PRETORIA - Octodec, the listed property company with a significant residential rental portfolio, has done away with deposits on leases.
Jeffrey Wapnick, the managing director of Octodec, said yesterday that this was in response to the increased competition and changing trends in the residential sector, but would not compromise the company’s recoverability on rentals and other standards. He said it had introduced the no deposit policy about three weeks ago and the reaction had been “very positive”.
“It’s an affordability issue. Tenants don’t have the first month rent plus a deposit. We’ve seen quite a change (in tenant demand),” he said. Wapnick did not believe it would increase the risk for the company, which in the year to August derived 29percent of the rental income of its total portfolio from residential.
“The environment influences the way people behave. If it is a good environment, people will look after it. But if it’s a bad environment, they will smash it,” he said. Wapnick added that Octodec’s bad debt was below 1percent “so we can afford to do it”. But he stressed that Octodec still controlled the risk and selected tenants carefully by taking them through a thorough approval process. Anthony Stein, the financial director at Octodec, said prospective tenants still had to go through a normal credit vetting process that looked at their ability to pay the rental.
Octodec has a 7percent vacancy rate in its residential rental portfolio. The company about three years ago embarked on a process to optimise it portfolio through the recycling of non core and non performing properties following its merger with listed Premium Properties.
This resulted in Octodec disposing of a further 16 non core or non performing properties during the year to August. Octodec sold and transferred nine properties worth R77.8million in the year to August with a further seven properties sold for a total of R58.3m, but transfer of these properties had not taken place by its year-end.
Stein said Octodec had about 330 properties when it merged with Premium Properties and now had 316 properties. He said 35 properties with a total value of R284m had been identified for sale, which at an average value of about R8m a property meant they were smaller properties.
Wapnick confirmed the current economic environment had “definitely” made Octodec, which has not made any announcements of any new developments in the year ahead, more cautious about new developments. Octodec had four major projects under construction worth a total of R648m in the year to August.
Three of them have already been completed with Sharon Place, a new 400 unit residential development in the Tshwane central business district with ground floor retail, scheduled to be completed early next year. Octodec yesterday reported a 0.8percent growth in distributions a share to 203.1cents in the year to August from 201.5c. Revenue increased by 5.4percent to R1.84billion from R1.74bn.
Property operating costs rose by 6.7percent to R843.6m from R790.5m. Core vacancies, which exclude the gross lettable area of properties held for development or being developed, increased to 10.7percent from 9.8percent.
Wapnick said the worsening economic climate would most probably result in no growth in distributions a share for the company’s 2018 financial year. Shares in Octodec dropped 8.26percent yesterday on the JSE to close at R20.09.