Strong residential occupancy and income performance buoys Octodec

The Fields in Pretoria.

Octodec Investments has published its results for the year ended August 2023, announcing a 3.3% increase in its revenue to R1995.1 million (FY2022: R1930.5 million) as well as an increased dividend per share of 135 cents (FY2022: 130 cents).

The group said it did “extremely well” to limit property cost increases to 5.3% year-on-year in what was “an exceptionally challenging operating environment.”

Octodec’s 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. Its residential portfolio, which accounts for 34% of the total portfolio by income and 27.3% of the portfolio by gross lettable area (GLA), was the stand-out performer with income increasing by 10.2% year-on-year off the back of good 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 yearend across its portfolio had dropped to a near pre-Covid-19 level of 5%.

The REIT’s portfolio of retail shopping centres continued to perform well, with rental income increasing by 5.3% year-on-year and the group says it 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%.

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,” commented Jeffrey Wapnick, Octodec MD.

Its industrial and office portfolios 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 Tshwane West and Silverton becoming vacant at yearend. The pipeline of interest for space in this area, however, remains strong, and Octodec says it 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.

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 remainer of phase two to be completed in FY2024. It also 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.

Octodec continues with its strategy to dispose of non-core assets with a number of arrangements having been signed but, which are subject to suspensive conditions and against this backdrop, the company sold and transferred properties for a total net consideration of R109.4 million during the year.

Its focused efforts on collections were 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 on 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.”

Octodec’s board 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.