Octodec successfully navigates the recovering economy, delivering growth in both rental income and distributions for HY2025
- Revenue grew 2% to R1.1 billion
- Core vacancies reduced to 7% with all sectors contributing to the improvement
- Cash generated from operations up 25% to R270 million
- Distribution per share 3% higher at 62.00 cents
- Executed the sale of ten properties aligned with the portfolio recycling strategy
- Yield-enhancing solar projects rolled out at two key assets
- Pilot project Yethu City launched to high market demand with residential units 97% let
JSE-listed REIT Octodec Investments Limited, announced its interim results for the six months ended 28 February 2025, reporting a resilient performance across its Gauteng-based portfolio, despite a challenging market context.
Building on early signs of economic recovery, Octodec management focused on soundly managing the portfolio and the Group’s value proposition, reducing vacancies and disposing of ten non-core assets.
A highlight for the period was the completion of and successful launch of Yethu City in mid-February 2025. This redevelopment pilot project exemplifies Octodec’s ability to address market needs by introducing quality, accessible co- living accommodation to the Pretoria CBD. The letting rate exceeded expectations, with the residential occupancy reaching 40.7% by end February 2025 and currently nearing 100%.
Commenting on the results, Jeffrey Wapnick, Octodec MD says “We are pleased to have grown our rental income and dividend despite a challenging operating environment, reflecting the stability of our portfolio and the effectiveness of our strategic initiatives. We remain committed to managing our portfolio in alignment with market demand, while supporting long-term sustainability and driving value creation. We are thrilled about the successful launch of Yethu City as part of our efforts to provide well-priced, quality accommodation and unlock new opportunities for growth and enhancement of returns.”
Portfolio performance
The overall portfolio valued at R11.3 billion, delivered revenue growth of 5.2% at R1.1 billion, and a reduction in core vacancies to 13.7%, largely driven by improved performances from the Shopping Centre and Office portfolios.
Octodec’s portfolio of retail shopping centres, anchored by a strong base of convenience centres, recorded core vacancies of 0.8%, when excluding Killarney Mall which is held for sale. The portfolio achieved solid rental income growth of 6.2% to R91 million, reflecting management’s yield-enhancing actions, and robust demand for this retail category.
Rental income from retail street shops rose by 1.4% on a like-for-like basis while the strategic disposal of properties with high vacancies supported an improvement in occupancy from 86.0% to 87.4%. The Group acknowledges the impact of macroeconomic challenges and infrastructure constraints on this retail segment – most notably the Lilian Ngoyi Street that is currently under repair in the Johannesburg CBD, which contributed to elevated core vacancies of 21.9% at these affected properties.
Octodec’s office portfolio performance showed some green shoots, recording encouraging like-for-like rental income growth of 6.4% to R151 million, when excluding a net lease adjustment applied in the comparative period. Core vacancies improved slightly from 24.3% to 23.4%. Management continues to proactively manage underperforming assets through disposals and strategic conversions.
Octodec’s residential portfolio recorded above-inflation rental income growth of 5.1% on a like-for-like basis. Vacancies ended slightly above the comparative period at 8.4%, however were below the FY24 figure of 9.2%.
The Hatfield properties benefitted from pre-approval of NSFAS funded students and the enhanced amenities for students, recording a notable decline in vacancies of 3.1 percentage points. The introduction of the Yethu City co-living offering, aims to address affordability constraints and capture the vast demand for quality accommodation in this market.
The industrial portfolio consisting of smaller warehouses and light industry performed well, delivering rental income growth of 5.1% on a like-for-like basis and reduced vacancies of 8.7%.
Disposals and Capital Investment
In line with its strategy to exit non-core properties and redeploy the capital more advantageously, Octodec sold ten non- core properties at a weighted average exit yield of 8.4%, receiving R49 million in net proceeds. Several capital investment projects were undertaken during the period, most notably the installation of solar panels at The Fields and The Park Shopping Centre, which is expected to yield significant returns and enhance both the value and appeal of the properties. Smaller value-enhancing projects included the upgrade of Waverley Plaza, improvements at government- tenanted Rentmeester Park and at the historic landmark building, Bank Towers, where Octodec welcomed a new look Jet store.
Prudent financial management
Cash generated from operations (before dividends) was 25% higher at R270 million. The group’s total borrowings ended the period at R4.4 billion and the LTV was reduced to 38.5%. Effective 30 November 2024, R970 million in funding was refinanced at improved margins with tenors of three to four years. The weighted average cost of funding ended the period slightly higher at 9.4% as a result of expired interest rate swaps. Management is proactively negotiating the refinancing of a further R650 million of debt maturing end August 2025. At the end of the reporting period, borrowings were 51% hedged and within the Group’s hedging target of between 50% to 60% in the short to medium term. The Group ended the period with R692 million in cash and unutilised banking facilities which is sufficient for its capital commitments.
Outlook and prospects
The formation of the Government of National Unity (GNU) has lifted market sentiment and together with interest rate cuts has improved the operating backdrop. These developments have already supported disposal activity and offered relief to small businesses, while presenting opportunities to lower Octodec’s funding costs, improving the potential for value-accretive reinvestment. While the lingering effects of the Lilian Ngoyi Street gas explosion and persistent unemployment continue to weigh on parts of the portfolio, management remains focused on tenant support, claim recovery, and adaptive asset management. However, heightened geopolitical risks, a material government lease termination, and uncertainty tied to the sustainability of the GNU, have prompted a more cautious outlook.
Riaan Erasmus Deputy CEO and FD adds, “We remain cautious in our interest rate outlook and focused on maintaining a disciplined balance sheet. As previously communicated, the Board has mandated a more assertive disposal strategy for non-core assets, where sales proceeds will be recycled into yield-enhancing investments or used to reduce borrowings, ultimately supporting income growth and strengthening the Group’s financial position. The early success of Yethu City underscores our strategy to reimagine underutilised assets to drive future returns.”
Based on the economic outlook and caution surrounding geopolitical tensions, management has revised its guidance for growth in distributable income per share, to between 2% and 4%, while maintaining a minimum dividend pay-out ratio of 75% of distributable income.
