Strong income growth due to material reduction in residential vacancies bolsters Octodec’s full year performance
Accelerated disposal programme and improved performance results in improved loan-to-value (LTV) ratio
- Rental income R1 930.5 mil (FY2021: R1 838.7 mil)
- Profit (loss) for the year R605.1 mil (FY2021: (R174.8 mil))
- Distributable income after tax (REIT funds from operations R466.1 mil (FY2021: R358.4 mil)
- Cash generated from operating activities before dividend payment R391.1 mil (FY2021: R357.4 mil)
- All-in weighted average cost of funding 8.7% (FY2021: 8.5%)
- Distributable income per share (cents) 175.1 (FY2021: 134.6)
- Dividend per share (cents) 130.0 (FY2021: 50.0)
- Net asset value (NAV) per share R23.28 (FY2021: R23.20)
- Loan-to-value (LTV) 39.7% (FY2021: 43.2%)
Tuesday, 1 November 2022 – JSE listed REIT Octodec Investments Limited today announced its annual results for the year ended 31 August 2022, recording a large dividend pay-out and a material reduction in vacancies in the residential and industrial sectors, with the residential portfolio in particular performing ahead of expectations. Although there has been a continued downward resetting of rentals across most sectors, from an Octodec perspective, several renewals are being concluded at increased rentals and demand for space in both Johannesburg and Tshwane CBDs remains strong.
Octodec has experienced an increase in residential leasing activity resulting in significantly reduced vacancies and positive reversions on renewals which have positively impacted the Group’s results.
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.
Commenting on the growth within the residential sector, Jeffrey Wapnick says: “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 33.0% increase in leasing enquiries. We intend to accelerate the rollout of these offerings to more residential buildings to attract new tenants.
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.”
Retail shopping centres 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 3.0% year on year.
Jeffrey Wapnick adds: “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.”
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 at office buildings, 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 FD, 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. Octodec has sold and transferred 20 properties for a total net consideration of R218.4 million.
Jeffrey Wapnick concludes: “From a capital management perspective, our focus remains on maintaining a healthy balance sheet with an acceptable loan-to-value ratio. 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.”
Distributable income after tax increased by 30.0% from R358.4 million to R466.1 million. the Board has declared a final dividend of 80.0 cents per share, with a total dividend of 130.0 cents for the full year (FY2021: 50.0 cents) – a 160% increase on the prior year.