May 13 2025 18:10
SOUTH AFRICA
JSE-listed Octodec Investments has put Killarney mall up for sale as it looks for more lucrative opportunities and not necessarily more assets in the Johannesburg and Pretoria CBDs where it has well-established footprints.
CEO Jeffrey Wapnick said in a results presentation to the media on Tuesday that Octodec had to be more circumspect about how it spent its capital going forward. The group had owned Killarney Mall, which is located west of the M1 freeway in Johannesburg’s northern suburbs, for many years but the centre had struggled in recent years. Its vacancy sat at 18% while the mall was valued at about R420m.
Octodec released financial results for the six months to end-February 2025.
“We have looked to sell Killarney Mall for a while. It serves s community but we have found that some tenants have let us down in terms of delivery and management. The mall also competes with nearby centres. We are looking to put our money into assets which perform better in this market. We are well-established in the CBDs if Gauteng but some parts of these CBDs are not serving us as well as they used to so we may invest in the suburbs and in industrial areas,” Wapnick said.
Wapnick said that a highlight for the reporting 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%,” the group said.
Octodec has a market capitalisation of about R2.7bn and an asset base worth around R11.3bn.
“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,” said Wapnick.
The overall portfolio valued at R11.3bn, delivered revenue growth of 5.2% at R1.1bn, 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 R91m, reflecting management’s yield-enhancing actions, and robust demand for this retail category.
Rental income from retail street shops rose 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,” the group said.
Octodec’s office portfolio performance showed some green shoots, recording like-for-like rental income growth of 6.4% to R151m, when excluding a net lease adjustment applied in the comparative period. Core vacancies improved slightly from 24.3% to 23.4%.
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 2024 financial year figure of 9.2%.
The Hatfield Pretoria properties benefited 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. NSFAS refers to the National Student Financial Aid Scheme which was established in 1991 to provide financial aid in form of bursary or loan to students from low-income families who meet the criteria for admission to post school education and training programmes in a public TVET college or university.
The industrial portfolio consisting of smaller warehouses and light industry performed well according to Octodec, delivering rental income growth of 5.1% on a like-for-like basis and reduced vacancies of 8.7%.
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 R49m 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, according to Wapnick. 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.
Cash generated from operations, before dividends, was 25% higher at R270m. The group’s total borrowings ended the period at R4.4bn and its loan-to-value (LTV) was reduced to 38.5%. Effective November 30 2024, R970m 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.
Wapnick said that the formation of the Government of National Unity (GNU) lifted market sentiment and this together with interest rate cuts 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 was focused on tenant support, claim recovery, and adaptive asset management, he said.
Based on the economic outlook and caution surrounding geopolitical tensions, Octodec said management 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.
alistair@propertyflash.co.za
