JSE-listed Real Estate Investment Trust (REIT) Octodec Investments reported its interim results for the six months ended 29 February 2024, recording income growth of 3.1% largely driven by higher rentals in its residential portfolio.
This, it said, was achieved against a challenging backdrop of weak economic growth, record unemployment and higher inflation and interest rates.
The group is invested in strategic nodes in the CBDs of Tshwane, the administrative capital of South Africa, and Johannesburg, the economic hub of South Africa and surrounding urban areas.
Highlights:
• Rental income R1 004.4 mil (HY2023: R974.2 mil)
• Distributable income after tax R219.5 mil (HY2023: R234.4 mil)
• Cash generated from operating activities before dividend payment R214.7 mil (HY2023: R239.8 mil)
• All-in weighted average cost of funding 9.2% (HY2023: 9.0%)
• Distributable income per share (cents) 82.47 (HY2023: 88.10)
• Dividend per share (cents) 60.0 (HY2023: 60.0)
The group said its strategic focus on implementing value-accretive conversion opportunities will bear fruit with the launch of HealthConnect and the commencement of the construction work of Yethu City in response to strong demand for quality healthcare and residential facilities in the Tshwane CBD.
Portfolio performance
Octodec achieved revenue growth of 3.1% primarily attributable to rental growth in its well performing residential portfolio.
Despite the prevailing economic challenges, which have put significant pressure on South African consumers, this performance demonstrates the resilience of the portfolio as well as tenants’ appreciation of Octodec’s commitment to provide secure and quality accommodation.
However, the group’s distributable income before tax decreased by 7.0% from R236.8 million to R220.3 million, primarily due to higher property and administration expenses across the portfolio.
The Fields in Hatfield, catering predominantly to students, witnessed a resurgence in demand following the increase in NSFAS allowances in 2024, marking a notable decrease in vacancies from 23% to 7% by April 2024.
However, increased vacancies in residential buildings near Lilian Ngoyi Street in Johannesburg tempered overall sector performance.
The group said its portfolio of retail shopping centres continued to perform exceptionally well. On a like-for-like basis, rental income increased by 1.7%, however this growth was impacted by a small increase in vacancies at Killarney Mall.
Excluding Killarney Mall, core vacancies remained below 1%, showcasing the strength and performance of the group’s convenience shopping centres in Gauteng.
Octodec’s office portfolio performance, while challenging, was stable. Although core vacancies increased slightly, rental income was impacted by some significant rental reversions in the government space, resulting in a decrease in rental income of 1.4% on a like-for-like basis, it said.
The REIT has recently approved the conversion of a vacant office building in the Tshwane CBD into residential accommodation.
The development will be known as Yethu City on Sisulu and will offer a slightly smaller and more affordable product relative to Octodec’s traditional residential units, with shared amenities such as living areas, kitchens and bathrooms.
The conversion, which is estimated to cost R44 million at a marginal yield of 13%, is expected to be completed by December 2024, with occupation in January 2025.
HealthConnect, which is adjacent to the Louis Pasteur Hospital, offering medical suites to doctors and medical specialists was completed at the end of February 2024 at a cost of R64 million and a marginal yield of 13.1%, with occupation from March 2024.
Looking ahead, the group said that management’s focus for the second half of the year will be on maintaining the momentum achieved in growing income from the portfolio.
"The improved occupancy at our residential buildings should continue to impact positively on Octodec’s residential sector performance."
The group’s strategic focus remains on the redevelopment and repurposing of other properties to improve occupancy, grow rental income and ultimately, distributable income.
Shares in Octodec are up 3.5% in the year to date, but down some 6% over the past year.
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