Octodec Investments has published its annual results for the year ended August 2022 with its distributable income after tax having increased by 30% from R358.4 million to R466.1 million. The group’s board declared a final dividend of 80 cents per share, with a total dividend of 130 cents per share for the full year (FY2021: 50 cents per share) – a 160% increase on the prior year.
The REIT also experienced an increase in residential leasing activity resulting in significantly reduced vacancies and positive reversions on renewals.
Residential income increased 7.6% year-on-year primarily due to the return of students to universities for in-person classes and increased activity at OR Tambo Airport, which greatly benefited letting activity at Kempton Place. Added to this, initiatives such as the introduction of shared and furnished accommodation at some of its residential buildings, and value-added services such as complimentary Wi-Fi for tenants in various other buildings resulted in increased demand.
“There is a clear demand for affordable, quality accommodation in both the Tshwane and Johannesburg CBDs. Due to the success of our value-enhancing initiatives, we have seen an impressive 33% increase in leasing enquiries. We intend to accelerate the rollout of these offerings to more residential buildings to attract new tenants,” commented Jeffrey Wapnick, MD of Octodec.
“With vacancies almost at pre-COVID-19 levels, the focus will now change to increasing rentals per unit while at the same time being cautious of the impact that high inflation and increased interest rates will have on the disposable income of tenants and the consequential effect on vacancies.”
Octodec’s retail assets continued to perform well, with positive reversions on new leases and renewals. As a result, rental income from Octodec’s shopping centres increased by 5.9% year-on-year. However, the first half of the year was still impacted by lockdown restrictions and the group’s street shops experienced subdued activity with several negative rental reversions concluded during the year, and a slight increase in vacancies has resulted in a marginal increase in rental of 3% year-on-year.
“Our CBD assets are well located in convenient locations with high foot traffic. Despite market conditions still being under pressure for the typical South African consumer, we continue to see renewed confidence from large national retailers to sign extended leases for larger pockets of space and willingness to test the CBD market with brands previously only found in malls,” Wapnick added.
In the office portfolio, the oversupply of office space in the major cities, due to hybrid or work-from-home models, continues to put pressure on occupancy levels, corresponding with the broader sector trend. As a result, rental income in the office sector decreased by 1.3% year-on-year.
Despite general rental pressure in the industrial sector, occupancy has improved considerably, with a number of Octodec’s industrial buildings being 100% occupied. During the year, many new enquiries were received, and the group experienced improved collections from places of worship and some colleges within its specialised portfolio.
According to Octodec Financial Director, Anabel Vieira, “The distributable earnings calculation was positively impacted by reduced debt and the lower interest rate environment (at the time), which reduced finance costs. We have made strides over the past two years to manage both our hedging profile and debt maturity profile, and we will continue to monitor opportunities to extend existing hedges, where appropriate.”
There has been a marked improvement in the conclusion of sales of properties previously identified for sale with the REIT having sold and transferred 20 properties for a total net consideration of R218.4 million.
“From a capital management perspective, our focus remains on maintaining a healthy balance sheet with an acceptable loan-to-value ratio of 39.7% (FY2021: 43.2%). We will continue to assess new development and conversion opportunities as they present themselves, and as such, Octodec will retain sufficient funds for developments and acquisitions for this purpose while at the same time providing a steady distribution to our shareholders.
Although the property sector as a whole faces certain headwinds, including poor municipal service delivery as well as rising inflation, increasing utilities costs and high-interest rates, we are confident that Octodec is well positioned through its niche expertise, diversified and defensive portfolio to benefit from a medium-to-long term economic recovery,” concluded Wapnick.