Octodec sees better city centre activity
CAPE TOWN - THE “CITY BUZZ” was back with the return of people to the Johannesburg and Tshwane city centres and virtually all of Octodec’s retail tenants were trading, Octodec Investments managing director Jeffrey Wapnick said.
He was speaking about the post-February 29 trading period, at the release yesterday of the interim results for the six months to that date.
Wapnick said although the economic and Covid-19-related environments remained uncertain in the future, leasing activity had picked up across sectors and they were seeing renewed confidence from national tenants to commit to leases.
Residential vacancies had fallen “nicely” following the delayed start to the tertiary academic year, and rental payment patterns were becoming more predictable, with collections averaging 99 percent, he said.
The benefits of the digital marketing push and enhanced digital leasing capabilities were also beginning to come through in the form of increased leasing activity, cost efficiencies, ease of transacting and improved customer service, as well as an extension of target market reach, Wapnick said.
The JSE-listed real estate investment trust was affected by the Covid-19 pandemic in the interim period through some residential tenants returning to their family homes, increased unemployment, certain business failures and overall reduced affordability, which weakened the trading environment and impacted the group’s performance.
Tenant relief of R26 million, mainly discounts granted to the worst affected tenants, was reduced compared with the previous six months, and rental collections averaged a high 95 percent.
However, the rise in vacancies, particularly in the residential and retail shops sectors, and lower rentals on renewal of leases added to the loss of rental income. Revenue fell 10.9 percent to R895.5m in the interim period.
Despite property costs being mostly contained, and reduced administrative and finance costs, distributable earnings fell to R199m from R258.3m at the same time a year before.
Due to uncertainty around waves of infection and further lockdown restrictions, no interim dividend was declared. A decision on a final dividend would be taken at the release of the annual results.
“Octodec has survived 63 years of economic cycles, and we are confident we have taken the necessary steps to proactively respond to challenges and position the business to benefit from a recovery,” Wapnick said.
He said Octodec’s resilience was underpinned by management’s intimate knowledge of the portfolio and markets, the diversified portfolio and granular tenant base, strong cash generation and prudent financial management.
Occupancy levels in the interim period were down 3 percent overall, driven mainly by the usual peak in residential vacancies experienced at the end of the calendar and academic year, followed by a delayed uptick in leasing in the new year.
Commercial vacancies, save for retail shops, were stable.
The retail shopping centres portfolio, comprising mainly convenience and neighbourhood centres, proved defensive, given its limited vacancies and ongoing support from consumers.
To preserve cash, Octodec did not undertake any major new developments and instead focused on maintaining and carrying out smaller upgrades of properties or lease-driven projects. During the period, the group disposed of seven properties for R26.3m in total, with three transferred for R6.5m.
Cash generation remained strong at R388m, and unutilised available banking facilities were R313m. Loan to value was 44.2 percent, well within bank covenant levels of 50 percent, despite a 4.3 percent devaluation of the property portfolio to R11.3 billion.
Octodec shares closed 1 percent lower at R7.90 on the JSE yesterday.