Octodec’s interim distribution increases by 1.7%

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Octodec Investments MD, Jeffrey Wapnick says the portfolio performed in line with our expectations, delivering a 5,7% increase in revenue for the six month period. Octodec Investments MD, Jeffrey Wapnick says the portfolio performed in line with our expectations, delivering a 5,7% increase in revenue for the six month period.

Octodec Investments (JSE:OCT) which owns a portfolio predominantly in Pretoria and Joburg’s inner cities, today reported a dividend of 98,4 cents per share — an increase of 1,7% on that paid in the comparative six-month period.

Revenue increased 5,7% to R856m from the year-earlier period, but profit fell 40% to R461m.

The JSE listed REIT announced a reasonable half year performance for the six months to end February in a toughening business environment with muted economic growth.

The period was marked by the upgrading of a number of properties which resulted in an increase in rental income. The portfolio comprising 324 properties realised like-for-like growth of 5% in rental income.

Jeffrey Wapnick, Managing Director of Octodec, commented: “These results are reflective of the challenging economic environment and although we focussed our efforts on cost control, our first half earnings were muted by rising interest rates, the phased take up of units at Frank’s Place and investment in a number of projects. The benefit of these projects will be seen in the short to medium-term.”

Vacancies in its portfolio, which are mainly buildings in Johannesburg’s and Tshwane’s central business districts (CBDs), widened to 16.1% from 15% at the end of August.

Octodec said this was due to upgrades and its acquisition of several buildings with high vacancy levels.

"These properties offer significant redevelopment opportunities, the value of which will be realised over time," the company said.

The group is investing R709m in three major developments, of which R279m was spent by the end of February.

Its R394.3m redevelopment of Sharon’s Place (previously called Centre Forum) in Tshwane’s CBD is expected to be completed next year. Another Tshwane project, the R152.7m 1 on Mutual flat building is scheduled for completion in July and its half-owned Manhattan residential development in Sunninghill should be completed towards the end of this year.

Octodec acquired the Van Riebeeck Medical Building in the Tshwane CBD during the period under review for R29m. The property will be converted into 195 residential units at a cost of about R110m.

It sold three properties for R14.6m during the reporting period.

Analyst Comment

Ian Anderson, the Chief Investment Officer at Grindrod Asset Management says the results were slightly disappointing and highlight the tougher trading environment, particularly in CBD retail.

"Management is now guiding for 6% distribution growth this year, which is at the bottom end of the guidance given to the market at the end of last year. The interim results were negatively impacted by the phased take-up of residential units at Frank’s Place, which resulted in distribution growth of just 1.7% over the comparable period last year. Similar projects at 1 on Mutual, The Manhattan and Sharon’s Place are likely to impact of Octodec’s distributions in the coming years," he said.

"On a more positive note, core net property income increased 5.1% on a like-for-like basis, with growth recorded across all of Octodec’s markets and Dis-Chem took occupancy of 2,200m2 at Killarney Mall, which should help drive increased footfall and revenue at the centre. Octodec is trading at a 14% discount to net asset value, but a forward yield of below 9%, suggesting the company’s shares are fairly valued at current levels, given the tough operating environment and increased risks associated with the company’s development pipeline,” concluded Anderson.


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