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.
