Octodec buoyed by strong Residential occupancy and income performance

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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.

Octodec MD Wapnick on the resilience of inner-city property investments

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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.

Octodec launches HealthConnect medical centre to meet growing demand for quality medical suites

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Pretoria, 11 July 2023 – Octodec Investments Limited (Octodec), a leading JSE-listed property investment company, is pleased to announce the launch of the renovation project for the Ina Building located in the City of Tshwane. This re-development initiative for a medical centre is a testament to Octodec’s unwavering commitment to meeting community needs and a response to the growing demand for quality medical suites in the area.

Ina Building, situated at the corner of Sisulu and Francis Baard Street, was previously utilised for archiving purposes. Its strategic location next to the Louis Pasteur Medical Centre, which is home to the Louis Pasteur Hospital, presented a unique opportunity to establish a symbiotic relationship between the two structures through the need for additional medical suites in the existing medical centre, and repurposing the vacant Ina Building. The renovation will primarily focus on accommodating doctors and healthcare professionals by introducing medical suites in the adjacent but connected building.

The renovation of the five-storey building will encompass both exterior and interior enhancements, with the ground floor remaining dedicated to retail spaces, while the upper floors will be transformed into modern medical suites comprising reception areas and consultation rooms. Notably, physical links will be established between the Louis Pasteur Medical Centre and the Ina Building on the first and fourth floors, ensuring seamless connectivity and convenience for patients and healthcare professionals alike.

Jeffrey Wapnick, Managing Director of Octodec Investments Limited, stated, “We are thrilled to launch the renovation project for the Ina Building, which evidences our deep-rooted commitment to create thriving communities and address the evolving healthcare needs of the surrounding areas. By collaborating with the Louis Pasteur hospital, we aim to create a hub of medical excellence that fosters a warm and comforting environment for patients.”

Functional upgrades to improve accessibility

The extensive upgrade will encompass several key elements among which will be the creation of reception and waiting areas. To improve the overall appeal of the building, the perimeter public space and facade will undergo a thorough refurbishment, and as part of the renovation, new bridge connections will be constructed to facilitate easy movement between the existing Louis Pasteur hospital and the Ina Building. These bridges will enhance coordination and streamline patient transfers, providing a continuum of care between the two facilities.

Seamless accessibility to upper floors is a crucial aspect of the upgrade. With the installation of new bed and stretcher lifts, patients and medical personnel will have efficient and convenient access to the various floors, ensuring smooth movement throughout the facility. To improve connectivity and convenience, a new covered link bridge will be created, connecting the Louis Pasteur parking garage to the Ina Building’s first floor. This addition will provide a sheltered and efficient pathway for patients and visitors, enhancing their overall experience.

Recognising the importance of creating vibrant and dynamic waiting areas, the redesign will transform these spaces into environments that uplift the ambiance. The new waiting areas will offer a refreshing change.

Octodec remains dedicated to meeting the changing needs of the community while creating spaces that promote healing, comfort, and innovation. The Ina Building renovation is a strategic investment in Octodec’s diverse portfolio and will unlock the provision of exceptional healthcare facilities.

World Hunger Day: Octodec to deliver 2.4 million meals to SA children

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Johannesburg – The annual World Hunger Day was commemorated at the weekend on Sunday, and it put the spotlight on the food insecure. More than 820 million people worldwide live in chronic hunger. Children are most vulnerable to hunger as high child mortality and morbidity rates reveal the existence of important underlying factors that catalyse malnutrition. In these very difficult times in the world, South Africa is fortunate that progressive entities tend to step up to tackle the crisis.

 

On Monday, Octodec announced that it has joined a partnership, which will enable 2.4 million meals to be served to preschool children in South Africa in the next 12 months. Octodec joins the Dis-chem Foundation, FutureLife and Nivea to bolster its impact in alleviating child-hunger in South Africa.

 

This nationwide initiative was established by the Dis-chem Foundation and FutureLife in 2020, who have provided more than 2 million highly nutritious meals for the past three years. JSE-listed REIT, Octodec Investments Limited, said it was “pleased” to join the partnership. According to The World Food Programme, one in four children in South Africa is stunted due to malnutrition. Hunger can cause physical and cognitive developmental delays, leading to long-term consequences that can affect a child’s ability to learn and succeed in school.

 

Addressing hunger in pre-school children is critical for ensuring their health and well-being, as well as setting them up for success later in life. Head of Sustainability at City Property Lisa Carne said: “4.6 million South African children go to bed hungry every night; it’s a heart-breaking statistic that has motivated us for the last six-years to partner with Rise Against Hunger, where to date, we have supplied just under 650 000 meals.”

 

Carne added: “When the Dis-Chem Foundation approached us last year to partner with them on their feeding scheme, it was a cause that we were so passionate about, we could not resist.

 

“We made a donation to the Foundation which added another 222 000 meals to their campaign last year, and now we join them as an official partner to drive the campaign to reach even more children.”

 

Carne said the initiative was in line with Octodec’s social impact focus. She said in 2022, the company spent R2.4 million in assisting communities in need through Rise Against Hunger, Hope Worldwide SA, Forever Friends, Unchain our Children and Door for Hope initiatives. Furthermore, Carne said Octodec invests in communities and offers free rental space in their buildings to selected organisations, including Dignity Dreams, Cotlands, and Santa Shoebox.

 

“In addition, Octodec is deeply involved in the People Upliftment programme which aims to uplift students studying early childhood education,” said Carne. “This partnership is emblematic of the Group’s dedication to caring for the communities they operate in, which will see Octodec distributing 50 000 meals each month in four informal settlements surrounding Johannesburg and Tshwane.

 

Being part of this initiative allows the Octodec team to continue investing in our communities’ security, education, well-being, and sustainability. This is integral to our commitment to building dignity and creating a shared value.”

Octodec’s campaign wins the 2023 African SABRE Diamond Award

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The company’s “Reinvigorating Corporate Narrative to Drive Investor Engagement” campaign in conjunction with its strategic investor relations and communications partner agency, Instinctif Partners, was recognised as having driven real and tangible business impact.

 

Octodec beat various global blue chips in the Superior Achievement in Measurement and Evaluation category as the campaign sought to consolidate and strengthen Octodec’s narrative to investors, resulting in a significant share price appreciation in 2022.

 

Managing Director, Jeffrey Wapnick, says, “This recognition demonstrates the impact of our work and emphasises the need to craft the right messaging, being forthcoming and transparent with disclosures to our shareholders. Our team continuously strive to provide long term stakeholder value, and we place great importance on how we communicate with our shareholders.”

 

The SABRE Awards is a global Public Relations platform that recognise superior achievement in branding, reputation & engagement, with separate competitions in North America, EMEA, the Asia-Pacific, Latin America and South Asia, and Africa. Various campaigns, through programs and initiatives are benchmarked for the best PR work from across each market.

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

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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.
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