Octodec Investments Limited has reported its results for the six months ended on the 28th of February 2021 reflecting its distributable earnings of R199 million declining due to the weight of Covid-19 implications.
Tenant relief of R26 million, mainly in the form of discounts selectively granted to the worst affected tenants, was reduced compared to the past six months with rental collections remaining high and averaging 95%. However, the rise in vacancies, particularly in the residential and retail shops sectors, lower rentals on renewal of leases added to the loss of rental income which ended down by 10.8% for the half-year.
“The social and economic fallout from Covid-19 lockdown restrictions weighed on our tenant base and consequently on our performance” commented Jeffrey Wapnick, Managing Director of Octodec.
“Octodec has survived sixty-three years of economic cycles and we are confident that we have taken the necessary steps to proactively respond to challenges and position the business to benefit from a recovery. Octodec’s resilience is underpinned by, management’s intimate knowledge of the portfolio and markets, the diversified portfolio and granular tenant base, strong cash generation and prudent financial management.”
Octodec’s occupancy levels were down by 3% overall, driven mainly by the usual peak in residential vacancies experienced at the end of the calendar and the academic year, followed by a delayed uptick in leasing in the new year. Commercial vacancies, save for retail shops, were relatively stable owing to continued demand for the group’s quality offering and active leasing. The retail shopping centres portfolio (comprising mainly of convenience and neighbourhood centres) proved to be defensive given its limited vacancies and ongoing support from consumers.
During the period, a digital leasing system was implemented with an emphasis placed on digital marketing to attract new tenants. The rollout of Wi-Fi to residential buildings was expedited with a few completed during the period, ensuring that the buildings reman relevant and attractive to tenants. Additionally, furnished apartments and shared accommodation were introduced at The Fields in Hatfield with a second phase successfully launched during the period.
“The city ‘buzz’ is back with the return of people to the city centres and virtually all retail tenants are trading. Leasing activity has picked up across sectors and we are seeing renewed confidence from national tenants to commit to leases. Residential vacancies have come down nicely following the delayed start to the tertiary academic year and rental payment patterns are becoming more predictable with collections averaging 99%. The benefits of our digital marketing push and enhanced digital leasing capabilities are also beginning to come through in the form of increased leasing activity, cost efficiencies, ease of transacting and improved customer service as well as an extension of our target market reach” says Wapnick.
In line with management’s decision to preserve cash, Octodec did not undertake any new developments and instead focused on maintaining and carrying out smaller upgrades of properties or lease-driven projects. The business completed the refurbishment of Leo’s Place, a residential property in Tshwane Arcadia, at a total cost of R11.7 million which includes a recreational area and the renovation of the common areas.
Octodec continued with active marketing of the properties held for sale and entered into numerous conditional agreements with buyers. In the current environment, it is difficult for buyers to secure funding, drawing out the disposal process. During this period, Octodec disposed of several properties for a total consideration of R26.3 million with three of these properties transferred for a total consideration of R6.5 million. Transfer of the remaining properties is expected to take place before the end of the current financial year.
Octodec finished the period on a sound financial footing with sufficient facilities available to honour commitments. Cash generation during the period remained strong at R388 million and unutilised available banking facilities totalled R313 million. Management proactively addressed short term loan expiries and extended swap maturities while also managing covenant headroom and flexibility. The group’s loan to value (LTV) was 44.2%, well within bank covenant levels of 50% despite the 4,3% devaluation of the property portfolio to R11.3 billion.
“We are comfortable with the group’s financial position and our solid banking relationships continue to serve us well in our proactive and constructive engagements with funders, who are supportive. Cash flow discipline remains a key focus and we are closely monitoring vacancies and rental payment trends to ensure robust liquidity planning and management,” commented Anthony Stein, FD of Octodec.
Due to ongoing uncertainty around subsequent waves of infection and further lockdown restrictions, no interim dividend has been declared. The decision around a final dividend will be made at the time of the release of the annual results. Management is committed to the group strategy and is continuously exploring innovative initiatives to unlock value in the properties.
“While we remain cautious on the outlook and it is early days, we are encouraged by the green shoots we are seeing in improved occupancies, collections and leasing activity since March and are hopeful that this is an indication that the worst is behind us. We will continue to be responsive to the dynamic environment by actively managing the portfolio and factors within our control, positioning the group to navigate the headwinds and take advantage of a change in tide,” Wapnick concluded.