Despite a challenging economic environment marked by high inflation, interest rates, failing infrastructure, and poor service delivery, Octodec achieved a 4.1% increase in group revenue to R2.1 billion.

• Increase in rental income to R2.1 billion
• Rental income growth largely due to the residential and shopping centre portfolio contributions
• Value-enhancing repositioning of strategic assets and tenant mix to deliver future growth
• Cash generation of R433 million and prudent balance sheet management
• Successful refinancing of debt maturities and opportunities to benefit from the declining interest rate cycle
• Riaan Erasmus announced successor for top executive positions and to drive portfolio optimisation
• Total dividend per share of 125 cents for the year

JSE-listed REIT Octodec Investments Limited today announced its annual results for the financial year ended 31 August 2024, delivering a resilient 4.1% increase in group revenue to R2.1 billion despite numerous headwinds faced during the period.

Notably, the residential and shopping centre portfolios saw the highest rental income growth at 3.8% and 3.0%, respectively, largely driven by lease escalations and offset by increased vacancies. Average collections remained strong at over 100% of billings, however rental income was affected by rental concessions related to the impact of unrepaired damage on Lilian Ngoyi Street in Johannesburg. Total core vacancies excluding properties held for redevelopment increased slightly from 14.2% to 14.9%. High inflationary cost pressures and an increase in net finance charges saw distributable income before tax end the period lower at R422 million. Octodec declared a final dividend of 65 cents per share bringing the total dividend for the year to 125 cents per share.

Resilient portfolio performance

Octodec’s residential properties offering well-located, secure, quality accommodation continue to attract tenants. Low economic growth, increased unemployment, and prolonged high interest rates have however placed financial pressure on tenants, leading to a higher rate of vacancies compared to new lettings. Vacancies generally increased as a result and were compounded by the knock-on effect of the unrepaired damage on Lilian Ngoyi Street, limiting rental income growth to 3.8%.

The Fields property in Hatfield was a key success, recording an over 50% reduction in vacancies, demonstrating the competitiveness of its enhanced student offering and benefiting from certainty around the NSFAS accommodation allowance. Octodec invested in The Fields to respond to market needs, adding event space for student wellness workshops, entertainment, and other social activities, a quiet green rooftop space for students to relax and a student centre to study individually or in work groups.

The retail shopping centres portfolio, made up of mainly convenience centres, performed well despite a temporary but sharp rise in vacancies owing to decisive management action to vacate underperforming tenants and improve the tenant mix at two key centres. The vacant spaces were re-let, introducing new tenants such as Jo Borkett and Sweet Hyper Mega, who replaced West Pack Lifestyle at Woodmead Value Mart with the portfolio (excluding Killarney Mall) fully occupied post period end. Killarney Mall has been strategically identified as an asset to recycle and management are actively working towards unlocking this value. Rental income increased by 3.0% year-on-year to R174 million, and the Group remains confident in the sector’s continued strong performance.

Octodec’s retail portfolio continues to attract high foot traffic and interest from large nationals. During the period, the challenging economic climate impacted tenant sustainability while certain tenants exposed to Lilian Ngoyi Street were unable to trade effectively. Octodec is actively supporting affected tenants until road repairs are completed and is encouraged by the strong interest from large national retailers to take up vacant space, albeit on beneficial occupation or low initial rentals. Overall, rental income from retail shops grew by 1.4% year-on-year and 2.2% on a like-for-like basis, with the low growth attributed to the rise in vacancies and retention strategies, including lease renewals without rental escalations.

Commenting on the performance, Jeffrey Wapnick, Octodec Chief Executive Officer said “I am pleased with the level of demand experienced across our portfolio, and with the overall performance from our residential and shopping centre portfolios which delivered the strongest growth despite the lacklustre economy. Our strategy to upgrade, convert, and repurpose strategically located buildings continues to unlock value, better align our portfolio with market demands, and position us for sustained success. Equally so, our decisive action to optimise our retail tenant mix within our shopping centre portfolio will support future returns.”

The office sector as evidenced across South Africa remains under pressure, with tenants continuously opting to reduce their leasing requirements. Vacancies therefore remain difficult to close and recorded a slight increase during the period with rental income unchanged from the prior year. This portfolio offers opportunity to extract value from vacant buildings through conversions or disposals which are actively being explored.

Octodec’s industrial portfolio performed relatively well over the past year. Despite the sector’s general resilience, smaller operators were negatively impacted by high interest rates and failing rail and port infrastructure, leading to some tenant failures. Consequently, vacancies increased slightly, and the portfolio’s rental growth was limited to 2.5%, or 3.8% on a like-for-like basis.

Prudent financial management

Cash generated from operations (before dividends) was at R433 million. The group’s total borrowings ended the period at R4.4 billion and the Group’s LTV was kept within Octodec’s target range at 39.2%, with all bank covenants met during the period. R400 million in funding was successfully refinanced during the period with tenors of three to five years with the weighted average cost of funding ending slightly higher at 9.5%. Post year end, a further R370 million was refinanced, and management is advanced in proactively negotiating the refinancing of a further R600 million of debt maturing in 2025. In anticipation of a declining interest rate cycle, only 68% of Octodec’s borrowings were hedged with a short weighted average term of one year. The Group ended the period with R679 million in cash and unutilised debt facilities which is sufficient for its capital commitments. 

Commenting on Octodec’s financial position, outgoing Financial Director, Anabel Vieira said “Octodec’s cash generation and prudent management of capital has ensured a robust financial position going into FY2025, with opportunities to take advantage of lower interest rates in the period ahead to reduce the cost of funding.”

Value-enhancing property Investments

Octodec is committed to maintaining the quality and relevance of its buildings. The rollout of value-added services like Wi-Fi, cashless laundry facilities and recreation areas, refurbishments of the common and entertainment areas such as those carried out at Ricci’s Place in Johannesburg and Corner Place in Tshwane, as well as the enhanced student facilities at The Fields, demonstrates this commitment.

While continuing to seek opportunities to convert and repurpose vacant office spaces, the conversion of the Prinsproes office building in the Tshwane CBD into Yethu City is in progress with leasing set to begin in January 2025. The Group remains optimistic about the prospects of this new initiative. Additionally, a solar system will be installed post-development to reduce electricity costs and provide backup power, enhancing the project’s yield.

“I am excited about the completion of Yethu City. This new offering represents a significant step forward in addressing critical market needs. By providing quality, co-living spaces at accessible prices, we are not only meeting the high demand in this sector but also playing a vital role in supporting our community by ensuring more people have the opportunity to live in secure, well-maintained accommodation. This initiative underscores our commitment to creating sustainable, inclusive communities and highlights our proactive approach to tackling housing challenges in the CBD,” added Wapnick.

In response to persistent power outages in the Johannesburg CBD and to a lesser extent in the Tshwane CBD, the Group has installed generators at several residential and office buildings to ensure operational continuity. Additionally, solar panels have been installed at Woodmead Value Mart, Blaauw Village, and Sildale Industrial Park, with a solar project at Silver Place completed post year-end. Further solar installations are planned for properties with suitable roof space, including The Fields.

Furthermore, Octodec has invested in replacing air-conditioning systems in older buildings to enhance tenant experience and reduce energy costs. Significant capital expenditure was also directed towards repurposing the ground floor of Bank Towers in the Tshwane CBD into retail space for a large national retailer, expected to boost trading densities in the area.

Cautiously optimistic outlook

Octodec is increasingly optimistic about prospects for enhanced growth following the creation of the Government of National Unity and the commencement of the interest rate cutting cycle. These developments are contributing to enhanced consumer and business confidence and spending power which will ultimately deliver economic growth. This bodes well for increased rental income and lower costs of funding for Octodec which should contribute to earnings growth in FY2025 and beyond. Additionally, lower costs of funding will enhance Octodec’s ability to carry out value-enhancing property conversions like Yethu City. Similarly, a more favourable economic environment will support the recycling of non-core assets which is a key focus in the period ahead.

The Group looks forward to Riaan Erasmus assuming his role of Financial Director and Debt Officer, as well as Deputy CEO, effective November 30, 2024. In these positions, Riaan will focus on optimising the group’s property portfolio and evaluating the internalisation of asset and property management services, alongside his primary duties as Executive Financial Director and Debt Officer.

“Riaan’s appointment marks a pivotal moment for Octodec. His extensive expertise and strategic insight will prove invaluable in propelling Octodec forward and I am excited about the future that will be built with his guidance. With the foundations set, our team is energised to drive sustainable growth and returns while leveraging a more favourable economic backdrop to ensure Octodec maximises its value creation into the future,” concluded Wapnick.

Dual role created as the REIT positions itself for growth

25 October 2024 – JSE-listed REIT, Octodec Investments Limited (“Octodec”), today announced changes to its leadership in line with its long-term succession plan aimed at growing the business sustainably.

Following the April 2024 announcement of the appointment of Riaan Erasmus as the incoming executive financial director and debt officer of Octodec, the Board is pleased to inform stakeholders that Riaan will with effect from 30 November 2024, also assume the position of deputy chief executive officer of Octodec.

In this new role, Riaan will be employed full-time by Octodec, specifically focusing on optimising the group’s property portfolio and assessing the merits of the internalisation of the asset and property management services currently provided by City Property. These responsibilities will sit alongside his primary duties as executive financial director and debt officer.

Sharon Wapnick, Chair of Octodec, said: “Succession planning has been a large focus over the last few years as we continue to plan the sustainable growth and future success of Octodec. The Board is confident in Riaan’s ability to seamlessly transition into this new dual role, providing the necessary expertise and continuity required by Octodec.”

Riaan graduated from the University of Northwest and qualified as a Chartered Accountant (South Africa) in 2008 after completing his articles with KPMG South Africa. He has extensive experience serving as an executive director, having previously held the positions of group financial manager, treasury manager and later, debt officer and financial director of Hospitality Property Fund Limited, a REIT that was listed on the JSE until 2021. In addition, Riaan served as the group treasurer managing the debt portfolio and other treasury-related transactions for the Tsogo Sun and Southern Sun group of companies from 2017 until 2022.

“Riaan has a keen passion for, and understanding of not only property, but the unique composition of Octodec’s business, and is the right person to take the portfolio to new heights. I look forward to Riaan’s contribution in his new capacity as he prepares to ultimately succeed me,” said Jeffrey Wapnick, Managing Director of Octodec.

The Group continues to actively manage its portfolio and value proposition through strategic conversion initiatives to grow income, reduce vacancies and protect and strengthen the capital and liquidity positions.

Highlights:

• Rental income R1 004.4 mil (HY2023: R974.2 mil)
• Distributable income after tax R219.5 mil (HY2023: R234.4 mil)
• Cash generated from operating activities before dividend payment R214.7 mil (HY2023: R239.8 mil)
• All-in weighted average cost of funding 9.2% (HY2023: 9.0%)
• Distributable income per share (cents) 82.47 (HY2023: 88.10)
• Dividend per share (cents) 60.0 (HY2023: 60.0)

Tuesday, 14 May 2024 – JSE-listed REIT Octodec Investments Limited today announces its interim results for the six months ended 29 February 2024, recording income growth of 3.1% largely driven by higher rentals in its residential portfolio. This was achieved against a challenging backdrop of weak economic growth, record unemployment and higher inflation and interest rates.

However, the Group’s strategic focus on implementing value-accretive conversion opportunities will bear fruit with the launch of HealthConnect and the commencement of the construction work of Yethu City in response to strong demand for quality healthcare and residential facilities in the Tshwane CBD.

Portfolio performance

Octodec achieved revenue growth of 3.1% primarily attributable to rental growth in its well performing residential portfolio. Despite the prevailing economic challenges, which have put significant pressure on South African consumers, this performance demonstrates the resilience of the portfolio as well as tenants’ appreciation of Octodec’s commitment to provide secure and quality accommodation. However, the Group’s distributable income before tax decreased by 7.0% from R236.8 million to R220.3 million, primarily due to higher property and administration expenses across the portfolio.

The Fields in Hatfield, catering predominantly to students, witnessed a resurgence in demand following the increase in NSFAS allowances in 2024, marking a notable decrease in vacancies from 23% to 7% by April 2024. However, increased vacancies in residential buildings near Lilian Ngoyi Street in Johannesburg tempered overall sector performance.

The Group’s portfolio of retail shopping centres continued to perform exceptionally well. On a like-for-like basis, rental income increased by 1.7%, however this growth was impacted by a small increase in vacancies at Killarney Mall. Excluding Killarney Mall, core vacancies remained below 1%, showcasing the strength and performance of the Group’s convenience shopping centres in Gauteng.

Commenting on the results, Jeffrey Wapnick, Octodec MD says “We are pleased to have grown our income and retained our dividend in these challenging market conditions. At the same time, we recognise the importance of not remaining idle, and are excited at the prospects of our recently announced developments, including the development of medical suites at HealthConnect adjacent to Louis Pasteur Hospital as well as the conversion of vacant office space into residential accommodation. These projects not only diversify Octodec’s portfolio but also contribute to community upliftment and sustainable growth. Additional strategic initiatives, such as enhanced student facilities at The Fields and investing in alternative energy solutions to mitigate load shedding, affirm our commitment to maintaining a best-in-class portfolio.”

Octodec’s office portfolio performance, while challenging, was stable. Although core vacancies increased slightly, rental income was impacted by some significant rental reversions in the government space, resulting in a decrease in rental income of 1.4% on a like-for-like basis.

According to Octodec FD, Anabel Vieira, “We are pleased to have still maintained a strong capital and liquidity position and LTV, as well as a solid and diversified funding base which will protect our portfolio and importantly, allow us to actively undertake more conversion and development opportunities to unlock our value while retaining the strength of our assets”.

Developments and disposals

Octodec has recently approved the conversion of a vacant office building in the Tshwane CBD into residential accommodation. The development will be known as Yethu City on Sisulu and will offer a slightly smaller and more affordable product relative to Octodec’s traditional residential units, with shared amenities such as living areas, kitchens and bathrooms.

The conversion, which is estimated to cost R44 million at a marginal yield of 13%, is expected to be completed by December 2024, with occupation in January 2025. In addition, Octodec intends to install a solar PV system to reduce the cost of electricity and provide backup power, which should further enhance the yield from this project.

HealthConnect, which is adjacent to the Louis Pasteur Hospital, offering medical suites to doctors and medical specialists was completed at the end of February 2024 at a cost of R64 million and a marginal yield of 13.1%, with occupation from March 2024.

Outlook: Purpose-driven, Social-impact Led

Jeffrey Wapnick concludes, “Looking ahead, Octodec remains committed to the principle of value creation. By leveraging our sector expertise and strategic vision, we will actively and cautiously identify and capitalise on opportunities that drive sustainable economic value and foster thriving communities.

At Octodec, we firmly believe that thriving communities are built on a foundation of accessibility, affordability, and quality of life. Through HealthConnect, as an example, we are not merely developing real estate; we are fostering a culture of care and compassion within our communities. By investing in projects that prioritise social impact and yet remain commercially viable, we are not only creating value for our shareholders but also contributing to the well-being of society as a whole.

Management’s focus for the second half of the year will be on maintaining the momentum achieved in growing income from the portfolio. The improved occupancy at our residential buildings should continue to impact positively on Octodec’s residential sector performance.

We continue to implement the value-added measures introduced at some of our properties, as well as ensuring backup power and water to our tenants during outages. The Group’s strategic focus remains on the redevelopment and repurposing of other properties to improve occupancy, grow rental income and ultimately, distributable income.”

By: Jeffrey Wapnick, MD, Octodec Investments Limited

In today’s fast-paced global business universe, where bottom lines often overshadow broader societal responsibilities, it’s essential to reassess how we measure success. In my role in particular, I’ve come to realise that commercial property owners and developers have a vital role to play in shaping the fabric of society. Beyond payout ratios, vacancy numbers and rent reversions, which are all critically important, our impact on communities should be a cornerstone metric of our success.

Recently, Octodec embarked on a transformative journey with the launch of HealthConnect — a project aimed not just at converting a partially vacant, existing building within the portfolio, but at addressing a pressing need within our community. Situated at the intersection of Sisulu and Francis Baard Street in the City of Tshwane, the renovation project for what was once called Ina Building, is a testament to our strengthened commitment to meeting the evolving healthcare needs of the surrounding areas.

Ina Building, once relegated to archiving purposes, presented a unique opportunity for repurposing into a medical centre. Its strategic location adjacent to the Louis Pasteur Medical Centre provided the perfect synergy to establish a hub of medical excellence. By introducing additional medical suites and fostering a seamless connection between the two structures, we aimed to create a space that not only provides medical services but also fosters a warm and comforting environment for patients.

While the physical transformation of the asset is undoubtedly noteworthy, the essence of HealthConnect lies beyond bricks and mortar. It’s about recognising our role as contributors to societal well-being, as facilitators of progress, and as stewards of community health.

In essence, it’s about leveraging our resources and expertise to create tangible, lasting impact.

At Octodec, we firmly believe that thriving communities are built on a foundation of accessibility, affordability, and quality of life. Through HealthConnect, we are not merely developing real estate; we are fostering a culture of care and compassion within our communities. By collaborating with the Louis Pasteur Hospital, we aim to integrate our facilities seamlessly, ensuring a continuum of care for patients and healthcare professionals alike.

The renovation of the Ina Building is more than just a functional upgrade; it’s a demonstration of our commitment to improving accessibility for all. From the creation of reception and waiting areas to the installation of bed and stretcher lifts, every aspect of the renovation is meticulously designed to enhance the overall experience for patients and visitors. Moreover, the addition of covered link bridges will provide sheltered pathways, further improving connectivity and convenience.

But beyond the physical enhancements, HealthConnect embodies a deeper sense of purpose — a pledge to fostering a culture of healing, comfort, and innovation within our communities. By providing accessible, affordable, and quality healthcare services, we are not only improving health outcomes but also enhancing the overall quality of life for individuals and families.

Commercial property owners are operating in a challenging post-Covid environment, particularly against a backdrop of interest rate and inflationary pressures. It’s easy in this context to lose sight of their broader societal responsibilities. However, my view is that success should be measured not just in terms of financial returns but also in terms of social impact. As stewards of the built environment, we have a unique opportunity — and a moral obligation — to use our resources and expertise for the greater good.

HealthConnect serves as an example of how commercial property can be leveraged as a force for positive change. By investing in projects that prioritise social impact and yet remain commercially viable, we are not only creating value for our shareholders but also contributing to the well-being of society as a whole.

Property owners have a unique opportunity to collaborate with government, industry bodies and public sector institutions and create a future where success is measured not just in rands and cents, or distributable income, or even rent escalations and reversions, but rather in the positive impact we leave on the world.

As a case study of purpose-driven commercial property conversions, the story of HealthConnect is not merely about property; it’s about the transformative power of social impact. Commercial property owners have a unique opportunity — and a moral imperative — to use our resources and expertise for the greater good. Let us seize this opportunity with both hands and pave the way for a brighter, more inclusive future for South Africa.

Tuesday, 13 February 2024 – JSE-listed REIT, Octodec Investments Limited, proudly announces the opening of the Dis-Chem Community Clinic today in Tshwane. This collaborative initiative underscores Octodec’s commitment to improving the quality of services for communities in and around Tshwane by providing accessible and affordable healthcare.

Establishing a Community Clinic in Tshwane is a vision borne out of Dis-Chem’s existing community outreach initiative, which brings accessible and affordable healthcare services to those in need. In this spirit, Dis-Chem approached Octodec to provide space for an accessible inner-city clinic in Tshwane. The clinic’s primary objective is to offer affordable healthcare services, emphasising the principle that value is attached to even a minimal cost. The clinic will provide appointment-based visits, reducing the need for patients to endure long queues or walk-in visits. Basic medications will be available, and the clinic will refer patients with more severe conditions.

Commenting on this initiative, Octodec Managing Director Jeffrey Wapnick said, “The opening of the Dis-Chem Community Clinic marks a pivotal moment for both Octodec and the surrounding communities. By collaborating with Dis-Chem, we are creating a meaningful and lasting impact in bridging the gaps in South Africa’s healthcare landscape, particularly in areas with limited access to quality medical services. This initiative is strongly aligned to Octodec’s purpose of making meaningful and sustainable contributions to the communities we serve.”

Octodec upgraded a dedicated space to meet the clinic’s requirements and provides the clinic with rent-free occupation for a period of five years. For Octodec, providing a free-of-charge space for initiatives focused on delivering social responsibility and community support is a norm as. Octodec provides free rental space in their buildings to several charitable organisations, including Dignity Dreams, Cotlands, and Santa Shoebox.

Lizeth Kruger, Community Clinic Executive, further emphasised the importance of the clinic, stating, “Opening our clinic will afford us the opportunity to increase medical access to people that are really in need, who don’t have the money to go to private clinics or doctors, yet need preventative care. This clinic represents hope and empowerment for people who need quality healthcare services.”

This collaboration also builds upon Octodec’s established partnership with Dis-Chem and Future Life who joined forces in 2023 to alleviate child-hunger through their Feed the Future programme, which aims to serve more than two million nutritious meals to school children. Added to this, and in line with Octodec’s response to the growing need for quality healthcare services, the company has completed the construction for the Health Connect Medical Centre, in the Tshwane CBD. Health Connect primarily focuses on accommodating doctors and healthcare professionals by providing medical suites in the adjacent but connected building of Louis Pasteur Hospital.

A R1.3 million partnership set to transform Early Childhood Development (ECD) for residents and community members in Tshwane

Tuesday, 6 February 2024 – JSE-listed REIT, Octodec Investments Limited, in collaboration with its long-standing social impact partner in Early Childhood Development (ECD), Cotlands, is proud to announce the launch of the Kamane Educare Centre, a transformative ECD facility in Tshwane. This initiative underscores Octodec’s long-standing commitment to enhancing the inner-city residential quality of life and actively supporting community welfare.

Cotlands, a highly respected non-profit organisation with an 87-year track record of successfully delivering on early learning initiatives that serve vulnerable children, says that 90% of a child’s brain development occurs within the first five years of life. Children who experience high-quality play-based early learning opportunities during the first five years of life have the advantage of acquiring holistic skills needed to succeed in school, employment, and later life.

Kamane Educare Centre officially opened in January 2024 and addresses the pressing need for accessible, high-quality services in Tshwane’s residential areas. It provides a Cotlands early learning playgroup programme, comprising of annual lesson plans linked to the National Curriculum Framework birth to 4, tailored to nurture young children’s cognitive, social, emotional, and physical development. To ensure quality play-based lessons, the ECD practitioner has also received accredited online training through Cotlands Ignite®.  Moreover, the Centre extends its services to school-going children, offering aftercare in a nurturing and educational environment.

Lisa Carne, Head of Sustainability at City Property said, “This partnership is vitally important to us as it holistically integrates the development of our surrounding community. We are investing in this Centre for the benefit of the children and families and contributing to our communities’ overall well-being and vitality. Our investment in the Kamane Educare Centre promotes accessibility, supports working families, and facilitates early childhood development while breaking the cycle of poverty and fostering community cohesion.”

With an investment of R1.3 million, Octodec’s property management arm, City Property, played a crucial role in overseeing the comprehensive renovation of Pete’s Place to establish the newly created Kamane Educare Centre. Every aspect of the facility is meticulously designed to ensure a safe, enjoyable, and enriching environment for children. Notable features include a dedicated sick bay, educational play areas, classrooms, sleeping areas with bathrooms tailored for minors, and a kitchen to make nutritious meals.

Beyond the physical enhancements, Octodec’s support for the Kamane Educare Centre aligns with its dedication to enterprise development and community empowerment. Annah Gumbi, a Cotlands-trained regional manager, is the proud owner of the Centre, which currently employs five professionals and Cotlands-accredited staff members and cares for 16 young students.

“We deeply appreciate the chance to establish a quality ECD Centre. It’s not just about delivering quality education but crafting a nurturing and practical environment. Parents are astonished at how we’ve turned this dream into reality. Unlike many ECDs in makeshift spaces around the CBD, this partnership has enabled us to redefine what a true home, safety, and convenience mean for our children,” said Gumbi.

In an exciting development, the Centre will soon introduce a toy library, facilitating educational toy exchanges among residents and neighbouring ECD centres. Octodec’s staff has eagerly embraced this initiative, with many volunteering to contribute pre-loved educational toys.

The long-standing partnership between Octodec and Cotlands extends beyond the Kamane Educare Centre. Octodec has historically provided free rent to Cotlands’ Head Office, while City Property actively supports a community skills development programme, focusing on Cotlands-accredited teacher training. Furthermore, Octodec champions ECD learnerships through its POP-UP program, contributing to youth upskilling and empowerment.