Octodec delivers modest distribution growth in light of challenging operating environment
Key development projects aligned to major investments in the Tshwane and Joburg CBDs
- 0,8%% distribution growth
- 0,7%% increase in Net Asset Value per share to R29.33
- 5 , 3 % like-for-like growth in rental income during the period
- 203.1 cents per share annual cash dividend declared
- Portfolio recycling strategy continues through redevelopments and disposals
- Total property assets valued at R12.6bn, up by R235.1m
- Four major developments worth a total of R648 million were underway
Tuesday, 31 October 2017 – JSE listed REIT Octodec Investments Limited today announced full year results achieving modest distribution growth of 0.8%, and declaring an annual cash dividend of 203.1 cents. Octodec continued with its strategy to upgrade and extract value from its property portfolio, with good progress being made on the four major construction projects, including several other small projects.
Despite the continued sluggish performance of the local economy, Octodec’s R12.6 billion portfolio comprising 315 properties, realised like-for-like growth of 5.3% in rental income during the period. In light of the weak environment, the rental income growth achieved from offices and retail shopping centres surpassed expectations showing the strongest growth of 8.4% and 6.4%, respectively. The residential portfolio achieved lower rental income growth of 2.5% which was impacted by increased competition and price sensitivity. Depressed house prices and lower interest rates environment also attracted tenants to the buying market.
Jeffrey Wapnick, Managing Director of Octodec, commented:
“Although South Africa is facing economic headwinds we are seeing significant private and public investment projects accelerating in the Tshwane and Johannesburg CBDs.
“Our experienced management team, the granularity of our diversified portfolio, with its large number of tenants, sound operating fundamentals and careful capital management will continue to ensure Octodec’s resilience.”
In line with ongoing optimisation of the portfolio through the recycling of non-core properties, Octodec sold and transferred nine properties worth R77.8m during the period. A further seven properties have been sold for a total consideration of R58.3 million, however transfers of these properties had not taken place by year-end. The total disposals were achieved above book value.
Octodec had four major projects under construction worth a total of R648 million during the year under review. One on Mutual, a mixed-use property in the Tshwane CBD consisting of 142 residential units and ground floor retail space and parking, was more than 90% let at year end. Sharon’s Place a large well-located new residential development in the Tshwane CBD consisting of 400 units and ground floor retail, is expected to be completed in early 2018. The retail portion of the property was completed in July 2017 and is well let, anchored by Shoprite and Clicks. Two other developments were well in progress at year end.
“These projects together with our several small projects under way will not only enhance the value of our portfolio, but will also contribute to the upliftment of Tshwane and Johannesburg CBDs in which we are invested.
“New and redeveloped properties will grow our rental income stream, however, phased take-up of units tends to have a negative impact on results in the short term. Depending on the number of units, it takes between six and twelve months for residential developments to achieve full occupancy levels,” commented Wapnick.
The ratio of net property expenses to rental income for the group slightly increased to 30.9%. Bad debt write-offs and provisions during the year remained below 1% of total tenant income. Finance costs for the period amounted to R408.7 million, an increase of 3.5% compared to the prior year. The all-in weighted cost of borrowings increased marginally to 9.2% per annum.
Anthony Stein, Octodec’s Financial Director, commented:
“Despite the sustained economic pressure, arrears and doubtful debt provisions remain at acceptable levels due to tight credit risk management. There is no significant deterioration anticipated in the near future.
“The rise in finance costs is mainly due to increased borrowings to fund developments and projects, as well as the cost of additional interest rate hedging contracts entered into during the period.”
The group’s loan to value ratio (LTV) reduced to 37.1% during the period from 38.3%, in the previous period, this remains within the company’s target range. Octodec further reduced its exposure to interest rate risk by entering into interest rate swap contracts in respect of 82.1% of its borrowings. The all-in weighted average interest rate of all borrowings is 9.2% per annum compared to 9.0%, in the previous period.
“We continue to consider geographic diversification opportunities outside of Gauteng in sectors that we have extensive experience and expertise in. The recycling of non-core properties will also remain our focus area,” concluded Wapnick.