May 16 2023
JSE-listed real estate investment trust (Reit) Octodec Investments Limited on Tuesday announced its interim results for the six months to end-February 2023, recording income growth driven largely by improved occupancy and higher rentals in its residential portfolio. Rental growth across most sectors remained stable against the backdrop of the difficult economic trading conditions, however several renewals of commercial leases were being concluded at increased rentals and demand for space in the Johannesburg and Tshwane CBDs remained strong, the group said.
Octodec achieved revenue growth of 3.2% across its portfolio, driven primarily by a 10.3% increase in the residential portfolio, its bread and butter. Property costs, both on a gross and net basis, improved marginally when compared with the prior period through hands-on management of properties.
Residential vacancies also decreased in Kempton Park and the Johannesburg, and Tshwane CBDs. The introduction of shared and furnished accommodation options at The Fields, together with value-add services such as free Wi-Fi and the cashless WashBars at several of the group’s buildings contributed to the improved occupancy and ensure that Octodec’s residential assets remain in high demand.
Despite the seasonal fluctuation in occupancy in the residential sector, which is generally higher during the period, the vacancies decreased significantly to 6.9% in February 2023. This was inclusive of The Fields, which was affected in part by the reduction in the National Student Financial Aid Scheme (NSFAS) allowance to students.
Octodec has revised its offering to accommodate those affected by this reduction. Students at other residential properties not funded by NSFAS and occupancy at those properties was not affected by the NSFAS allowance.
Jeffrey Wapnick, Octodec MD said the positive performance highlighted that the group’s “affordable, and quality products” across continued to be “attractive and value-enhancing”.
“We retain our competitive edge which is supported by our in-depth knowledge of tenants’ needs and the introduction of attractive initiatives in both the Tshwane and Johannesburg CBDs. This encourages our continued focus to leverage opportunities that enhance our buildings and attract new tenants while improving our vacancies,” said Wapnick.
Octodec’s retail portfolio benefited from its retail street shops being largely concentrated in the Tshwane and Johannesburg CBDs.
“We have seen improved footfall in the CBDs, particularly in the Tshwane CBD, although this has not necessarily translated into improved turnovers for our retail tenants. On a like-for-like basis, rental income increased 3.2%. This growth was muted due to Standard Bank and Nedbank having vacated from two of our buildings during half one of financial year 2023,” Wapnick said.
Octodec’s portfolio of retail shopping centres, which largely comprise convenience shopping centres, continued to perform strongly, with core vacancies at 6.4% and excluding Killarney Mall, at 0.1%.
Rental income from our shopping centres, including Killarney Mall, increased by 3.6% on a like-for-like basis.
“We believe that despite the growing challenges around the reliable supply of electricity and underperforming municipalities, there is a renewed energy and restored confidence in the CBDs. While there has been less activity in the street shops due to constrained market conditions for consumers, leasing activity has increased and there is take up in spaces that were previously unattractive,” said Wapnick.
The office sector saw some improvements in leasing activity. Although core vacancies improved slightly, rental reversions in the sector, together with some tenants vacating at the end of the prior year, contributed to a decrease in rental income in this sector of 5.4%.
Octodec FD, Anabel Vieira said despite the challenging interest rate environment, the group managed its balance sheet and debt and together with a positive valuation of its property portfolio, achieved a further decrease in its loan-to-value.
Development and Disposals
Octodec would refurbish the common and entertainment areas at Vuselela Place, a mixed-use residential and retail building in the Johannesburg CBD. They were repurposing Ina Building, a vacant office building adjacent to Louis Pasteur into medical suites.
“We are excited by the demand thus far and completion is expected by January 2024,” they said.
Octodec disposed of five properties identified in the reporting period.
With distributable income after tax increasing 10.7%, the Board declared an interim dividend of 60.0c per share for the six months to end-February 2023 compared with 50.0c for the six months to end-February 2022. This represented an increase of 20%.
alistair@propertyflash.co.za