Octodec Investments, which owns properties in the Johannesburg and Tshwane CBDs, has increased its interim dividend, reporting a rise in distributable income after tax, but decided against giving an outlook for the rest of its financial year.
MD Jeffrey Wapnick told Business Day that SA’s political environment remains uncertain due to lack of clear structural reforms, which in itself creates high unemployment, and lack of investment into the country.
The rand hit record lows in the past week after SA was accused of providing Russia with weapons. Rising inflation and interest rates, coupled with increased load-shedding, will have a negative effect on the company and its tenants.
“Octodec has a strong balance sheet to weather the storm but, due to political and economic uncertainties, we remain cautious on providing guidance,” said Wapnick.
He said future distributable earnings and dividend payout ratios will depend on macroeconomic fundamentals, the group’s capital requirements and liquidity, as well as overall company performance.
“Management is of the view that in the short- to medium-term, the outlook for the company remains positive as we focus our energies on recycling noncore assets and redeveloping assets in strategic locations to grow our earnings,” said Wapnick.
The JSE-listed real estate investment trust (Reit) owns a diversified portfolio of 240 residential, retail, office and industrial properties in Pretoria and Johannesburg with a gross lettable area (GLA) of 1.54-million square metres, about the size of 215 football fields.
The group’s residential rental income rose from 30.6% to 32.8%, or R219m to R242m, growing from 4.3% to 10.3%.
Rental income for street shop retail was 24.1%, shopping centres (12.3%), offices (19%), industrial (7.3%) and parking (4.5%).
The residential portfolio has 65 properties and 9,243 apartments with 64% situated in Tshwane and 36% in the Johannesburg CBD.
In the reporting period, distributable income after tax jumped more than one tenth to R234.5m and distributable income per share by the same margin to 88.1c. The dividend per share was a fifth higher at 60c.
Net asset value (NAV) per share, used to assess the value of a Reit, improved 3.9% to R24.01.
Its loan-to-value (LTV), a key measure of the financial health of a property company, fell slightly to 38.8% from 39.7%.
Octodec sold and transferred five noncore properties at an exit yield of 6.44%, a loss of R4.7m or 5.7% to the carrying value of R80.6m.
At end-February, the group concluded sales agreements for three other noncore properties for R66.8m at an average expected exit yield of 9.8%. Transfers are expected before the end of the financial year, with net proceeds expected to be in line with the carrying value as at February 28.
“We continue to dispose of noncore assets. However, the disposal of these smaller properties has been challenging as buyers require funding, which often delays the final transfer of the properties,” said financial director Anabel Vieira.
Vieira said proceeds from asset disposals would be invested in a revolving credit facility, thus retaining facilities but reducing finance costs.
She said the group is actively monitoring opportunities to extend hedges and continue with efforts to improve its debt maturity profile.
The strategy is to maintain a hedge profile of between 70%-80% and, by the end of February, 80.6% of borrowings were hedged, up from 80% in the 2022 financial year.
“Despite the challenging interest rate environment, we continue to manage our balance sheet and debt and, together with a positive valuation of our property portfolio, we have achieved a further decrease in our LTV,” said Vieira.
Update: May 16 2022
This article has been updated with new information from Octodec management.
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