Diversified listed property company Octodec Investments has seen a 10 percentage points rise in vacancies in the financial year to August as Covid-19 hurts the residential property sector.
The real estate investment trust (Reit) has a portfolio of 277 properties, valued at R11.8bn. Within this portfolio it owns 71 residential properties that include 9,350 rental units.
On Monday, it reported that in its financial year to August its overall residential vacancy rate rocketed from 6.7% to 17%.
Octodec is the first listed property fund with a significant holding of residential assets to report numbers in the latest financial results season. In the past, residential property was seen as a resilient property class as it typically involves hundreds or thousands of tenants for one landlord. If one or two tenants defaults, the fund doesn't see its income fall severely.
The company, which focuses on the CBDs of Johannesburg and Pretoria, has seen some of its tenants lose their jobs in 2020 and several retailers close their doors. It also owns Killarney Mall and Woodmead Value Mart.
MD Jeffrey Wapnick said that during the hard lockdown many residential tenants returned to their family homes as they no longer needed to be near work.
“Many of our residential tenants are government workers, Uber drivers and students. They stay with us because of the proximity to government departments, other offices and commerce. But in lockdown many couldn't work at all or had to work from home, so they went to their family homes far out in other provinces,” he said.
“This hit our numbers very hard in the first half of the financial year. I used to think that residential property was bulletproof, but I think we are seeing affordability among tenants who rent also come under pressure,” Wapnick said.
Octodec's distributable earnings per share fell 22% to 156.8c from 200.9c, against a weakening economic environment worsened by the pandemic and lockdown.
Octodec did not declare an interim dividend and the decision around a final dividend has been deferred to February 2021.
The company granted relief to struggling tenants through rental discounts, which totalled 7% of rental income or R104m, and together with increased rental reversions, vacancies and credit loss allowances were largely responsible for the decline in distributable earnings to R417m, financial director Anthony Stein said.
Wapnick said rental collections had begun to improve across the portfolio.
Rental income on a like-for-like basis, before the Covid-19 relief, decreased by 0.3% overall.
As lockdown restrictions eased, more commercial tenants resumed their business activities, resulting in month-on-month improvements in rental collections, which moved from 66% in April 2020 to 99% of billings, before rental discounts, in August 2020.
Some rental residents were also returning to their flats.
Most property costs were reduced or contained during the lockdown period, limiting the increase in these to 1.2%.
“The improvement in collections as we progressed through the second half has been encouraging. However, vacancy levels which saw an unusual spike are receiving urgent attention,” Wapnick said.
Octodec has been criticised in the past for being too tightly held by the Wapnick family and for the stock not having enough liquidity.
Jeffrey Wapnick's family founded real-estate manager City Property, which manages Octodec’s assets.
Stein said Octodec had no intention to raise capital through issuing shares while its share price was at a huge discount to its net asset value (NAV). Management was also unlikely to sell shares at their present levels.
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