Octodec's diversification pays off in a weak economy
CAPE TOWN – Octodec Investments’ property diversification and active asset management paid off in weak economy and the dividend for the year to August 31 was stable at 200.9c a share.
The group, one of the biggest property owners in Tshwane and Johannesburg, sold 19 non-core assets for R213 million, with 11 transferred during the period.
Managing director Jeffrey Wapnick said in an interview yesterday that disposals of non-core assets would continue in 2020. In particular, he said they held some 100 000 square metres of “mothballed” office space, mostly in Gauteng, that had originally been acquired for redevelopment, but in the current environment, and considering the smaller, but ongoing costs of managing the properties, the intention was to sell all of it.
The distribution was within guidance and represented a marginal 1.2 percent decrease on the prior year.
Barring an unexpected improvement in the economy, which the group was well placed to benefit from, the distribution in the 2020 financial year was expected to be much the same, he said
He said the diversified Reit with about 280 properties had done well, compared with its peers in an environment where rentals were under pressure. The group benefited from not having a substantial number of vacancies arising from large tenants.
In addition, Octodec benefited from a “very hands on” approach by management, made easier by the fact that most of the properties were in close proximity in the Johannesburg and Tshwane CBDs.
Total rental income increased by 5.1 percent or R97.1m, supported by increased rental from Sharon’s Place and consolidation of subsidiaries. No major developments were undertaken, which would continue into 2020. Like-for-like rental income growth was 2 percent.
Property costs increased due to rising repair and maintenance costs. Bad debt write-offs and provisions remained stable. Administrative costs decreased 5.3 percent on the prior year. Loan to value was just under 39 percent at year end and would be reduced further.
“The persisting weak environment put strain on all our tenants leading to relatively muted growth in our rental income,” he said.
Management had focused on vacancies, smaller upgrades of existing assets to unlock value and the recycling of capital through disposal of underperforming properties.
Occupancy levels were stable, with total and core vacancies of 17.9 percent and 11.5 percent, respectively.
A notable reduction in vacancies was in the industrial properties, a sector of the portfolio that had been “surprisingly strong,” said Wapnick.
Much of the industrial portfolio was in the less expensive end of the market.
In the retail portfolio, the shopping centres had performed well, but the High Street shopping assets were under pressure, although there were no major vacancies in the core assets.
In the residential sector, mainly premium flats, rental growth was around 3.4 percent.
Demand was high, but it was difficult to get rental growth. The sector’s management team was focusing on aggressive marketing and good customer service, he said,
In the office portfolio the smaller offices, tenanted largely by young entrepreneurs, were doing “surprisingly well,” and efforts were underway to improve services to them.
Progress was being made on the government offices sector.
Improved occupancy levels at Killarney Mall and Woodmead Value Mart reduced shopping centre vacancies significantly.
“The way in which we manage Octodec provides us with a high level of control and is based on management’s experience through many economic cycles over 40 years.
"We continue to position our portfolio to be resilient in nature,’’ he said.
Octodec shares closed 1.66 percent higher at R15.95 on the JSE yesterday.