okay. So if you look at the presentation, I don't have it open with me right here, but if you go into our website, you'll find the presentation. And it gives you those numbers, both gross and net and before and after admin costs. But it did go up -- it did go up slightly, and it's on the back of rental income pressure as well as increases -- increasing expenditure at approximately the rate of inflation. And we did also, during the period, spend quite a lot more on repairs and maintenance. But please, if you don't mind just having a look at the presentation, there's quite a bit of detail there, or rather the results announcement.

Yes, quite a lot of detail on the group level but not on the resi level.

So that's -- I'm talking -- what I'm talking about here is at a group level. At an NOI level, we don't give those numbers, as I explained. Due to the mixed-use nature of our properties, it's difficult to unpack exactly which of the shared costs or proportion that relate to which sector.

Our next question is from Raymond Shapiro of Counterpoint Asset Management.

Just a question on residential. You have given these numbers in the past. Of your tenants, residential tenants, can you approximate what percent of those tenants work for the government or state-owned entities? I think you have given the estimate before.

Charlene, if you could take that one up. But I don't know if you remember, we have studied that quite a bit together before.

No. So it is included in the presentation as well on Page 20, you see we said there 25% of...

Sorry. My apologies.

No worries. Yes, it's about 25% -- 24%.

We have some further questions from the webcast if we can move to those for now. First one is from [ Amanda De Vega ] at [indiscernible] as well. You mentioned that there is interest from up north with regards to purchasing buildings. Are you referring to Northern SA, the rest of Africa or more broadly offshore?

A number of state agents have been contacting me as well as our own internal team are advising me that there are a lot of people from north of our borders, from the rest of Africa, are sweeping around and here in South Africa.

Thank you. The last question from the webcast side is from Rachma Ismail at Sanlam. Can you please talk about the valuations of your properties and how COVID has affected it? Also, what commitments have you received from your shareholders?

Anthony, you want to take that one?

The second part of the question I didn't hear.

She's asking what commitments have you received from your shareholders? I'm not sure what that...

I'm not sure what she means of that. But just going to the first question, I think it's early days. We are -- the whole -- the world is different as we know it as far as COVID. We are still trying to get to understand what the impact of COVID is going to be on our property valuations. And if you talk to property valuators, a lot of them are saying that there is material uncertainty with regards to the way property evaluation should go. So obviously, going into a weaker environment and South Africa, in the recessionary environment, we've been downgrade -- the country has been downgraded. We've got the added COVID. So there is going to be an impact, but we certainly can't quantify at this point. But we are very, very closely monitoring the potential impact and talking to our valuators on an ongoing basis.

Thank you, Anthony. I don't think there's any more questions from the webcast side. Irene, are there any more questions on the teleconference?

It seems we have no further questions on the conference call.

Thank you. It seems that there's no further questions altogether. Jeffrey?

No, thank you very much. I just, perhaps, one thing, Louise, maybe you can help me. I understand that there may be issues of loading in the website -- this presentation onto the website. I don't know whether you are able to comment at all. I hear that the marketing team is battling. But as soon as we resolve that particular issue, we will get it loaded. But I just want to conclude as follows. One way or the other, this problem, this coronavirus will -- this too will pass, and I'm very confident that the fundamentals of City Property are in place -- not of City Property, rather of Octodec are in place. Those buildings are well maintained. They are well managed. And we just ask investment community to just bear with us whilst this virus runs its course. Thank you for your participation and giving up your valued time to listen to the management team.

Ladies and gentlemen, that concludes this conference. Thank you for joining us. You may now disconnect your lines.