Octodec delivers on target; sets long term platform for sustainable growth
Key development projects aligned to major investments in the Tshwane and Joburg CBDs
- 6,5% distribution growth for the year to 31 August 2016
- 5,2% increase in Net Asset Value per share to R29.13
- Four major new developments worth R672m nearing completion
- CBD retail performing well, supported by strong demand from national retailers
- Portfolio recycling strategy continues through redevelopments and disposals
Monday, 31 October 2016 – JSE listed REIT Octodec today announced full year results in line with expectations in a challenging economic, political and operating environment. The year saw major investments in improving existing properties as well as delivering on four new developments to attract and grow the tenant base.
The R12.3bn portfolio comprising 324 properties realised like-for-like growth of 5.3% in rental income. The 6.5% distribution growth was achieved through careful management, tight cost controls and optimisation of the portfolio. Net Asset Value per share increased 5.2% to R29.13 supported by a conservative increase in the valuation of properties and swaps to protect against interest rate fluctuations.
Jeffrey Wapnick, Managing Director of Octodec, commented: “The portfolio performed in line with our expectations as we continue to deliver on our strategy to unlock value across our portfolio through major new developments, redevelopments, upgrades and the recycling of non-core assets.
“South Africa is facing economic challenges but we are seeing significant private and public investment projects accelerating in the Tshwane and Johannesburg CBDs. This is highlighted by the increasing demand from national retailers recognising our CBD nodes as prime locations for stores roll-out.”
In line with its strategy to dispose of non-core assets, six properties worth R55.5m were sold and transferred during the period under review at a 15.3% premium to book value. A further 10 properties have been sold post year end with proceeds expected to amount to R179m, at well above book value. Two properties, including the Van Riebeeck Medical Building, were also acquired for R29m in the Tshwane CBD and form part of Octodec’s site assembly in key nodes.
Octodec had four major projects worth approximately R672m under construction during the year with R368m spent by 31 August 2016.
1 on Mutual, a R160 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 now timed for completion in February 2017.
Sharon’s Place (previously Centre Forum) a R375m new residential development in the Tshwane CBD consisting of 400 units, parking and ground floor retail anchored by Shoprite and Clicks, is situated adjacent to the new Tshwane House municipal development and set for completion in April 2017.
The Manhattan, a 180-unit residential development in Sunninghill, Johannesburg is progressing well. The total development cost of this 50%-held joint operation amounts to R80,9m and completion is expected in late 2016.
“We are excited about the launch of these new developments with 1 on Mutual offering tenants a more upmarket product with excellent retail facilities anchored by Pick n Pay and Mugg & Bean.”
“Two additional residential developments are in planning phase at a cost of R240m but these will only be undertaken if they meet our hurdle rate of return of 9%. Strategic partnerships that will support our growth and entry into new markets are also being considered,” commented Wapnick.
Octodec’s continued focus on cost control saw the ratio of net property expenses to rental income decrease to 29,6% (31 August 2015: 30,5%) whilst bad debt write offs and provisions remained low at just 0.8% of total tenant income.
The group’s loan-to-value ratio of 38% is within the company’s target range. Octodec has reduced its exposure to interest rate risk by entering into interest rate swap contracts in respect of 82.9% of all borrowings. The all-in average weighted interest rate for all borrowings was maintained at 9% per annum. The Group has significant committed bank facilities to complete all developments with headroom to raise more funds.
Anthony Stein, Financial Director of Octodec, said: “We have retained a strong financial position with sufficient facilities in place to fund our development pipeline. In addition, we have protected our exposure to interest rate risk by hedging 83% of our borrowings.”
The Board of Directors of Octodec has declared a final cash dividend of 103.1 cents per share for the twelve months ended 31 August 2016. Shareholders will be entitled, in respect of all or part of their shareholdings, to elect to reinvest the cash dividend in return for Octodec shares.
“There is a positive momentum in the CBDs with demand for quality residential and retail space expected to remain solid even in challenging economic conditions.
“Against this backdrop, we will continue to unlock value beyond financial returns through continued investments that support other stakeholders, both private and public, including dedicated precincts.
“The building blocks have been established for long-term sustainable growth with our short-term distributions anticipated to beat inflation until the greenfield projects come on stream,” concluded Wapnick.
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NOTES TO EDITORS
- Octodec is a Real Estate Investment Trust (“REIT”) listed on the JSE Limited (“JSE”) and invests in the residential, retail, shopping centre, office and industrial property sectors. Octodec’s portfolio which comprises 324 properties mostly located in the Tshwane and Johannesburg CBDs, is valued at R12,3 billion. Octodec is focussed on and committed to the continued investment into the Johannesburg and Tshwane city centres which offer higher yield and growth potential.
- Jeffrey Wapnick, the Managing Director of Octodec Investments since 1998, 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 of unlisted companies including City Property Administration Proprietary Limited where he is the managing director. He is a member of the risk committee of Octodec Investments Limited.
- The Wapnick family has a long history of experience in the property industry and holds a significant stake in Octodec, aligning their interests with those of other shareholders. Management has played an integral role in the running of the portfolio for over 25 years and therefore has an intimate knowledge of every asset and solid relationships with tenants. City Property as the asset and property manager has been managing Octodec for many years and has a wealth of experience in property management, specifically in the Tshwane and Johannesburg city centres and in the residential sector.