Octodec Investments declares 10,5% growth in distributions

Commenting on the interim results, Jeffrey Wapnick, Managing Director said; “Despite continued consumer pressures and challenging trading conditions, Octodec’s portfolio delivered according to expectations.

Octodec Investments Limited announced their unaudited interim results for the six months ended 28 February 2013 this morning.

Octodec primarily invests in the retail, industrial and office property sectors, with a small exposure to residential property, mainly in the Pretoria CBD.

Commenting on the interim results, Jeffrey Wapnick, Managing Director said; “Despite continued consumer pressures and challenging trading conditions, Octodec’s portfolio delivered according to expectations.

“We are pleased with the strong growth in gross rental, up 13,9% on the comparable six months, which was achieved by upgrading a number of properties and management’s proactive approach to letting.”

The total distribution per linked unit for the six months of 78,7 cents per linked unit (H1 2012: 71,20 cpu) represents an increase of 10,5% on that paid in the previous corresponding period. Rental income and net rental income increased by 13,9% and 11,0% respectively, compared to the prior interim period. The core portfolio, representing those properties held for the previous comparable period, with no major development activity, reflects rental income growth of 7,7%.

Despite rapidly escalating charges in respect of assessment rates and utility charges, the cost recovery percentage from tenants was maintained during the period. The higher utilities costs continue to impact on the total cost of occupation of tenants. Provisions and write-offs of bad debts continue to remain at more than acceptable levels of 0,9% (H1 2012: 1,1%) of total rental income.

“During the review period, we continued to expand our portfolio in the Johannesburg and Pretoria CBDs and upgraded a number of properties. Our strategy to unlock value by acquiring buildings with large vacancies and paying very little for the vacant space or redevelopment opportunities, has delivered results.

“Following our refurbishments and upgrades, we successfully let a number of properties that had been vacant for a long time, reducing core vacancies to 4,9%.” Wapnick continued.

Vacancies in the Octodec portfolio at 28 February 2013, including properties held for redevelopment, amounted to 12,0% (H1 2012: 12,9%) of total lettable area. The core vacancies decreased from 7,4% to 4,9%. As anticipated, a number of properties under development or those which were recently upgraded, for example, Cambridge Property, had high vacancies.

A number of properties were redeveloped and upgraded during the review period at a total cost of R40.3 million. This includes upgrades of the mixed-use residential property in Kerk Street, located in theJohannesburg CBD as well as a 5 233 m² retail development located in the Pretoria CBD, which is occupied by Cambridge, part of the Walmart Group, and other retailers.

The Company acquired a portfolio of properties for an aggregate purchase consideration of R140.5 million which consists of offices that are located in well-established office nodes. The effective date of the acquisition is expected to be during June 2013.

Octodec’s investment in IPS Investments Proprietary Limited (“IPS”) continued providing acceptable earnings growth with profits earned from the associate company, excluding capital profits, increasing to R11.8 million. This was an increase of 42,5% on the prior comparable period. This growth achieved by IPS was positively impacted by the improved occupancy levels achieved during the period at the mixed-use developments Kempton Place, Craig’s Place and Tali’s Place.

The Company’s loan to value ratio at the end of the period under review was 32,5% of the total value of its investment portfolio against 33,0% as at 31 August 2012. Interest rates in respect of 63,1% of borrowings at 28 February 2013 have been hedged, maturing at various dates ranging from April 2013 to October 2018. The average weighted interest rate of all borrowings is 8,6% per annum, with unutilised banking facilities in an amount in excess of R297,5 million.

“Our solid performance is due to proactive management and tight cost control, but also attributable to a clear understanding and unwavering commitment to the areas and nodes in which we operate. We have been working on the portfolio for over 15 years, and have an intimate knowledge of every asset and have very solid relationships with our tenants.

“We are considering a number of redevelopment opportunities of existing properties which should enhance the quality of the property portfolio and result in sustainable distributions. Growth in the local economy is expected to remain subdued. Notwithstanding this environment, and barring unforeseen events, the Company anticipates that the percentage growth rate in distributions per linked unit for the full 12-month period should be similar to that achieved in the first six-month period,” Wapnick concluded.

A dividend of 0,39 cents (H1 2012: 0,35 cents) per ordinary share and interest of 78,31 cents per debenture (H1 2012: 70,85 cents), has been declared for the period 1 September 2012 to 28 February 2013. Octodec anticipates that the percentage growth rate in distributions per linked unit for the full 12 month period should be similar to that achieved in the first six month period.