Johannesburg, 21 July 2023 – Octodec Investments, the largest single owner of properties in the Johannesburg and Tshwane CBDs, has carved a niche in a market others shy away from. The JSE-listed real estate investment trust (Reit) owns a diversified portfolio of 246 residential, retail, office, industrial and specialised assets valued at R11bn. Some of its CBD retail assets are mixed-use, with residential or offices at the top and retail at the bottom, such as Inner Court in Tshwane. These assets benefit from foot traffic passing through and people working and living in the CBD. Other mixed-use assets include The Fields and Sharon‘s Place in Tshwane, as well as shopping centres such as Killarney Mall and Woodmead Value Mart in Johannesburg.

Octodec’s knowledge of the inner city provides the fund with a competitive advantage to create sustainable and innovative spaces in a market that is little known about. Under the leadership of MD Jeffrey Wapnick, the fund continues to focus on upgrading and redeveloping its assets to unlock value for shareholders Octodec’s assets serve a thriving ecosystem of residents, small businesses, professionals, government employees and students, who form the diverse inner-city community that makes up a sizeable portion of its tenant base. Its residential portfolio of 65 properties and more than 9,200 units is experiencing unprecedented demand as inner-city accommodation remains affordable for many people starting out, those who have moved from the rural areas in search of jobs, and some students. Business Day caught up with Wapnick to talk about the resilience of the inner-city real estate market and Octodec.

What is unique about Octodec?

Denise Mhlanga stated, Octodec is one of the smaller listed Reits and operates in Gauteng with a large portion of our assets located in inner cities. Many people see this geographic and, specifically, CBD focus as a problem. We are a diversified fund with more than 14,000 tenants — if a tenant moves out, we can get a replacement. We have stayed in traditional areas because we believe in investing in the right localities, we have intimate knowledge of our market, and that is our competitive edge.

Your residential portfolio is outperforming. How are you getting this right?

We offer quality and affordable rental apartments in secure environments; hence demand continues to grow along with rental income while vacancies are reducing. About 64% of our portfolio is in Tshwane CBD and 36% in Johannesburg CBD. The portfolio offers 9.5% in yields. There is a chronic shortage of quality accommodation in the inner cities.

Our portfolio, with very low vacancies, continues to experience demand, enabling us to capture market share.

Our rentals range between R3500 and R6500 per month. To ensure more people can access quality accommodation at lower prices, we are piloting a product of much smaller units with certain shared facilities, bringing the rental price to below R3000. We were the first fund to convert office blocks into residential apartments (not all our residential blocks are conversions), and to date we have over 9,200 residential units. Demographics in the inner city have changed since SA became a democratic state and this has created an influx of people from other localities and rural areas in search of better opportunities. CBDs are the first step for those starting out, and this creates opportunities for the fund to provide quality accommodation with value-adds such as cashless laundromats, Wi-Fi and revamped common areas that are attractive to tenants.

What is the fuss about CBD retail and convenient mall offerings?

In the CBDs, most of our retail offering is located on the ground floor of residential and office buildings. We have street retail as well as convenient shopping centres outside CBDs.

In on the ground floor: MD Jeffrey Wapnick says that Octodec’s knowledge of inner cities gives it a competitive advantage.

We offer premium retail localities in the CBD with major national and listed retailers trading out of our assets, especially in Tshwane. In Tshwane, prime retail localities are characterised by heavy foot traffic, and this has been the case for 50 years. Areas like Stanza Bopape Street [the former Church Street] and Lilian Ngoyi Street are examples. We recently completed the redevelopment of a Shoprite store at Lilian Ngoyi. Our CBD retail portfolio attracts the likes of TFG, Truworths, and Shoprite as well as small retailers.

CBD retail trade is returning to pre-pandemic levels, and retailers see value in our locations and know how to capture this segment of the market. Our other retail assets, with the exception of Killarney Mall, are doing very well. We constantly relook our tenant mixes, and the only challenge we have at these malls is parking.

What about other assets?

Our industrial portfolio comprises small units in industrial parks where we have control of the environment. About 50% of our office portfolio is leased to government, with the balance of smaller spaces let to small and medium-sized enterprises. As a function of low economic growth, demand for bigger offices has stalled and tenants are under pressure. As a result, we have seen a vacancy creep in our portfolio.

Any acquisitions on the cards?

The market is tough — we are selling noncore assets but there are no buyers. Our focus is to reduce vacancies, redevelop assets in strategic localities to grow earnings, attract and retain tenants. We are converting a vacant office block to medical suites due to demand and this increases our small portfolio of healthcare facilities to two.

What is the outlook for Octodec?

SA’s macroeconomic and political issues are concerning, but we believe the fund is well positioned. Octodec is very cheap now — the yield is above average in the sector and our structure is simple. Our diversified portfolio creates sustainability within the business and given growing demand for rental accommodation in the inner city, we think the residential portfolio will continue to outperform.

The Company signals its commitment to the CBD through multi-faceted enhancements to an already dominant inner-city retail and residential portfolio

JSE listed REIT, Octodec Investments Limited, today announced that it has commenced upgrading its Shoprite building in the heart of the Tshwane CBD, at a cost of just below R60 million. The facelift is a welcome boost to the existing, bustling retail trade in the CBD, and proves renewed confidence in a node which has clearly emerged stronger post the Covid-19 pandemic.

Jeffrey Wapnick, MD of Octodec, says: “With many retailers having returned to the CBD and various in-person university classes resuming, Octodec’s CBD retail assets are experiencing a renewed energy. We are thrilled to announce the news of this project, highlighting that the heart of Tshwane is still thriving and a vibrant place to be.”

The first phase will be a revamp of the 4000m² Shoprite supermarket and includes a new Shoprite Liquor and new retail shops on the ground floor. The most prominent visual element will be a triple volume entrance with escalator access from Helen Joseph Street. The escalators will lead downwards to an OK Furniture store. In addition, the project includes renovations to the Helen Joseph Street façade, including a new modern shopfront.

The second phase of the renovation will cater for more retail tenants on the ground floor and the remainder of the basement space. Negotiations are well underway with prospective tenants. Further upgrades include the pedestrian access point from Madiba Street, which will be upgraded to provide a landscaped walkway for easy access to the Shoprite store.

“We enjoy deep, mutually beneficial relationships with our tenants, who often provide great insights. It is unlikely they would invest in the CBD without a positive outlook. We are seeing these same tenants lease for longer periods which further underpins their confidence in the CBD long-term. Confidence from our tenants and improved market conditions have spearheaded growth within the CBD, which Octodec will certainly benefit from.” concludes Wapnick.

Shoprite will continue to trade during the duration of the upgrade. The project is expected to be completed in December 2022.

A strong focus on property fundamentals and robust portfolio ensures measured Octodec performance amid challenging low growth environment

• Distributable earnings before tax of R401.1 million, a decrease of 4.6%
• Reduction in the all-in annual weighted average cost of borrowings to 8.5% (FY20: 8.7%)
• Rental relief granted in support of tenants through rental discounts substantially reduced to 1.6% of rental income
• Generally strong level of collections, averaging 100% over the year
• 0,4% increase in vacancies indicative of stability returning
• Active balance sheet management and liquidity planning showing results
• Robust and encouraging post-reporting period property fundamentals

Tuesday, 2 November 2021 – JSE listed REIT Octodec Investments Limited, today announced its annual results for the year ended 31 August 2021, against a weakened economic environment. COVID-19 and the consequent lockdowns and restrictions that continued through FY2021 significantly impacted Octodec’s performance.

Octodec’s distributable income decreased by 4.6% before tax and 14.1% after tax, mainly attributable to a reduction in rental income caused by rent relief granted to their tenants who were detrimentally affected by the COVID-19 lockdown restrictions, negative rental reversions and an increase in residential vacancies for a significant portion of the year.

Jeffrey Wapnick, Managing Director of Octodec, commented: “The lockdown severely impacted certain sectors due to their level of social interaction, such as hospitality, places of worship and universities and colleges, many of which had moved their tuition online during the year.”

The rental relief granted through rental discounts, decreased significantly to 1.6% of rental income (FY2020: 5.3%), On a like-for-like basis, before the COVID-19 rental discounts granted, overall rental income decreased by 7.3%. In addition, rental income from the residential sector and specialised sectors decreased by 10.6% and 15.4%, respectively, mainly attributable to the impact that COVID-19 and the lockdown had on these sectors.

A decrease in collections, specifically during January and February 2021 was primarily due to typically slower collections in these months. Although Octodec’s properties did not suffer damage during the civil unrest in July 2021, this did have a temporary impact on collections.

A longer business recovery period was expected for tenants in the education, places of worship and hotel sectors resulting in lower collection levels. However, these sectors represent only 3.7% of Octodec’s total rental income, and total collections have remained at acceptable levels.

Explaining actions taken to retain and attract tenants, Wapnick said: “Our smaller retail tenants and restaurants rely on foot traffic from residential and office tenants, and the hybrid working model has affected their turnover. Octodec has responded to the challenging environment through various initiatives such as the ongoing roll-out of Wi-Fi to residential buildings and the embedding of online applications forms on our recently upgraded digital platform. These enhanced digital capabilities, as well as the broadening of our offering, including newly furnished apartments and shared accommodation at The Fields, to our expanded tenant demographic, forms part of our forward-looking strategy as we position the Group for growth.”

Vacancies relatively well contained
Vacancies in the Octodec portfolio including properties held for redevelopment, increased by 1.1% to 22.8% of the gross lettable area (GLA) (FY2020: 21.7%). The Group’s core vacancies, which exclude the GLA relating to properties held for development, increased by 0.4% to 16.2% (FY2020: 15.8%).
The commercial sector experienced increased vacancies, primarily as a result of COVID-19, which impacted trading conditions and resulted in tenant failures.

Retail shopping centres, comprising mainly convenience and neighbourhood centres, which remain well let with low vacancies, proved to be relatively defensive in this environment. Speaking to the impact of COVID-19 in the year, Wapnick said: “Initially, the majority of our commercial tenants were afforded rental relief in the form of discounts rather than deferrals or payment plans, especially small, medium and microenterprises (SMMEs) which continue to be the most affected. However, more recently, with each lease renewal, tenants are looking for reduced rentals rather than a once-off discount. Tenant retention remains a high priority for Octodec and we continue to engage with tenants to ensure that tenants survive the adverse effects of the pandemic.”

Against this backdrop, Octodec has strengthened its balance sheet to ensure prudent financial management. Octodec has continued to generate good cash flows in spite of the challenging circumstances, with 100% of billings collected during the year. Additionally, no covenants have been breached, and Octodec’s interest-cover-ratio (ICR) was within the limit for each lender.

“The effects of COVID-19 still linger but the diversified and granular nature of the portfolio, together with Management’s intimate knowledge of the portfolio and the broader property market have stood the business in good stead. In addition, active balance sheet management and liquidity planning have shielded the business. We will continue to take proactive steps to mitigate the reduction in earnings, optimise working capital and preserve cash flow and liquidity, thereby protecting the business,” commented Anabel Viera, FD of Octodec.

Dividend Declaration
The board of Octodec has declared a dividend of 50 cents per share for the year ended 31 August 2021. The decision to reduce the dividend is aligned to Octodec’s strategic objective to reduce debt, strengthen its balance sheet and conserve cash for essential capital expenditure, whilst retaining its REIT status.

“The decision to reduce the dividend is in line with Octodec’s decision to pay out the minimum distribution requirement to retain its REIT status while utilising the available assessed losses in the Group. While we remain cautious on the outlook, we are well-positioned to navigate the market challenges into the recovery phase. There are green shoots and early signs that the worst of COVID-19 may be behind us,” concludes Wapnick