Octodec Investments Limited (OCT) Earnings Call Transcript & Summary

Good morning, everybody. A warm welcome to the Octodec results presentation for the year ended August 2022. I want to introduce to you the panel that are with me here today, who will handle various sections of this presentation. Firstly, to start off with Anabel Vieira, our Financial Director; Charlene Conradie, Chief Operating Officer; and Linda Chabula, Head of Leasing. If we move to the next slide, please. But there's a very quick agenda, but let's get into the straight away. So if you could move on a little bit Elona, and move on Octodec at a glance. I just want to say this, the results that we've experienced, we're about to release -- we have released to the market. I'm very happy and proud to produce these kind of results, and we're going to talk a little bit about them. But what I want to say, I think that this best testimony to the chosen strategy of the business. This business did go through some tough times, COVID and rights, what have you. But I think now that, that has passed us, we're starting to -- Octodec has come back very, really quickly and will continue, in our opinion, to do so. At a very high level, rental income, up from ZAR 1.8 million to ZAR 1.9 million, an increase of ZAR 5 million a 5% distributable returns, distributable income, up from ZAR 358 million to ZAR 466 million, an increase of Cash generated from operations, up from ZAR 357 million to ZAR 391 million, an increase of 9.4%. Distributable income per share, up from, last year, ZAR 1.34 per share to ZAR 1.75, an increase of 3.1% and a dividend per share, an increase from ZAR 0.50 last year to ZAR 1.30 cents this year, an increase of 160%. Net asset value approximately the same and LTV coming down, as previously announced, we would try we would from 43% down to 39.7%. If we could move on I will -- yes, the -- we have disclosed the rental income per sector as well as the geographical analysis of rental income I don't want to get into the detail, but to report to you guys that remained very much the same as it was previously. Next, we're now going to move on to the residential part of the presentation, and I'm going to ask Charlene Conradie, our Chief Operating Officer, to take over from here. Over to you, Charlene.

Thank you, Jeffrey. Good morning, everyone. If we can just move on to the first slide, please, Elona. As you know, Octodec is well known for its residential portfolio as it forms quite a material part of the portfolio, and it consists of more than 30% of the rental income. The highlights for our portfolio has been that we achieved a 7.9% like-for-like rental growth. This is mainly due to a significant decrease in vacancies experienced. Elona, if we could move on. As you can see, our vacancies decreased from 15.9% at the beginning of the year to 7% at the end of August. Two of our biggest assets that contributed to this are: The Fields and Kempton Place. The Fields is our building situated in highly student area, and the vacancies decreased from 13% to 7.1%. Factors that contributed to this are the University of Pretoria started the academic year in February this year compared to March in the previous year. And they have also now from July, reverted to in-person classes. Kempton Place is our building situated in Kempton Park. And due to the increased activity at OR Tambo, we've seen a magnificent decrease in vacancies from 30% to as low as 3% at the end of August. As I've mentioned, this decrease in vacancies have resulted in us achieving a fantastic 7.9% rental growth. If we can move on. In this slide, you can see a trend of our leasing inquiries received over the last 24 months. During this period, we had a 33% increase in leasing inquiries. And what this indicates to us is that demand for quality and affordable accommodation has returned. It is also proof that investment into these type of digital platforms and similar to our online application portal and our marketing campaigns can yield positive results in decreasing vacancies and also planning for leasing activities in the future. As I've reported over the last few years, we have seen an increase in supply of accommodation in the Johannesburg CBD. What we now see is that these -- this oversupply of accommodation has been taken up and equilibrium between the demand and supply has been achieved in the Johannesburg market. This will be positive in managing occupancy labels going forward. We have also completed the refurbishment of our common areas and amenities at two of our buildings in Johannesburg, Royal and Plaza Place. This has been done to ensure that our buildings remain relative that we can be competitive and that we can attract our share of the tenants in the Johannesburg CBD. We also have a similar refurbishment plans for Vuselela Place in this financial year. So as vacancies have returned to pre-pandemic levels, we will be starting to increase our market rentals. We believe that this with lower vacancy levels will have a positive effect on our income for the next full financial year. Compared to this year, we've only see the benefit for the portion of a financial year. In terms of our value proposition, our WiFi rollout has been completed by 69%. And I must just add that this is a free service to our tenants. We will also accelerate the rollout of our cashless laundries to our tenants as this is a very popular value-add for our tenants. We will also, in the year, continue to increase our supply of semi-furnished shared accommodation of Nedbank Plaza to provide a more affordable option to our tenants, and we will continue with the rollout of our furnished and shared options at The Fields. Lastly, we will be looking at opportunities within the Octodec portfolio to possibly convert vacant or mouthful office space into residential accommodation, and we are incredibly excited about this. And that concludes the residential overview. I am going to hand back to Jeffrey to take us through a part of the commercial portfolio. Thank you, everyone.

I'm going to report on a very small part of the commercial section of Octodec, the site that I'm going to look at is our shopping centers. Pleased to report that our shopping centers have performed well, with vacancies virtually at this point in time, virtually next to nothing. Elona, if you could move on, please. The basic results of our shopping center. Rental like-for-like growth, up 4,6%. Total vacancy is at 7.7%, but pleased to report it's virtually 0 at this particular point in time. With regards to our non-Killarney shopping centers, we have, however, put together a team that's currently investigating what to do with our Killarney Mall. There's some basic information as at as at year-end on our convenient shopping centers, not going to dwell too much on it, but very happy with the performance specific these tenant mix in all our convenient shopping centers. I'm now going to hand over to Linda Chabula who will talk to you about the rest of the shop -- the non-shopping part of the commercial shopping centers -- commercial properties.

Good morning, everyone. [indiscernible] as I take you through the performance and insights into the retail sector, the office sector and the industrial sector. Starting with the retail sector. It is located between the Tshwane and Johannesburg regions. These are shops on the streets of the CBDs of Tshwane and Pretoria on the main. The main players within the sector are the national retailers and independent retailers. This sector has contributed 22.6% towards the Octodec rental income, with the like-for-like growth of 2% in the 2022 financial year. Elona? Insights into this sector are that prime CBD properties are still attractive. They are in demand, and they are well let. What we also find is that the CBDs are good trading grounds. And this is mainly because of the high foot traffic within CBDs. This is influenced by the different sectors that are within the CBDs, which are government sector, the retail sector, the residential sector, the educational sector, the transport sector and the religious sector. This is also influenced by the lower LSM and the medium LSMs that are participants within the CBDs. We have renewed confidence as well, from the national retailers that have taken largest pockets of space within the CBDs. This I will relate to at a later stage in my presentation. We found that the national retailers who they are renewed confidence into the CBDs, have taken up space that -- and brought concepts that would have previously been found in malls or in stores. The strategic capital projects that we've undertaken in the current financial year, having the shop right, which is 4,496 square meters in vicinity of Tshwane. This is a 10-year lease that has been signed. The tenant is in occupation. They are trading and they are paying rent. We've also in the Johannesburg CBD, signed leases with Mr. Price and OK Furniture at 2,000 square meters and 800 square meters, respectively. We've also signed two big deals with Jet Home and Jet in the Pretoria CBD. And the Johannesburg CBD, once again, we've signed a renewal with Pep stores. This is all an indication, ladies and gentlemen, that the CBDs are still attractive. This leads me to the next slide, where we're going to speak to the office sector of the portfolio. This sector is located once again, ladies and gentlemen. In and the Joe regions and surrounds. The players in this sector are the nonporous and government. This sector has contributed 15.6% towards Octodec's rental income. The Non-parastatals tenants have contributed 43.3% towards the office rental income. These are the SMMEs, which we found that the environment has been challenging for them. However, the occupancy in the sector is stable. This, once again, leaves me to speak on the government portion of the center of the sector, ladies and gentlemen. And in my attempt to address -- thank you, Elona, to address a few questions that you may have. There is no denying that we've seen negative reporting on government on how they handle their business. I want to take this opportunity and address you and say, this is not what is reflected in the portfolio. One, government has been consistent, and I will take you -- in terms of this or into the history, pre-COVID, during COVID and post-COVID. Government has been consistent in their occupancy. They have been consistent in managing and meeting their financial obligations as they relate to the portfolio. This particular portion in the sector of the office sector has contributed 56.7% towards the office rental. In terms of the performance. Year-on-year, we've seen the rental income reversion. And this is on the main based on the renewal that we did with the Department of Rural Development and disposals. I must also speak to the rental reversion, ladies and gentlemen, and mention the fact that government departments, they are guided by the [indiscernible] report. And therefore, that would have an effect -- an impact on the rentals charge at renewal. Let me also take you to some of the insights within the sector. In terms of the return to work policy, governments return to work has been accelerated. I want to also mention, as I've mentioned before, the consistency thereof. The environment is challenging, however, it is manageable. And this is based on the relationships that we've built, strong relationships built over time with government. In terms of the RES, once again, they maintain and they meet their obligations. Yes, we've had one casualty, which has been the post office, where we have canceled their leases and we're recovering what is owed. I want to also further address one of the questions that you would have or you might have as to what do we do with the office portfolio? These are the strategies that we've put in place and we continue looking at disposals. We've effected two disposals, one being Fedsure House in the Johannesburg CBD, which is approximately 20,000 square meters, successfully transferred in before the financial year-end. Subsequently, 8,000 square meters of office space and retail space has been disposed off in the Pretoria CBD, and this is midterm building. We've also looked at strategic capital projects, which are add-ons and value adds into this sector, like WiFi, shared meeting rooms, which are a benefit to the tenants. We've also -- we are looking at [indiscernible] some of the office assets into medical fits and the investigations and research into that is underway. As we speak in terms of the lease expiry, thank you, Elona. I'll take through the topic 6 tenants by GLA and possibly speak into the expiries of these leases. The first one being the city of Tshwane, which occupies 13,210 square meters. This lease is on monthly tenancy, and this is the only list that we have on monthly tenancy. And this is mainly because one of the assets that we've disposed off, which is Midtown, the plan is that the City of Tshwane will move some of the departments into this property. Next, we have the department of public was with 10,484 square meters. I'm pleased to announce that 7,073 square meters of this portion has been renewed, and it expires in 2025. We are busy with the negotiations with remainder there off. Special Investigations unit is a lease and the lease expires in 2025. In terms of the department of rural development, the 10,103 square meters has been renewed for 2 years. The Department of Justice -- we are in negotiations with the Department of Public Works. One of these leases, which is -- it has been confirmed and concluded the [indiscernible], and we are awaiting a lease. The next one, we are still under negotiations with the Department of Public Works. With the CCMA lastly, ladies and gentlemen, 5,800 of the 9,398 square meters has been renewed for a further 1 year. I must mention, in terms of the CCMA, they have gone out on tender, and we are awaiting the outcome of the tender process. Thank you, Elona. This further leads us, ladies and gentlemen, to the industrial sector of the portfolio. These are small in the -- and large industrial parks, with startups and small businesses as the tenants. This sector contributes 6.8% towards the total rental income. We've seen reversions in this sector. This has been a challenging and pressured environment for this sector. This we see in the rental income reduction that's reflected here in. We want to also mention that we've reduced our vacancies from 11.7% to 7.1% in the current year -- in the current financial year, which is the 31st of August, '22. This is positive, and it's a good reflection of how the future holds. In summary, ladies and gentlemen -- let's pass on to the next one, Elona. Let me finish off, ladies and gentlemen, by speaking to the opportunities within the CBDs and the surrounds and the renewed hope in the CBDs. Speaking to retail, rentals are not going backwards anymore. Number two, the national retailers, as I have alluded to, they are still attracted to the CBDs. In terms of office space, there are still opportunities with government as long as we position ourselves to grab those opportunities as they present themselves. In terms of industrial, as of today's date, we look at Johannesburg industrial. The sector is fully let in the Johannesburg region. We have an opportunity to increase rentals as we go forward. We've also seen in the latter part of the financial year that we have been able to achieve inflationary increases in terms of rental. This bodes well for the future. I do want to say though that all these opportunities that I have spoken to lead us to believe that the next 6 months will be an improved performance within these sectors. Thank you very much, ladies and gentlemen. Over to you, Jeffrey.

Thank you very much, Linda. I just want to finish this section off by talking a little bit about our specialized and other. This specialized and other section came as a result of in order to provide a more meaningful analysis of the portfolio, I think of special worthy mentioned, Elona if we could swap to the next one, is the hotel section. Here, we have the City Lodge after they took serious haircut with the City Lodge in renewing this lease, which they did do. We included a fairly aggressive turnover rental, which was based on the occupancy levels. I'm pleased to report that the occupancy levels are hitting what we wanted them to hit. And so the rentals are slowly but surely. The other point, the other sector, which I want to talk about for a very short time, is parking, an increase in parking is not only doing well for the income statement, but also is a strong indicator that people are coming back to the virtually all our parking lots are located within the CBD. Next vacancies by sector. You can see following the Linda and Charlene's presentation, the improvement in both the residential, moving from [ 15,9% ] down to 7% as at year-end and Industrial moving from 12% to 7.7%. As Linda mentioned, what I'm excited about with regards to industrial, not only we're seeing a reduction in vacancies but also an increase in rental. Total vacancies moving from 22,8% down to 19.5%. I'm pleased to report that subsequent to year-end, there is a renewed activity within the portfolio that would indicate a further reduction in vacancies, which we will report on at the end of February later next year. We'll move on, please. A lease profile Octodec has for -- in recent years, maybe not so recent for a long time, been criticized for its low whale. But I've always counted that argument with the statement that although our contract income is correctly stated at a very short period, the tenants given the type of billings that Octodec owns in the main stay for long periods of time. And this year, we will -- I will disclose. We've now been able to calculate the average length of stay within the various sectors and I will disclose to you people, the average length of stay. And from that, I hope we can settle this argument once and for all that our tenants within Octodec, although may not have a contractual obligation, do stay for fairly long periods of time. If we move on, please. There, we got the results. Retail shopping centers, tenants staying for -- on average, 66.2 months. Retail shops, 51.2 months; offices 31,1 months; and industrial 43 months. In the residential portfolio, the average stay is 24.5 months. This excludes Hatfield, which are -- where Hatfield is predominantly a student occupied area. And there, the average stay will be approximately 10%. The reason for the 10 years -- 10 months -- the reason for the 10 months being that these students in the main are funded by NSFAS and NSFAS only funds the students for 10 months every year. Move on. Yes, a very brief and quick update on leases, exceeding 3,000 square meters that expired pre-August 2022 Capital Towers North. I think Linda mentioned that this was still under a monthly tenancy. We have no information that indicate would indicate that there is a -- that a exiting of this tenant from the building is imminent. Apollo center Tshwane College of Computer and Commerce and computer studies. He remains in occupation of part of the lease. The future of this tenant is still unsure. Leases expiring during this coming financial year. We've given the results, where the details not much to report on. It's all there for you to read a safe for the last one, Killarney Mall, Pick ' n Pay, Pleased to report that Pick ‘n Pay, in fact, have renewed at every freeze for five years. Move on. Revisions by sector I think that these numbers that we disclosed here are a little bit disappointing. But having said that, they are a bit perceiving in the sense that it's based in the main on a small number of transactions that actually happened during the year. I'm not entirely convinced that this is meaningful information, but it was boosted by you guys and therefore, here it is. We move on. Okay. That really -- that concludes the operational part of the presentation. I'm now going to call upon Anabel, who will talk about the financial results and capital management.

Good morning, everyone. Thank you, Jeffrey. Elona, if you may move on. [indiscernible] just going through the distributable earnings or the SA REIT funds from operations calculation with you. Just looking at our revenue, our revenue after the COVID release that we gave to our tenants in the prior year has grown by 5% from ZAR 1.8 billion to ZAR 1.9 billion in the current year. And this obviously has been on the back of saving on those -- the discounts that we've been giving to our tenants. However, on the back of that, we have, as Jeffrey has spoken and Linda, experienced a negative rental reversions and the rent freezes, et cetera, which has put pressure on our contractual rental income, and that's only grown by 3.3% compared to the prior year. Our property expenses have grown by 3.9%. And I think that's quite an achievement if we compare to our current inflation and that's really driven by hands-on management of our property expenses and also the cost controlling of our bad debts, which are currently sitting at 1.6% of our rental income compared to 1.9% in the prior year. So really seeing an improvement in our collections as well as on our bad debts. Our net property income has increased by 6.3% on the back of debt to ZAR 917 million. Our administrative expenses have gone up by 12.2%. And it's not really that they have increased in the current year. But in the prior year, the number has been impacted by the reversal of some heavy penalties that were accrued for from [indiscernible]. Those were successfully objected to and were reversed in 2021, therefore, obviously comparing our currency to the prior year's escorted by debt. in the prior year. We're also due to cash flow as that being a little bit more under pressure. We didn't spend as here in CSI activities, which, this year, we've really spend in terms of our budget. So that's brought us up to ZAR 84 million. And after the share of income from our associates of distributable profit before finance cost has gone up by 5.7% to ZAR 854.9 million. Our finance costs have come down nicely by 5.1%, and that's really on the back of lower debt and to take you through this later on. also a lower interest rate environment, which has really impacted just the unhedged portion of our debt, and also the settlement of three interest rate swaps, which were quite unfavorable. We settled these at the beginning of the financial year. So a combination of those factors have really impacted our finance costs in the current year and that's really contributed to the bottom line, an increase of 16% to ZAR 465.6 million, right. And after tax, ZAR 466 million translated into ZAR 1.751 per share. So this big increase is obviously the result of saving on the tax which last year, we had to incur as a result of not paying out as much of a dividend as we would have liked to. Next, thank you. Just looking at our bridge consolidated segment of financial position. In terms of our investment properties come down from ZAR 11.1 billion to ZAR 10.9 billion, and that's really a result of the disposal of 20 properties in the current year. as well as small write-off in the value of our properties. In terms of our investment in our associates, it's gone up slightly. Over here we had some outside borrowings in our associates, which the partners decided to settle and to fund it personally. So we've also -- Octodec contributed ZAR 15 million towards settling that debt. Then in terms of our derivatives. So with the increase in interest rates, our multi-market value of our illustrator of sees increased now in the money. So obviously, reflecting an asset in our balance sheet instead of a liability. Our current assets have come down nicely from ZAR 297 million to ZAR 261 million, and that's really mainly in detrade in other receivables where government owed us to a tune of about ZAR 50 million at the end of last year, where they account for slightly arrears, and that's all brought up to date in a current year. So basically, it's just represented by trade receivables and municipals accruals. And our arrears are basically certainly at 3.3% of total rental and recoveries. If we look at our equity and our liabilities. So looking at our lives first, our debt has come down from -- sorry, gone up in terms of long term from ZAR 2.6 billion to ZAR 3.8 billion. But in total, if we combine offshore in our long term, it's really come down by ZAR 300 million, and that is as a result of the proceeds of our properties, which we've basically applied to reduce our debt. In terms of our pretax, it's just gone up a little bit, and it's mainly as a result of tax losses utilized, which, obviously, brings forward our liability. And then in terms of other payables, that's also reduced from ZAR 455 million to ZAR 393 million, and the bulk of what makes up that liability is our tenancy post something at ZAR 84 million. We've also got payments received in advance of ZAR 50 million and the rest comprises our accruals and credit payables. With that, just looking at our net asset value, which is at ZAR 0.2328 per share compared to ZAR 0.2320 per share of the prior year. Next Elona. Right. Yes, there's been many questions in the last 2, 3 years. We had to reduce our dividend as a result of the pandemic and the impact of that on the economy. We've looked at our -- I'd say, one of the things we're trying to do was to strengthen our balance sheet and try to sort of develop a policy that we can look at, and I guess this can have a little bit more confidence in terms of our payout going forward. And basically, in terms of low growth, it's very difficult to basically do developments of acquisitions and borrowing against that. So our policy is really to retain between 25% or less of our distributable income in order to plant back into developments and refurbishments, also to maintain an acceptable loan-to-value ratio on our balance sheet. And at the same time, obviously, taking our investors' needs into consideration and giving some certainty in terms of the dividend. So in the current year, based on the above policy, the Board has approved a dividend of ZAR 130 compared to ZAR 0.50 in the prior year, which translates into 166 -- 160% increase on the prior year. And that's made up of our interim dividend of ZAR 0.50, which was paid in May '22 and ZAR 0.80, which is expected to be paid in November '22. Next. Just giving you some background into our balance sheet and entire investment properties. So in the current year, we've had to write down our property values by about ZAR 82 million or 0.7% on a total value. And it is really on the back of pressure on our rental income. So this has been highlighted throughout the presentation, where your rentals have been under pressure. The other property fundamentals have really remained unchanged. Our valuations have been recrestly reviewed 1/3 of our property portfolio has been most externally reviewed with 89 properties, another ZAR 2.8 billion. All our properties are also internally valued every 6 months. And just looking at our valuations and what the future presents, if we look at our property fundamentals, we do see that -- unless there are any unexpected trends also that we can't forecast. We do see it bottoming up at the moment and expecting some growth going forward. are, I do think it's going to be on a very low growth rate. Next. Right. So this slide basically just shows the various inputs are going into our valuations. We obviously use a capitalization of income netted to value our properties. And that is really the biggest EBITDA of our rental, obviously, our expense ratio and then our vacancy sector. and ultimately, our capitalization of the net income. And that has remained at 9.8% compared to the prior year even though certain volumes have gone up and others come down, ultimately, our weighted average capitalization rate has remained unchanged. What's improved nicely, and that is also based, obviously, on improved occupancy is our long-range vacancy factor that we got pad, which has decreased from 8.2% to 7.5%, and our expense ratio just picking up slightly from 29.4% to 29.7%. If you look at our cash flow for the year. So we started off the ZAR 54 million at the beginning of the year, but we have had strong cash generated from our operations. of ZAR 792 million. Of that, we've paid finance costs of ZAR 376 million and some tax that was accruing from the prior year of ZAR 24 million. We've paid out our dividends of ZAR 266 million, that takes care of last year's dividend, which was paid in November and the interim dividend paid in May this year. We've invested a small amount of ZAR 61 million into our properties. And together with the proceeds of the disposal of our properties of ZAR 280 million and the settlement of some debt of our derivatives agave surplus cash of ZAR 35 million, which we've used to repay debt and closing the year with ZAR 66 million cash available. Next. Just a little bit of information on our debt. So our debt from our banks is sitting at ZAR 3.67 billion. In terms of our DMTN program, the unsecured portion of EUR 350 million and a secured portion of ZAR 368 million, taking us with close all debt of ZAR 4.375 billion. We've got unutilized banking facilities of ZAR 624 million. That increased from ZAR 359 million at the end of last year. It's also important to highlight it so we've received that we've really just reduced the utilized cities because we've put all our money in revolving credit facilities. So those funds are available for future developments -- so always trying to obviously manage our balance sheet and keeping that in balance and our funds are available. And with that, we've managed to improve our LTV from 43.2% down to 39.7%, and it's well we've been in the range of 50% to 55% in terms of our borrowings and our interest rate covers sipping at 2.3x at the end of August. Next right. It's been one o Octodec's objectives to diversify our funds. And I think we've achieved that in the current year having quite a good spread between our three banks. So that's also been quite an achievement in the current year and a small exposure to our MTN market. Looking at our loan expiries, we managed to reduce debt from 1.6 -- sorry, to increase our loan expiry from 1.6 to 2.1 years. We've managed to refinance all the maturing debt in '22 as well as some of that which was going to mature in '23 by extending it from 3 to 5 years, right up to 2027. We are also negotiating currently with our funders to refinance the loans that were coming up in 2024, also for a period of between 3 and 5 years. So we're looking forward to increasing our loan expiry at the end of next year considerably from the 2.1% looking at possibly raising it to the 2.5 years. But in terms of our hedging, so we are 80% hedged, also an expiry of 2 years. And over year, we really don't want to extend our hedging. But -- sorry, to increase our hedging, but rather to extend the period and looking at opportunities at a good rate to extend our period beyond 2025. Thank you, Elona. And with that brings me to the end of the financial side, then I'm going to hand over to Jeffrey to deal with the outlook. Thank you very much.

I remain optimistic about the future for Octodec and its strategy that is deeply embedded within Octodec. And the reason why I remain optimistic is because of all the sectors in the main appear to be recovering very well. These results include results up until the end of August. I am privy to results subsequent to August to the current date. I'm pleased to report that things appear to be improving. You guys heard the results of the -- or Charlene speaking about residential. I'm very positive about residential. Very pleasing to note that our residential is coming back very strongly. And in fact, in the number of buildings in Johannesburg CBD, we have no vacancies. It must be remembered that last time we reported this time of the year, last year, that Johannesburg was suffering the most. The reason for this was that our competitors put approximately 2,500 units into the market. Pleased to report that most of this 2,500 has been mapped up. And so equilibrium has now been reached and suspect that going forward Charlene and her residential crew will be able to increase rentals. With regards to our retail shopping centers. You heard my views there, very happy with performance on all our convenience shopping centers. Our CBD assets in the Main all performing exceptionally well. I am on record as having said that in property provided in retail, provided you listening very carefully to what the retailers are telling you and you follow them. All will be good, and this has been the case in many of our strategies. Our most recent example, we spoke about where Shoprite takers renewed a lease of approximately 4,000 square meters with us at what I consider to be top dollar. Admittedly, we invested ZAR 50 million to ZAR 60 million worth of investment into this building. But given that we had -- have owned this bullet for approximately 15 to 20 years, I don't think it was unreasonable to spend this kind of money. And Linda also alluded to some of the other big deals that we've done in the Johannesburg CBD. Elona, if you could click on to the next page? I think the other one that I'm particularly happy about is performance of industrial. Industrial seems to be performing well, not only in Octodec, but across the board in the entire country. It must be remembered that we are not the DC type developers, but we own more the entry-level small unit, which encourage the development of young new entrepreneurs looking for spaces ranging from 200 to 500 square meters. I think that the Octodec-type asset will perform well in times of inflation, whereby we can supply accommodation throughout the various sectors in which we operate at more affordable rentals than perhaps those people that are new to [indiscernible] have brought in recent years property to the market as those rentals are in the main cost driven and cannot afford to choice the kind of rentals at Octodec can rent at. We remain cautious in our approach to developments, focusing on maintaining a healthy balance sheet without compromising on quality. Future -- having settled that and being very bullish and very positive, I think future distributable earnings and dividend payout ratios will depend on the macroeconomic recovery, our capital requirements and liquidity overall performance of the portfolio and proceeds from the sale of investment property. My last closing remark it must be remembered that these results reflect a change in the environment in which we operate. However, this change is not -- was not present for the entire year, but only in the latter half of this financial year, probably less than that. In other words, our results are in the Main, slowed down by some tough times that Octodec had to go through. Going forward, where Octodec has a full set of 12 months, I believe that operationally Octodec will produce better results going forward. I think that's the end of the presentation. And now throw the -- give us -- give you guys an opportunity to answer to the panel any questions that you may have.

Thank you, team. The first question is from [indiscernible] of [indiscernible] Capital. I'll be asked that he posted the following on Twitter after the recent Octodec's results. High distributable income yield. I'm just going to paraphrase here, strong dividend yield, large discount to NAV. What's not to like at Octodec? And when response to the tweet was poor liquidity, poor assets. What is your response to such perceptions in the market?

I'll thank everyone. Thank you, Brian. I, obviously, don't agree that these poor assets. These are assets are coming back very strongly. But it is a question that I've been -- had to answer virtually for the entire 35 years of my existence in working for Octodec. To the writer of that tweet, I want to invite you personally to join us on a walking tour of the assets and see for yourself what we do over here. And then after that, to sit down and engage with us and tell me whether your views are still the same.

Thank you, Jeffrey. Two questions from Charles Boles of Titanium Capital. I'm just going to put them simultaneously. The first one is to provide some idea of the thinking around Killarney Mall. And previously, you've mentioned that there were a couple of in innovative solutions for this assets. He, secondly, asks, is the post office no longer paying rent. Is this on a specific site or across the board?

Thank you, Brian. Let's just deal with the post office quickly. post office simply hasn't paid us rent. They haven't paid us rent for a while. And on that basis, we terminate a lease. And in some instances, we simply did not renew those leases that expire. But to confirm, they weren't paying any rent, neither whether paying any utilities that were charge to those particular units. With regards to Killarney Mall, it is true previously. I thought we had some innovative thought, but let's just analyze very quickly, Killarney Mall -- and where our thinking is at the moment is that it's a great asset in the sense that it's on the highway, great visibility, located in a fairly high LSM residential area, namely Lee Houghton, lower Houghton, Forest [indiscernible], Forest town and [indiscernible]. This, together with -- we estimate about 2,500 to 3,000 residential units -- high-end residential units located right next to the center. What is of concern to me and the rest of the team that I'm working with, our results are showing that not many of these people, in fact, shop at Killarney. And I think that this relates to a work that's got to be done to build community to make Killarney Mall more of a community center that is frequented by inhibitors to these areas that I've just spoken about. And it's only when we've uncovered that got to the bottom of that question, that we will move to start doing whatever has got to be done Killarney. The question often given to us, is Killarney Mall for sale? Well, of course, Killarney Mall at the right price, it is for sale. But until this time as we know what Killarney Mall is capable of doing. And from that, to be able to get a fair estimation of what Killarney Mall is really worth. I don't think that I can recommend to the Board of Directors that we sell Killarney as a matter of urgency.

Yes, if you could just miss there. Two questions from Yesh Pillay from Anchor Stockbrokers. One, what drove the big increase in administrative and corporate costs of 12%? And two, can you give us more color around the tenants that caused the ECL provision to increase for FY'22?

Thanks, Brian. Anabel, I'm going to ask you to take both those questions.

Thank you, Jeffrey. So yes, I did capture network going through our distributable income on the increase in admin driven corporate costs. And it's not really an increase in the prior year, but rather more of an abnormal decrease -- sorry, in the current year, but then an abnormal decrease in the prior year. in the prior year, as I explained, we had a reversal of penalties was accrued for in 2020. We successfully are objected to that. and we had to reverse it in 2021. So that's, obviously, reduced our overall administrative costs. We also, due to cash flow problems didn't spend as much as we would have liked to, all budgeted for in terms of our corporate social investment. In this year, as a good citizen, we always do budget quite in the mouthful way, and we've basically spent in terms of our budget. So that is really the big increase from last year to this year. It's not really that this year is outside of the norm, but rather that last year was abnormally low. So hopefully, that answers your question. The next question of yours is the ECL. So our details, I did point out that, that came down nicely at end of August 2022. So sitting with overall trade receivables of ZAR 70 million compared to ZAR 112 million in the prior year. So that's a big reduction. However, our provision in percentage-wise compared to the prior year is quite high, but that's because what's left behind in our books is really the problematic debtors. We did about a post office, so that does make a component of our provision for bad debt as well as some of our places of education. That were the struggles during COVID period, and we do still have about three of them on our books, representing the biggest provisions. So three, one of which we've managed to successfully effect at the end of November, sorry, at the end of October, one being a subsidiary of [indiscernible], so quite a big tenant in our property, but we've managed to resolve that issue and that makes up a big provision. So the provision in itself in the range has come down. However, percentage-wise because the book now reflects really just the problematic details, the percentage has increased. I hope that answers your question.

One more question from Charles, again. Could you provide some more detail on the leasing arrangements in respect of the hotel? It seems like a lower base rent with participation based on occupancy? Is this based on occupancy or hotel income?

Thanks, [indiscernible]. You're fairly close to this one, if we got to ask you to take that question.

Sure. So because the hotels have been severely impacted during the COVID period, they have been struggling, especially City Lodge. They -- so what we've negotiated is for 2 years starting September 2022, they will pay us a base rental of 30% of the original range pre-COVID. And then based on the occupancy of the accommodation or of the rooms taken up in the hotel that they will then pay out additional rents. And so far, all the indications are good. They are actually slightly doing better than what they forecasted. So we will be receiving additional rents quarterly based on those numbers that we will reconcile with them.

There's one more question at the moment from [indiscernible] Capital. Converting multiple office to residential, is that something you will embark on in the year ahead. And how much CapEx would you expect to spend?

Charlene, do you want to crack at that one?

So we've just been starting again with the investigation. So we're putting out all our old plans that we've had in place pre-COVID we'll be looking because trade have also changed. We need to consider different things like tenants' affordability, our share documentation that's been quite well received, the new amenities or the new value adds that we provide, et cetera. So that's in the year end, we will start to plan and obviously do the necessary feasibilities, et cetera and then we will make a decision and implement going forward. Now at this point, the capital expenditure, costs, any of those things are not known yet.

Thank you, Charlene. One more question has popped up from a private investor. How has load shedding impacted the portfolio?

Charlene, do you want to do that one?

So it's the management type of environment. In the residential portfolio, we have generators for our common areas. So that means the passage lights and the lifts, et cetera, et cetera, can still function. However in the unit or in the apartment itself, tenants don't have any power. I think it's just a matter of communicating. I think we -- it becomes more problematic if we have not load shedding because I think everybody understands load shedding. But when it comes to power cuts or where a substation is out of commission, where you've experienced lots of power for extended period. I mean that's where we have to be communicating quite well and look possibly if it's extended periods at alternatives renting generators, et cetera, for our tenants. In commercial, obviously, tenants need to trade. So the -- as well load shedding is one thing and some tenants do have generators. But if it comes a problem for an extended period, then we would look at renting a generator, so that tenants can continue to trade.

Thank you, Charlene. Jeffrey, Anabel. Linda and Charlene, there are no further questions. So I'll just hand back to Jeffrey for thanks.

Thank you, Brian. I want to thank all of those investors who have stuck with us through some very tough times. Many of you have been with us long before the start of COVID. And I continue -- we hope it's my intention to continue to deliver above-average results like we have in the past. It's tough out there. I've had to work with an incredibly gritty team, who was stuck with the job unwaveringly. And so to all of you, including the 3 of you that are here, -- thank you very much for your contribution in the past and look forward to working closely with you going forward.