May 14 2024 10:23
JSE-listed Octodec Investments, which owns residential and retail space primarily in the CBDs of Johannesburg and Pretoria, has reported a 6.4% decline in distributable earnings per share in its interim results for the six months to end-February 2024, blaming higher municipal costs and a tougher operating environment.
This meant that Octodec’s distributable earnings per share for the six months to end-February fell to 82.47c from 88.10c over the comparable period a year ago. Investors in real estate investment trusts (Reits) like Octodec tend to buy their shares to get access to regular distributable income. Reits are mandated to pay a minimum of 90% of their distributable income as a dividend each financial year.
Revenue was up 4.7% at R1bn, the company said in a statement on Tuesday. The board declared a cash dividend of 60c per share.
Octodec is a real estate investment trust (reit) listed on the JSE and invests in the residential, retail, shopping centre, office, industrial property, and specialised sectors. Octodec’s portfolio
which comprises 237 properties located in the metropolitan areas of Tshwane and Johannesburg, was
valued at R11.0bn as at February 29 2024.
Jeffrey Wapnick has been the Managing Director of Octodec since 1998, and is responsible for the effective management of the company with a strong emphasis on the upgrades and redevelopment of properties. He holds various other directorships in unlisted companies including City Property Administration where he is the managing director. He is a member of the risk committee of Octodec. City Property manages Octodec’s inner city properties including student housing, affordable housing and on-street retail assets.
Octodec had to operate in a high interest rate environment, troubled by low economic growth and a lack of service delivery from municipalities. It attributed the 3.1% rise in revenue year on year earned on a contractual basis to an increase in residential rental income.
Assessment rates, bad debts and repairs and maintenance costs rose considerably compared with a year ago. Bad debts as a percentage of gross revenue increased marginally from 1.5% to 1.8%, impacted by an increase in both residential and commercial arrears.
Repairs and maintenance costs increased 12.6% to R44.8m, inclusive of tenant installations. This represented 7.4% of rental income, excluding recoveries.
The weaker rand contributed to increased costs through higher lift and airconditioning maintenance costs, which in Octodec’s portfolio are generally not recovered from tenants.
Wapnick said these increases were, however, offset by a substantial decrease in generator costs and improved tenant recoveries, resulting in the total net generator costs halving compared with a year ago as well as the improved electricity recoveries, reflecting the return on investment in solar panels at some of its buildings.
Octodec anticipated a movement in the interest rate cycle in the medium-term, but this was unlikely to have a bearing on the group’s performance in the second half of the year, it said.
“Our retail shopping centres and industrial assets are expected to improve despite the challenging economic climate. The improved occupancy at our residential buildings should continue to impact positively on our residential sector performance,” Wapnick said.
But Octodec announced two new value-accretive developments. It converted some spaces to house HealthConnect clinics and would roll out new affordable housing under the Yethu City on Sisulu brand.
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.
The group’s portfolio of retail shopping centres continued to perform exceptionally 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%, showcasing
the strength and performance of the group’s convenience shopping centres in Gauteng.
Wapnick said Octodec was considering how to get Killarney Mall to achieve more value. It would consider investing in the asset and or selling it.
The group will focus on the redevelopment and repurposing of other properties to improve its occupancy and grow rental income and ultimately distributable income.
“While expectations were that interest rates would decrease at the beginning of 2024, it is now anticipated that interest rates will remain higher for longer, and this will have a negative impact on Octodec,” Octodec said.
As a result, the board would not provide any guidance on distributable income and dividends for the second half of the 2024 financial year.
alistair@propertyflash.co.za
