JSE-listed REIT Octodec Investments has reported its annual results for the year ended August 2024, showing a resilient 4.1% increase in group revenue to R2.1 billion despite numerous headwinds including high inflation, interest rates, failing infrastructure, and poor service delivery.
Octodec owns 234 residential, retail, office and industrial properties situated in Tshwane and Johannesburg worth R11.2 billion, including Killarney Mall and Woodmead Value Mart.
Notably, the residential and shopping centre portfolios saw the highest rental income growth at 3.8% and 3.0%, respectively, largely driven by lease escalations and offset by increased vacancies.
Average collections remained strong at over 100% of billings, however rental income was affected by rental concessions related to the impact of unrepaired damage on Lilian Ngoyi Street in Johannesburg.
Total core vacancies excluding properties held for redevelopment increased slightly from 14.2% to 14.9%.
High inflationary cost pressures and an increase in net finance charges saw distributable income before tax end the period lower at R422 million.
Octodec declared a final dividend of 65 cents per share bringing the total dividend for the year to 125 cents per share.
The retail shopping centres portfolio, made up of mainly convenience centres, performed well despite a temporary but sharp rise in vacancies owing to decisive management action to vacate underperforming tenants and improve the tenant mix at two key centres.
The vacant spaces were re-let, introducing new tenants such as Jo Borkett and Sweet Hyper Mega, who replaced West Pack Lifestyle at Woodmead Value Mart with the portfolio (excluding Killarney Mall) fully occupied post period end.
Killarney Mall has been strategically identified as an asset to recycle, and management are actively working towards unlocking this value.
Rental income increased by 3.0% year-on-year to R174 million, and the Group remains confident in the sector’s continued strong performance.
Octodec said its retail portfolio continues to attract high foot traffic and interest from large nationals.
Overall, rental income from retail shops grew by 1.4% year-on-year and 2.2% on a like-for-like basis, with the low growth attributed to the rise in vacancies and retention strategies, including lease renewals without rental escalations.
Jeffrey Wapnick, Octodec chief executive officer said "Our strategy to upgrade, convert, and repurpose strategically located buildings continues to unlock value, better align our portfolio with market demands, and position us for sustained success.
"Equally so, our decisive action to optimise our retail tenant mix within our shopping centre portfolio will support future returns."
The office sector as evidenced across South Africa remains under pressure, with tenants continuously opting to reduce their leasing requirements.
Vacancies therefore remain difficult to close and recorded a slight increase during the period with rental income unchanged from the prior year, the group said.
This portfolio offers opportunity to extract value from vacant buildings through conversions or disposals which are actively being explored.
Octodec’s industrial portfolio performed relatively well over the past year. Despite the sector’s general resilience, smaller operators were negatively impacted by high interest rates and failing rail and port infrastructure, leading to some tenant failures.
Consequently, vacancies increased slightly, and the portfolio’s rental growth was limited to 2.5%, or 3.8% on a like-for-like basis.
While continuing to seek opportunities to convert and repurpose vacant office spaces, the conversion of the Prinsproes office building in the Tshwane CBD into Yethu City is in progress with leasing set to begin in January 2025.
“I am excited about the completion of Yethu City. This new offering represents a significant step forward in addressing critical market needs.
"By providing quality, co-living spaces at accessible prices, we are not only meeting the high demand in this sector but also playing a vital role in supporting our community by ensuring more people have the opportunity to live in secure, well-maintained accommodation," said Wapnick.
Octodec said it is increasingly optimistic about prospects for enhanced growth following the creation of the Government of National Unity and the commencement of the interest rate cutting cycle.
These developments are contributing to enhanced consumer and business confidence and spending power which will ultimately deliver economic growth.
This, it said, bodes well for increased rental income and lower costs of funding for Octodec which should contribute to earnings growth in FY2025 and beyond.
Comments