Octodec declares 6.2% growth in distributions

Jeffrey Wapnick, Managing Director of Octodec, credits this solid performance to introducing several redevelopments to its property portfolio.

Octodec Investments Limited, which on Monday posted a 6,2% growth in distributions and a total annual return of 27,9% for the year ended August 2012, says its focus is to acquire and redevelop excellently placed properties in order to deliver sustainable, growing returns to investors.

Jeffrey Wapnick, Managing Director of Octodec, credits this solid performance to introducing several redevelopments to its property portfolio. He also points to the strong performance of the company’s retail portfolio, particularly the improved trading of Killarney Mall.

“They location of our properties are key investment criteria for Octodec. Consumers who support CBD retail, which are largely government employees and students, are proving more resilient to present economic pressures,” explains Wapnick.

Good news for investors is that, notwithstanding the likely subdued economic growth locally, Octodec is comfortable its growth in distributions per linked unit for the next year should be at least on par with the sector average of around 6% to 7%.

Octodec invests in the retail, industrial and office property sectors, with a focus on well-located CBD properties. It also has a small residential property investment component in its portfolio.

Octodec’s balance sheet was enhanced by its ability to access capital. Octodec successfully closed a R300 million rights issue in August 2012 when 18,927,445 new linked units were issued at R15,85 each. Octodec’s investors displayed their confidence in the company, fully subscribing the issue.

“While Octodec’s 6.2% distribution growth has exceeded consensus forecast, it would have been around 11% before the rights issue’s diluting effect. Importantly, this capital raising created a war chest for Octodec to grow its portfolio by acquiring desirable assets or for the further redevelopment of its existing properties. This contributes to the sustainability and growth of our performance for investors,” notes Wapnick who confirms the company is on an acquisition drive.

The successful rights issue also helped decrease Octodec’s gearing level from 39,0% to a more conservative 33,0% of its total investment portfolio value.

With total investments of R3,6 billion, Octodec grew its net asset value by 4,6% to 1 882 cents per linked unit during the year. The valuation of its property assets increased 6,1%, by R163,5 million, to R2,92 billion.

Octodec’s unit price increased from R15,95 to R19,02 at 31 August 2012, giving investors a capital growth of 19,2% for the year. The distribution of 137,30 cents per linked unit accounts for an income yield of 8,7%, with a total return of 27,9%.

Octodec’s investment in IPS continued to deliver positive performance for investor’s with its profits earned by Octodec, excluding capital profits, increasing to R17,0 million – up a noteworthy 34,0% on the prior year. IPS is an associate property company with over 50% investment in residential property.

The JSE-listed property loan stock company’s rental income and net rental income increased by 19,1% and 18,0% respectively. Octodec also improved its vetting and credit control to protect its rental incomes across all sectors.

Improved letting and enhanced cost recoveries increased Octodec’s revenue. Despite rapidly rising rates and utilities charges, which place strain on tenants’ occupancy costs, Octodec’s cost recovery percentage from tenants remained constant during the year.

Octodec’s total occupancy level improved dramatically, by 3% during the year, across its entire property portfolio.

Its retail centre vacancies are at a low 0,2% of total lettable area with a significant improvement in the occupancy levels at Gezina Shopping Centre and Killarney Mall.

“Our investment in the upgrade and re-leasing of Killarney Mall is showing positive results. It is essentially fully let and revenue from the mall grew by 9%,” notes Wapnick.

Octodec’s residential vacancies are below 1% of total lettable area and office vacancies reduced to 6,9%. Industrial and high-street shop vacancies are both below 3%.

Core vacancies, which exclude vacant area for current and future redevelopments, amount to 7,4%, reducing from 8,8% at the previous year end.

During the period, Octodec acquired and transferred three properties for an aggregate purchase price of R216,2 million, providing an average weighted yield of 9,6%. They are The Tannery Industrial Park and FNB Centurion in Pretoria and Shoprite Eloff Street, Johannesburg.

Octodec continued to expand its property portfolio in the Johannesburg and Pretoria CBDs, and redevelop and refurbish its properties. Its investment in redevelopment and upgrades for the year totalled R77,0 million.

One of these projects, the R45 million Dan’s Place completed in March 2012, created 143 residential units in the Johannesburg CBD at a fully-let yield of 9,9%.

Octodec has various projects earmarked for completion in the 2013 financial year. These include the upgrade of the mixed-use residential property Kerk Street Building in the Johannesburg CBD. A 5,233m² retail development in the Pretoria CBD will open in March 2013, occupied by Walmart Group’s Cambridge and other retailers.

New investments and redevelopments will play a key role in Octodec’s strategy for its next year. “Acquiring and redeveloping excellently placed properties in the Pretoria and Johannesburg CBD’s and surrounding areas is the focus of our strategy to deliver sustainable, growing returns to our investors,” says Wapnick.