Octodec Investments’ Johannesburg and Tshwane properties generated a 10.7% increase in distributable income to R234.5 million in the six months to February 28 as people returned to the CBD’s after Covid and the group started developing again.
Distributable income per share was up by the same percentage to 88.1 cents. The dividend was raised 20% to 60 cents a share, reflecting a higher payout ratio of distributable income, compared with the past two years.
Rental income from the R11.1 billion residential, retail, industrial, offices and parking portfolio grew 3.2% to R974.2m, and on a like-for-like basis it increased by 4.1% versus 1.2% in 2022.
MD Jeffrey Wapnick said there was a great deal of negative sentiment about in South Africa, but business people needed to “get out of their negativity quagmire” as opportunities could be found in the changing environment.
For instance, Octodec was converting 3000 to 4000 square metres of offices at “The Ina” building in Tshwane into medical facilities, at a cost of R70m, which would be ready for occupation next year, he said.
Wapnick said in an online interview that rental growth in the six month period was driven mainly from the residential buildings - which makes up some 32% of the total portfolio - which had performed well, growing at 10.3% in the period.
He said in an online interview that a primary driver for this growth was that “people are back at work, students are back at university for face-to-face lectures, the fundamentals of our portfolio in the CBD’s are back in place.”
Better occupancy was also attributed to focused marketing, and initiatives such as the introduction of shared and furnished accommodation at The Fields, value-add services such as wi-fi to tenants in most of the residential buildings and cashless WashBars at several buildings.
At the street level retail portfolio, improved footfall in the CBD’s had been noted anecdotally, but it was particularly evident in Tshwane, although this had not necessarily translated into improved turnovers for the group’s retail tenants, said Wapnick.
On a like-for-like basis, rental income from these retailers increased by 3.2%. This growth was muted due to Standard Bank and Nedbank vacating two of the group’s buildings.
Octodec’s portfolio of retail shopping centres, mainly convenience shopping centres making up 12.3% of the total portfolio, continued to perform strongly, with vacancies at 6.4% and excluding Killarney Mall, at 0.1%. Rental income from shopping centres, including Killarney Mall, increased by 3.6% on a like-for-like basis.
The group’s office rental income fell 5.4%. Given the oversupply in the sector generally, Octodec was considering disposing or converting and repurposing some of its office buildings.
Parking income increased by 1% and, on a like-for-like basis, by 4.3%.
The industrial portfolio of smaller warehouses and light industry performed relatively well and on a like-for-like basis rental income increased by 7.8%.
Property operating expenses increased 1.1%, a small increase due largely to a reduction in assessment rates because of the favourable outcome of several municipal appeals, as well as the resolution of various municipal accounts under dispute, resulting in credits to the company.
Bad debts decreased to 1.5% of gross revenue compared to 1.9% the prior period. These gains were offset by an increased number of scheduled maintenance projects, as well as an increase in generator costs to R6.9m from R1m.
Property costs improved marginally due to improved occupancy, which translates into higher revenue, and the reversal of certain provisions due to the successful outcome of assessment rate appeals and utility disputes and, as a result, a lower cost-to-income ratio.
“Octodec managed to contain most property costs through hands-on management of property expenditure, driving efficiencies where possible, but at the same time ensuring that its buildings remain well maintained and attractive to its tenants,” the directors said.
Administration and corporate expenses increased 21.1% to R46.8m. The group said included in these expenses was an incentive fee of R6.7m paid to City Property, as a result of City Property achieving its property management performance hurdle rate for the 2022 financial year. Excluding this incentive fee, the administrative costs would have increased by 6%.
BUSINESS REPORT