Property group Octodec Investments is unable to develop its pipeline due to the sluggish economy, which weighed on its full year financial results, it says.
CEO Jeffrey Wapnick said Octodec, which invests largely in the inner cities of Johannesburg and Pretoria, is operating in the toughest economic conditions since it listed in 1990.
Octodec released financial results that, while flat, are disappointing for investors who have relied on the company for consistent dividend growth.
Wapnick said Octodec would have to be highly conservative for another financial year as his team waits for momentum to return to SA’s economy, which has entered a technical recession.
Earlier in October the IMF cut its growth forecast for SA in 2018 from 1.5% to 0.8%. It said the economy was expected to grow at 1.4% in 2019.
Octodec, which owns a R12.7bn property portfolio including Killarney Mall, declared a dividend of 203.4c for the year to August compared with 203.1c in the 2017 financial year.
“It worries me that we’ve been unable to give investors the kind of dividend growth we should be giving. We’re working in extremely difficult conditions. I think when there is just a small improvement in the economy, our numbers will see a strong improvement,” Wapnick said.
“If things don’t improve next year in terms of economic growth then all we expect to achieve is flat dividend growth for the 2019 financial year. As a result, we have to be extra conservative and we are not undertaking any major new developments. Instead we will find ways of making our current portfolio perform better,” he said.
Ahmed Motara, an analyst at Stanlib, said Octodec’s
results are in line with guidance, “with negligible growth in net asset value. Guidance for no dividend per share growth in 2019 is as expected, which shows the company is anticipated to continue its trend of no dividend growth, as evidenced in the past two years.”
Motara said “it does talk to the resilience of the portfolio that rental growth is not going negative, but muted like-for-like rental growth of 2.6% reflects the weak operating environment. As such, it is not surprising that major new developments will not be undertaken unless a near 9% hurdle rate is achieved.”
Jay Padayatchi, an executive director at Meago Asset Management, said while Octodec’s results are in line with expectations, the company is an investment that is paired with a number of risks.
“But I believe there is still a significant amount of risk attached to when the leases at their offices, retail and industrial properties expire in the 2019 financial period,” he said.
“Their business is even more dependent on an uptick in the South African economy than most of the other listed property companies reporting recently,” he said.
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