Octodec Investments has posted its financial results for the year ended 31st August 2024, following the REIT’s recent announcement of the appointment of Riaan Erasmus has its deputy CEO, in addition to his role as the executive financial director and debt officer, with effect from the 30th of November 2024.
The Group reported a 4.1% increase in revenue to R2.1 billion with its residential and shopping centre portfolios witnessing the highest rental income growth of 3.8% and 3% respectively and largely driven by lease escalations and offset by increased vacancies.
While average collections remained strong at over 100% of billings, rental income was affected by rental concessions relating to the impact of unrepaired damage on Lilian Ngoyi Street in Johannesburg. Total core vacancies (excluding assets held for redevelopment) increased slightly from 14.2% to 14.9%. High inflationary cost pressures and an increase in net finance charges saw the Group’s distributable income (before tax) decrease to R421.9 million (FY2023: R455.8 million).
Octodec’s portfolio of shopping centres, comprising mainly convenience centres, performed well despite a temporary but sharp rise in vacancies owing to vacating underperforming tenants and improving the tenant mix at two key centres. Vacant spaces were re-let with the portfolio (excluding Killarney Mall) fully occupied post period end. The Group says that Killarney Mall has been identified as an asset to recycle with management working towards unlocking this value. Rental income increased by 3% year-on-year to R174 million.
Certain retail tenants exposed to Lilian Ngoyi Street were unable trade effectively during the reporting period and the Group says it is actively supporting these tenants until road repairs are completed.
Overall, rental income from retail shops grew by 1.4% year-on-year and 2.2% on a like-for-like basis, with the low growth attributed to the rise in vacancies and retention strategies, including lease renewals without rental escalations.
While the Group’s industrial portfolio performed relatively well during the period, smaller tenants were negatively impacted by high interest rates and failing road and port infrastructure which led to tenant failures. Consequently, vacancies in this segment increased slightly with the portfolio’s rental growth limited to 2.5% or 3.8% on a like-for-like basis.
Low economic growth, increased unemployment, and prolonged high interest rates have placed pressure on its tenants in its residential portfolio, leading to a higher rate of vacancies compared to new lettings. Vacancies generally increased as a result and were compounded by the knock-on effect of the unrepaired damage on Lilian Ngoyi Street, limiting rental income growth to 3.8%.
The Fields asset in Hatfield recovered an over 50% reduction in vacancies.
Cash generated from operations (before dividends) was R433 million with the Group’s total borrowings closed the period at R4.4 billion. Its loan-to-value (LTV) ratio increased slightly to 39.2% (FY2023: 37.7%). All bank covenants were met during the period with R400 million in funding successfully refinanced with tenors of three to five years at a slightly higher weighted average cost of 9.5%.
Post yearend, a further R370 million was refinanced with management negotiating the refinancing of a further R600 million of debt maturing in 2025. Only 68% of Octodec’s borrowings were hedged with a short weighted average term of one year. The Group ended the period with R679 million in cash and unutilised debt facilities sufficient for its capital commitments.
CEO Jeffrey Wapnick says the Group continues to seek opportunities to convert and repurpose vacant office space such as the conversion of the Prinsproes office building in the Tshwane CBD into Yethu City with leasing set to begin in January 2025.
Octodec declared a final dividend of 65 cents per share bringing the total dividend for the year to 125 cents per share.
