Jeffrey Wapnick, Managing Director of Octodec
JSE listed REITs Octodec today announced its annual results to 31 August 2014. These results mark the final financial report of Octodec prior to the merger between Octodec and Premium Properties (“Premium”) becoming effective on 1 September 2014.
The results showed Octodec’s ability to maintain its track record of delivering strong growth in earnings amidst subdued trading conditions and consumer confidence levels. Dividends increased by 11,5% to 175,7 cents per share for the year.
Jeffrey Wapnick, Managing Director of Octodec, commented: “Octodec’s strong growth in earnings was supported by a number of successful upgrades completed during the year as well as a proactive approach to letting which mitigated the impact of tough trading conditions and subdued consumer confidence.
“The residential portfolio, which represents 25% of the combined GLA, has a low vacancy level, underpinned by stronger demand for well-located quality accommodation. Strong demand for CBD retail also continued during the year supported by renewed interest from major national retailers.”
The growth is partly attributable to contractual escalations, improved letting and increased recovery of utility and assessment rate charges through greater efficiencies and focus on energy management initiatives. Additionally, bad debt write-offs and provisions were maintained at 1% of total tenant income.
The period saw limited improvement in the office and industrial rental markets and a slight decrease in vacancies. The retail portfolio and shopping centres contributed greatly to the enhanced performance with Killarney Mall, the flagship shopping centre achieving an extremely pleasing result and maintaining vacancies at below 2% of gross lettable area.
IPS Investments and Premium, which are subsidiaries of Octodec following the merger effective 1 September 2014, also delivered solid performances for the period.
Jeffrey Wapnick added: “Following the merger, Octodec boasts a portfolio of 320 properties spread between the residential, retail, industrial and office sectors, valued at approximately R10,9 billion.
“The diversified portfolio, which remains managed by City Property Administration, offers investors exposure to the most significant residential property portfolio of any JSE listed REIT with a unique focus on the high growth nodes of the Pretoria and Johannesburg CBDs as well as surrounding areas.”
Octodec’s ratio of loans to value of its investment portfolio at 31 August 2014 was 33,8% (2013: 35,9%). The enlarged Octodec Group has in excess of R740 million of unutilised facilities in place.
Anthony Stein, Financial Director of Octodec, said: “The scale of the combined fund will result in improved access to capital at more attractive rates which will support Octodec in the execution of its growth strategy through further yield-enhancing upgrades, redevelopments and acquisition opportunities across the portfolio.”
During the year, Octodec completed four major projects with two projects still under construction. The total cost of these projects is approximately R530,8 million of which an amount of R155,7 million had already been spent at year end.
Projects completed include the upgrade of Time Place, a residential property situated in the Pretoria CBD and the redevelopment of Medical City in the Johannesburg CBD into a college with residential accommodation. The propoerties were occupied in September and November 2013 respectively.
The R116,0 million redevelopment project of the Johannesburg CBD based Bosman Place into residential units is well underway with a completion date of March 2015 and an expected fully let initial yield of 8,2%.
Octodec has also commenced on the redevelopment of the Centre Forum which is situated adjacent to the new Tshwane municipal development in the Pretoria CBD. This R333,0 million greenfield residential development will also include ground floor retail and parking and is expected to be completed in late 2016 at a fully let yield of 8,1%.
A number of projects which were previously in the Premium portfolio have recently commenced including the development of a greenfield mixed-use property, 1 on Mutual, situated adjacent to Church Square in the Pretoria CBD. This R140,1 million project is expected to be completed in early 2016 with a fully let initial yield of 8%.
Jeffrey Wapnick, Managing Director of Octodec, commented: “We are passionate about the Pretoria inner city and are proud to play a part in restoring South Africa’s capital to a vibrant epicentre of culture, arts, government and business.
“Our new developments are attracting positive responses from national retailers looking to service the CBD market and also residential tenants seeking upmarket accommodation. 1 on Mutual, which broke ground in June this year, is the perfect example of this trend and will be popular with upcoming young urban professionals looking for a place to work, stay and play in the city.”
These projects are in line with Octodec’s strategy to pursue larger developments that will not only enhance the value of the portfolio but also contribute to the upliftment of the CBDs. Such investments are made easier by the capacity and funding ability that the enlarged Group can leverage following the merger.
“Looking ahead, we are confident that our current and future project pipeline will support continued growth in spite of a subdued local economy.
“By building on the enlarged Octodec foundation created following the merger with Premium, we believe that we will be able to grow dividends per share by between 7% and 9% in the year ahead,” concluded Wapnick.