Octodec delivers 7,7% full year distribution growth; supported by core residential market strength
- Distributions up 7,7% to 189,2 cents per share
- R390 million in equity raised in July through oversubscribed bookbuild
- R288 million of R681 million spent on four major developments
- NAV up 12,5% to R27,69 per share
Wednesday, 4 November 2015 – JSE listed and CBD focused REIT Octodec today announced a good performance for the year to 31 August 2015, the first full year since merging with Premium Properties.
The residential market strength and Octodec’s hands-on management approach, tight cost control and portfolio enhancements underpinned the growth in earnings with like-on-like portfolio growing by 6.7%.
The total distribution per share increased by 7,7% to 189,2 cents despite tough business conditions and muted economic growth.
Jeffrey Wapnick, Managing Director of Octodec, commented: “In this first year since merging with Premium, we achieved like-for-like growth in rental income of 6,7% supported by a better than expected performance from the residential market, a slight improvement in the industrial market and reduced vacancies overall.
“A key objective for the period was to improve the quality of the portfolio and attract new tenants. The reduction in industrial vacancies from 13,7% to 9,3% is testament to this being a success. The merger with Premium enabled us to start larger development projects during the period which will further enhance the value of the portfolio and contribute to the renewal of the CBDs, our key operating areas.”
Core vacancies, which exclude properties held for redevelopment, reduced from 11,5% to 8,8% of total lettable area supported by improved letting across most sectors. The ratio of net property expenses to rental income was maintained at 31%. Bad debt write-offs and provisions were reduced.
Octodec acquired eight smaller properties during the year for a total of R109,4 million and disposed of three non-core properties for a total of R15,9 million. Of these, the most significant acquisition is Reinsurance House, an office block situated in the Johannesburg CBD, for R33,5 million. This building will be converted into residential units at a total cost of approximately R100 million with the fully let initial yield expected to be 8,5%.
Octodec also entered into a 50:50 joint venture with Renprop and other strategic partners to develop The Manhattan, a residential block in Sunninghill, Johannesburg. The total cost of the 180 unit residential development amounts to R156 million and is expected to be completed by late 2016. The fully let initial annual yield is expected to be 9,5%.
“The aim of this joint venture is to explore a different market segment with a reputable partner, allowing Octodec to diversify into yield-enhancing opportunities outside of the CBDs,” said Wapnick.
During the year Octodec successfully raised R390 million through an oversubscribed accelerated bookbuild which reduced the group’s loan-to-value ratio to 37,3%, in line with the target to maintain it below 40%. At year end, Octodec’s all-in average weighted interest rate for all borrowings stood at 8,9% per annum with 94,2% of outstanding borrowings fully hedged.
Anthony Stein, Financial Director of Octodec, said: “Capital management was a key focus in the past year. We were pleased with the successful R390 million of capital raised, which reduced our loan-to-value ratio to 37,3%, in line with our target.”
“Our bond programme was also increased from R1 billion to R3 billion and this is supplemented by additional unutilised committed banking facilities amounting to R1,1 billion.
“The temporary decrease in forward interest rates allowed us to hedge additional borrowings at a reasonable cost through interest rate swap contracts to the value of R1,25 billion over a four year term. This increased our hedged borrowings to 94,2%.”
The latest valuation undertaken by Octodec confirmed a portfolio of R11,4 billion representing an increase of 4,5% or R486,1 million. This contributed to the increase in the net asset value advancing 12,5% to R27,70 per share.
Four major projects worth approximately R681,2 million were under construction during the period, with R288,3 million spent by 31 August 2015.
The R347,4 million Centre Forum new residential development consisting of 400 units, ground floor retail and parking in the Tshwane CBD, is situated adjacent to the new Tshwane House municipal development and set for completion in March 2017 at a fully let yield of 8,1%.
1 on Mutual, a R146,4 million mixed-use development situated adjacent to Church Square in the Tshwane CBD will consist of 142 residential units, ground floor retail space and parking. This project is timed for completion in April 2016 with a fully let annual yield of 7,6%.
Frank’s Place in the Johannesburg CBD, a residential building with a retail component was completed in May 2015 at a cost of R130,1 million. The fully let initial annual yield expected to be 8,1%. The R57,3 million second phase retail component at Silver Place in Silverton Tshwane, was completed in July 2015 at a fully let annual yield of 8,3%.
“Looking ahead, our redevelopments weighted towards the defensive residential sector, should enhance the quality of the portfolio and deliver higher value for shareholders.
“Although growth in the economy is expected to remain subdued, we believe that our robust and diversified portfolio will perform consistently in the coming year with annual distribution growth of between 6% and 8% expected,” concluded Wapnick.