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Octodec reports income growth largely driven by its residential portfolio

HealthConnect.

Octodec Investments has published its interim results for the six months ended February 2024, reporting income growth of 3.1% largely driven by higher rentals in its residential portfolio.

However, the REIT’s distributable income before tax decreased by 7% from R236.8 million to R220.3 million primarily due to higher property and administration expenses across its portfolio.

The Fields in Hatfield, catering predominantly to students, witnessed a resurgence in demand following the increase in NSFAS allowances in 2024, marking a notable decrease in vacancies from 23% to 7% by April 2024. However, increased vacancies in residential buildings near Lilian Ngoyi Street in Johannesburg tempered overall sector performance.

Octodec’s portfolio of retail shopping centres continued to perform well. On a like-for-like basis, rental income increased by 1.7% however, this growth was impacted by a small increase in vacancies at Killarney Mall. Excluding Killarney Mall, core vacancies remained below 1%.

We are pleased to have grown our income and retained our dividend in these challenging market conditions. At the same time, we recognise the importance of not remaining idle, and are excited at the prospects of our recently announced developments, including the development of medical suites at HealthConnect adjacent to Louis Pasteur Hospital as well as the conversion of vacant office space into residential accommodation. These projects not only diversify Octodec’s portfolio but also contribute to community upliftment and sustainable growth. Additional strategic initiatives, such as enhanced student facilities at The Fields and investing in alternative energy solutions to mitigate load shedding, affirm our commitment to maintaining a best-in-class portfolio,” comments Octodec’s MD, Jeffrey Wapnick.

The Group’s office portfolio performance remained stable. Although core vacancies increased slightly, rental income was impacted by some significant rental reversions in the government space which resulted in a decrease in rental income of 1.4% on a like-for-like basis.

We are pleased to have still maintained a strong capital and liquidity position and LTV, as well as a solid and diversified funding base which will protect our portfolio and importantly, allow us to actively undertake more conversion and development opportunities to unlock our value while retaining the strength of our assets,” says Anabel Vieira, Octodec’s Financial Director.

Octodec recently approved the conversion of a vacant office building in the Tshwane CBD into residential accommodation. The development will be known as Yethu City on Sisulu, offering a slightly smaller and more affordable product relative to its traditional residential units with shared amenities such as living areas, kitchens, and bathrooms. The conversion, which is estimated to cost R44 million at a marginal yield of 13%, is expected to be completed by December 2024 with occupation in January 2025.

““Looking ahead, Octodec remains committed to the principle of value creation. By leveraging our sector expertise and strategic vision, we will actively and cautiously identify and capitalise on opportunities that drive sustainable economic value and foster thriving communities. At Octodec, we firmly believe that thriving communities are built on a foundation of accessibility, affordability, and quality of life. Through HealthConnect, as an example, we are not merely developing real estate; we are fostering a culture of care and compassion within our communities. By investing in projects that prioritise social impact and yet remain commercially viable, we are not only creating value for our shareholders but also contributing to the well-being of society as a whole.”

Management’s focus for the second half of the year will be on maintaining the momentum achieved in growing income from the portfolio. The improved occupancy at our residential buildings should continue to impact positively on Octodec’s residential sector performance. We continue to implement the value-added measures introduced at some of our properties, as well as ensuring backup power and water to our tenants during outages. The Group’s strategic focus remains on the redevelopment and repurposing of other properties to improve occupancy, grow rental income and ultimately, distributable income,” concludes Wapnick.

Octodec’s loan-to-value ratio currently sits at 38.5% (FY2023: 37.37%).