Octodec buoyed by strong Residential occupancy and income performance

Well-let shopping centres and imminent launch of HealthConnect in Tshwane ensures that the Group’s commercial portfolio is defensively positioned.

 

Highlights:

  • Rental income R1 995.1 mil (FY2022: R1 930.5 mil)
  • Profit for the year R610.5 mil (FY2022: R605.1 mil)
  • Distributable income after tax (REIT funds from operations) R455.8 mil (FY2022: R466.1 mil)
  • Cash generated from operating activities before dividend payment R447.2 mil (FY2022: 1 mil)
  • All-in weighted average cost of funding 9.2% (FY2022: 8.7%)
  • Distributable income per share (cents) 171.2 (FY2022: 175.1)
  • Dividend per share (cents) 135.0 (FY2022: 130.0)
  • Net asset value (NAV) per share R24.24 (FY2022: R23.28)
  • Loan-to-value (LTV) 37.7% (FY2022: 39.2%)

Wednesday, 1 November 2023 – JSE-listed REIT Octodec Investments Limited today announced a 3.3% increase in revenue to R1 995.1 million (2022: R1 930.5 million) as well as an increased dividend per share of 135 cents (2022: 130 cents) for the full year ended 31 August 2023. The Group did extremely well to limit property cost increases to 5.3% year-on-year in what was an exceptionally challenging operating environment.

Distributable income before tax decreased marginally by 1.3% from R465.9 million to R459.8 million primarily as a result of increased administration and corporate costs. Octodec’s residential portfolio, which accounts for 34% of the total portfolio by income and 27.3% of the portfolio by GLA, was the stand-out performer with income increasing by 10.2% year-on-year off the back of excellent occupancy levels and increased rentals. Excluding The Fields, which was negatively impacted by the reduction in the monthly National Student Financial Aid Scheme (NSFAS) allowance to students, residential vacancies at year end across the portfolio had dropped to a near pre-Covid levels of 5%.

Octodec’s portfolio of retail shopping centres continued to perform exceptionally well, with rental income increasing by 5.3% year on year and the Group remains confident that this sector will continue to perform strongly into the new financial year. Vacancies lowered slightly to 6.8%, however excluding Killarney Mall, which has higher vacancies, vacancies in this sector reached at an all-time low of 0.4%.

Commenting on the results, Jeffrey Wapnick, Octodec MD says: “I am particularly proud of our residential and commercial leasing teams for their efforts in what has been a robust period of letting activity. These results, coupled with the sustained interest from large national retailers in our well maintained and well-located buildings, suggest that Tshwane and Johannesburg remain in demand and bustling with activity for residents, office workers and retail customers alike.”

Industrial and Office

Octodec’s industrial portfolio performed relatively well, experiencing rental growth of 3.8%, and 8.6% on a like-for-like basis, however vacancies increased from 6.8% to 8.7% largely due to several large pockets of space in the Pretoria West and Silverton becoming vacant at year end. The pipeline of interest for space in this area, however, remains strong, and the Group is confident that this sector will see improvement in occupancies going forward.

Core office vacancies remained stable relative to FY2022, with most large leases being renewed. Rental income however reduced by 5.3%, due to two significant negative government rental reversions.

However, the rest of the government leases were renewed at a 6% escalation plus operating costs, which was previously not recovered from government. This will bold well for FY2024, in the absence of any other unforeseen events.

Continued Portfolio Refurbishments and Developments

Octodec’s residential buildings are renowned for their high quality and FY2023 saw the refurbishment of the common and entertainment areas at Vuselela Place in Johannesburg, as well as the construction of a play and recreational area at Steyn’s Place in Tshwane. In addition, the Group completed its Shoprite development in the Tshwane CBD, with the remainder of phase two to be completed in FY2024 and commenced with its flagship conversion of HealthConnect (previously a vacant office building) adjacent to Louis Pasteur Medical Centre, into medical suites, which is anticipated to be completed in January 2024.

The Group remains committed to the disposal of non-core properties. Several agreements have been signed, but these are subject to suspensive conditions, and against this backdrop, Octodec sold and transferred properties for a total net consideration of R109.4 million during the year.

Jeffrey Wapnick adds: “Outside of delivering on our key operational and strategic priorities, we also undertook a wide range of important social initiatives that talk to our purpose of creating a thriving environment of diversity and inclusion for our communities. As an example, we are in the process of establishing an Early Childhood Development (ECD) Centre in partnership with a long-standing beneficiary of our CSI programme, Cotlands. This initiative will assist our tenants who work full-time to entrust their young children with qualified daycare staff in a warm, nurturing, and educational environment.”

 

In addition, Octodec, via its property manager City Property, was proudly involved in the launch of the Church Square Revival Project, a public-private community initiative led in conjunction with the City of Tshwane. The rejuvenation project aims to make Church Square, one of the most iconic and historically significant precincts in the country a cleaner, more accessible tourist destination and public space.

Balance Sheet Management and Execution

The Group’s focused efforts on collections was evidenced by a strong performance with collections averaging just under 99% for the period, while tenant arrears increased marginally to 4.2% of rental income (2022: 3.3%).

Octodec FD, Anabel Vieira, comments: “Octodec has refinanced all loans which matured during the current year as well as all loans maturing in FY2024, with the exception of one small facility, for periods ranging between three to five years. Over the past 24 months we have strengthened the balance sheet and improved our liquidity position with carefully timed debt reduction efforts early in the interest rate hiking cycle.

 

We have also undertaken a cautious but active approach to capital allocation, carefully selecting yield accretive capital projects and actively pursuing our disposal programme (of non-core, mothballed assets) in what is still a high inflation, low economic growth environment,” Vieira concludes.

 

Dividend

Octodec’s dividend policy is premised on retaining sufficient funds for maintenance, as well as for developments and acquisition opportunities. In lieu of this, the Board of Octodec declared a final dividend of 75.0 cents per share for the second half of the year, resulting in a total dividend for the year is 135.0 cents (FY2022: 130.0 cents) per share, a 3.8% increase on the prior year.

Prospects

Octodec experienced an increase in leasing activity during the year, and the Group’s residential, retail, and industrial assets remain attractive to prospective tenants. Although there has been a continued downward resetting of rentals across the industry, it is pleasing to see that several renewals were concluded at increased rentals, and we continue to experience demand from large retailers for space in both Johannesburg and Tshwane CBDs.

Management is cognisant of the impact of high inflation and interest rates and increasing energy costs, and therefore remain cautious in their approach to developments, including new builds and conversions, focusing on maintaining a healthy balance sheet and providing a steady distribution to shareholders.

Increased commercial and residential leasing activity bolsters Octodec’s half-year rental income

Group identifies several development opportunities and continues to benefit from improved LTV and strengthened balance sheet  

Highlights:

  • Rental income increase of 3.2% to R974.2 mil (HY2022: R944.4 mil)
  • Like-for-like rental growth of 4.1% (HY2022: 1.2%)
  • Cash generated from operating activities before dividend payment R239.8 mil (HY2022: R193.9 mil)
  • Distributable income after tax (REIT funds from operations R234.5 mil (HY2022: R211.8 mil)
  • All-in weighted average cost of funding 9.0% (FY2022: 8.7%)
  • Distributable income per share (cents) 88.1 (HY2022: 79.6)
  • Dividend per share (cents) 60.0 (HY2022: 50.0)
  • Net asset value (NAV) per share R24.01 (FY2022: R23.28)
  • Loan-to-value (LTV) 38.8% (FY2022: 39.7%)
Tuesday, 16 May 2023 – JSE-listed REIT Octodec Investments Limited today announced its interim results for the six months ended 28 February 2023, recording solid income growth driven largely by improved occupancy and higher rentals in its residential portfolio. Rental growth across most sectors remains stable against the backdrop of the difficult economic trading conditions. Several renewals of commercial leases are being concluded at increased rentals and demand for space in the Johannesburg and Tshwane CBDs remains strong.

Portfolio Performance

Octodec achieved revenue growth of 3.2% across its portfolio, driven primarily by a 10.3% increase in the residential portfolio, which has performed exceptionally well. Property costs, both on a gross and net basis, have improved marginally when compared to the prior period through hands-on management of properties. Residential vacancies continued to decrease in the Kempton Park, Johannesburg, and Tshwane CBDs. The successful introduction of shared and furnished accommodation options at The Fields, together with value-add services such as free Wi-Fi and the cashless Wash Bars at several of our buildings contributed to the improved occupancy and ensure that Octodec’s residential assets remain in high demand. Despite the seasonal fluctuation in occupancy in the residential sector, which is generally higher during the period, the vacancies decreased significantly to 6.9% in February 2023. This is inclusive of The Fields, which was impacted in part by the reduction in the National Student Financial Aid Scheme (NSFAS) allowance to students. Octodec has revised its offering to accommodate those affected by this reduction. Occupancy at other properties where students reside who are not funded by NSFAS, has not been impacted. Commenting on the half-year results, Jeffrey Wapnick, Octodec MD says: “This positive performance highlights that our unique, affordable, and quality products across all our sectors continue to be attractive and value-enhancing. Despite economic pressures, we retain our competitive edge which is supported by our in-depth knowledge of tenants’ needs and the introduction of attractive initiatives in both the Tshwane and Johannesburg CBDs. This encourages our continued focus to leverage opportunities that enhance our buildings and attract new tenants while improving our occupancy.” Octodec’s retail portfolio is unique, whereby its retail street shops are largely concentrated in the Tshwane and Johannesburg CBDs. We have seen improved footfall in the CBDs, particularly in the Tshwane CBD, although this has not necessarily translated into improved turnovers for our retail tenants. On a like-for-like basis, rental income increased by 3.2%. This growth was muted due to Standard Bank and Nedbank having vacated from two of our buildings during HFY2023. Octodec’s portfolio of retail shopping centres, which largely comprise convenience shopping centres, continues to perform strongly, with core vacancies at 6.4% and excluding Killarney Mall, is at 0.1%. Rental income from our shopping centres, including Killarney Mall, increased by 3.6% on a like-for-like basis. Jeffrey Wapnick adds: “We believe that despite the growing challenges around the reliable supply of electricity and underperforming municipalities, there is a renewed energy and restored confidence in the CBDs. While there has been less activity in the street shops due to constrained market conditions for consumers, leasing activity has increased and there is take up in spaces that were previously unattractive. We remain focused on our conversion and repurposing strategy as our well-located CBD assets continue to enjoy increased demand from large scale national retailers. This, we believe, positions us for growth as our tenants see value in our portfolios.” The office sector remains under pressure despite improved leasing activity. Although core vacancies improved slightly, rental reversions in the sector, together with some tenants vacating at the end of the prior year, contributed to a decrease in rental income in this sector of 5.4%. The industrial sector has proved to be resilient under the current operating conditions with rental income increasing by 7.8% and leases being concluded at an average increase of 7%. Vacancies have decreased and overall occupancy improved further to 94.3% since the previous reporting period. According to Octodec FD, Anabel Vieira, “Despite the challenging interest rate environment, we continue to manage our balance sheet and debt and together with a positive valuation of our property portfolio, we have achieved a further decrease in our LTV. We are actively monitoring opportunities to extend hedges and continue our efforts to improve our debt maturity profile.”

Development and Disposals

Octodec is currently refurbishing the common and entertainment areas at Vuselela Place, a mixed-use residential and retail building in the Johannesburg CBD. Furthermore, we are repurposing Ina Building, a vacant office building adjacent to Louis Pasteur Medical Centre into medical suites. We are excited by the demand thus far and completion is expected by January 2024. Octodec disposed of 5 properties identified in the current period and continues to focus on disposal opportunities at acceptable prices and progress has been made in this area.

Prospects

Jeffrey Wapnick concludes: “We remain focused on providing steady distributions to our shareholders. The Group has undertaken a prudent approach to capital management, and we remain cautious in our approach to developments without compromising on quality. While rising inflation, increasing energy costs and high interest rates have created difficult operating conditions for businesses, we are confident that Octodec’s strategy and diversified portfolio is well positioned for future growth given an improved economic environment.”

Dividend

With distributable income after tax increasing by 10.7%, the Board has declared an interim dividend of 60.0 cents per share for the six months ended 28 February 2023 (28 February 2022: 50.0 cents). This represents an increase of 20% on HFY2022.

Octodec announces FY2022 results

Strong income growth due to material reduction in residential vacancies bolsters Octodec’s full year performance

Accelerated disposal programme and improved performance results in improved loan-to-value (LTV) ratio

Highlights:

  • Rental income R1 930.5 mil (FY2021: R1 838.7 mil)
  • Profit (loss) for the year R605.1 mil (FY2021: (R174.8 mil))
  • Distributable income after tax (REIT funds from operations R466.1 mil (FY2021: R358.4 mil)
  • Cash generated from operating activities before dividend payment R391.1 mil (FY2021: R357.4 mil)
  • All-in weighted average cost of funding 8.7% (FY2021: 8.5%)
  • Distributable income per share (cents) 175.1 (FY2021: 134.6)
  • Dividend per share (cents) 130.0 (FY2021: 50.0)
  • Net asset value (NAV) per share R23.28 (FY2021: R23.20)
  • Loan-to-value (LTV) 39.7% (FY2021: 43.2%)

Tuesday, 1 November 2022 – JSE listed REIT Octodec Investments Limited today announced its annual results for the year ended 31 August 2022, recording a large dividend pay-out and a material reduction in vacancies in the residential and industrial sectors, with the residential portfolio in particular performing ahead of expectations. Although there has been a continued downward resetting of rentals across most sectors, from an Octodec perspective, several renewals are being concluded at increased rentals and demand for space in both Johannesburg and Tshwane CBDs remains strong.

Portfolio Performance

Octodec has experienced an increase in residential leasing activity resulting in significantly reduced vacancies and positive reversions on renewals which have positively impacted the Group’s results.

Residential income increased 7.6% year on year primarily due to the return of students to universities for in-person classes and increased activity at OR Tambo Airport, which greatly benefited letting activity at Kempton Place. Added to this, initiatives such as the introduction of shared and furnished accommodation at some of its residential buildings, and value-added services such as complimentary Wi-Fi for tenants in various other buildings resulted in increased demand.

Commenting on the growth within the residential sector, Jeffrey Wapnick says: “There is a clear demand for affordable, quality accommodation in both the Tshwane and Johannesburg CBDs. Due to the success of our value-enhancing initiatives, we have seen an impressive 33.0% increase in leasing enquiries. We intend to accelerate the rollout of these offerings to more residential buildings to attract new tenants.

With vacancies almost at pre-COVID-19 levels, the focus will now change to increasing rentals per unit while at the same time being cautious of the impact that high inflation and increased interest rates will have on the disposable income of tenants and the consequential effect on vacancies.”

Retail shopping centres continued to perform well, with positive reversions on new leases and renewals. As a result, rental income from Octodec’s shopping centres increased by 5.9% year on year. However, the first half of the year was still impacted by lockdown restrictions and the Group’s street shops experienced subdued activity with several negative rental reversions concluded during the year, and a slight increase in vacancies has resulted in a marginal increase in rental of 3.0% year on year.

Jeffrey Wapnick adds: “Our CBD assets are well located in convenient locations with high foot traffic. Despite market conditions still being under pressure for the typical South African consumer, we continue to see renewed confidence from large national retailers to sign extended leases for larger pockets of space and willingness to test the CBD market with brands previously only found in malls.”

In the office portfolio, the oversupply of office space in the major cities, due to hybrid or work-from-home models, continues to put pressure on occupancy levels at office buildings, corresponding with the broader sector trend. As a result, rental income in the office sector decreased by 1.3% year on year.

Despite general rental pressure in the industrial sector, occupancy has improved considerably, with a number of Octodec’s industrial buildings being 100% occupied. During the year, many new enquiries were received, and the Group experienced improved collections from places of worship and some colleges within its specialised portfolio.

According to Octodec FD, Anabel Vieira, “The distributable earnings calculation was positively impacted by reduced debt and the lower interest rate environment (at the time), which reduced finance costs.

We have made strides over the past two years to manage both our hedging profile and debt maturity profile, and we will continue to monitor opportunities to extend existing hedges, where appropriate.”

Disposals

There has been a marked improvement in the conclusion of sales of properties previously identified for sale. Octodec has sold and transferred 20 properties for a total net consideration of R218.4 million.

Prospects

Jeffrey Wapnick concludes: “From a capital management perspective, our focus remains on maintaining a healthy balance sheet with an acceptable loan-to-value ratio. We will continue to assess new development and conversion opportunities as they present themselves, and as such, Octodec will retain sufficient funds for developments and acquisitions for this purpose while at the same time providing a steady distribution to our shareholders.

Although the property sector as a whole faces certain headwinds, including poor municipal service delivery as well as rising inflation, increasing utilities costs and high-interest rates, we are confident that Octodec is well positioned through its niche expertise, diversified and defensive portfolio to benefit from a medium-to-long term economic recovery.”

Dividend

Distributable income after tax increased by 30.0% from R358.4 million to R466.1 million. the Board has declared a final dividend of 80.0 cents per share, with a total dividend of 130.0 cents for the full year (FY2021: 50.0 cents) – a 160% increase on the prior year.

 

 

 

Interim results booklet 2021

This period has been dominated by the impact of COVID-19 and lockdowns on an already weak economy which have negatively impacted economic activity and have contributed to many business closures and increased unemployment, which in turn have impacted our business. Certain sectors which form part of our tenant base have been more severely impacted by the lockdown than others due to their level of social interaction, such as hospitality, places of worship, and universities and colleges which have moved their tuition online