Octodec Investments declares 6.5% distributions growth

Octodec Investments MD, Jeffrey Wapnick says the group's portfolio performed in line with our expectations as we continue to deliver on our strategy to unlock value across our portfolio through major new developments and upgrades.

Listed REIT, Octodec Investments Limited (JSE:OCT) which has properties situated in Gauteng only, today posted a 6,5% increase in distribution to 201.5 cents per share for the year ended August 2016.

The R12.3bn portfolio comprising 324 properties realised like-for-like growth of 5.3% in rental income. 

Net Asset Value per share increased 5.2% to R29.13 supported by a conservative increase in the valuation of properties and swaps to protect against interest rate fluctuations.

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Octodec MD, Jeffrey Wapnick, says the portfolio performed in line with our expectations as we continue to deliver on our strategy to unlock value across our portfolio through major new developments, redevelopments, upgrades and the recycling of non-core assets.

“South Africa is facing economic challenges but we are seeing significant private and public investment projects accelerating in the Tshwane and Johannesburg CBDs. This is highlighted by the increasing demand from national retailers recognising our CBD nodes as prime locations for stores roll-out.”

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Grindrod Asset Management’s chief investment officer, Ian Anderson, said the results were in line with our expectations, as was the prospects statement from management.

“Although 6.5% distribution growth doesn’t appear particularly flattering, the company has been investing for the future. The company’s residential development pipeline is likely to generate significant distribution and capital growth for investors from FY2018 onwards, as the properties are leased up.

Unlike office and retail developments which tend to provide high occupancy right after completion, residential developments are only marketed to the public once the development is complete and can take up to 6 or 9 months to lease up. During that period there is no income and all the expenses.

The fact that management is able to provide inflation-protected distribution growth right now is a highly commendable effort and we look forward to reaping the rewards of their development pipeline in the future,” concluded Anderson.

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In line with its strategy to dispose of non-core assets, six properties worth R55.5m were sold and transferred during the period under review at a 15.3% premium to book value.

A further 10 properties have been sold post year end with proceeds expected to amount to R179m, at well above book value. Two properties, including the Van Riebeeck Medical Building, were also acquired for R29m in the Tshwane CBD and form part of Octodec’s site assembly in key nodes.

The company had four major projects worth approximately R672m under construction during the year with R368m spent by 31 August 2016.

1 on Mutual, a R160 million mixed-use development situated adjacent to Church Square in the Tshwane CBD will consist of 142 residential units, ground floor retail space and parking. This project is now timed for completion in February 2017.

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Sharon’s Place (previously Centre Forum) a R375m new residential development in the Tshwane CBD consisting of 400 units, parking and ground floor retail anchored by Shoprite and Clicks, is situated adjacent to the new Tshwane House municipal development and set for completion in April 2017.

The Manhattan, a 180-unit residential development in Sunninghill, Johannesburg is progressing well. The total development cost of this 50%-held joint operation amounts to R80,9m and completion is expected in late 2016.

“Two additional residential developments are in planning phase at a cost of R240m but these will only be undertaken if they meet our hurdle rate of return of 9%. Strategic partnerships that will support our growth and entry into new markets are also being considered,” said Wapnick.

The ratio of net property expenses to rental income decreased to 29,6% from 30,5% in the privious year whilst bad debt write offs and provisions remained low at just 0.8% of total tenant income.

The group’s loan-to-value ratio of 38% is within the company’s target range. Octodec has reduced its exposure to interest rate risk by entering into interest rate swap contracts in respect of 82.9% of all borrowings. The all-in average weighted interest rate for all borrowings was maintained at 9% per annum. The Group has significant committed bank facilities to complete all developments with headroom to raise more funds.

Anthony Stein, Financial Director of Octodec, said: “We have retained a strong financial position with sufficient facilities in place to fund our development pipeline. In addition, we have protected our exposure to interest rate risk by hedging 83% of our borrowings.”

The company declared a final cash dividend of 103.1 cents per share for the twelve months ended 31 August 2016.

“There is a positive momentum in the CBDs with demand for quality residential and retail space expected to remain solid even in challenging economic conditions,” concluded Wapnick.

Meanwhile, the Pivotal Fund Limited, a development-focused investment fund, today also reported its results for the six months ended 31 August 2016 with a 17.35% increase in net asset value per share to R23.00, excluding deferred tax (“NAVPS”) year-on-year.

Pivotal’s portfolio comprises geographically well diversified assets across South Africa and a growing investment base internationally both in emerging and mature markets.