Octodec Investments, which owns a variety of properties in Johannesburg and Pretoria, has reported a 6.4% decline in distributable earnings per share at the half-way stage.
Distributable earnings per share for the six months to end-February fell to 82.47c from 88.10c a year ago.
Revenue was up 4.7% at R1bn, the company said in a statement on Tuesday. The board declared a cash dividend of 60c per share.
The company said the reduction in distributable income was due to its operations being adversely affected by the high interest rate environment, low economic growth and lack of service delivery from municipalities. It attributed the 3.1% rise in revenue year on year earned on a contractual basis to an increase in residential rental income.
Assessment rates, bad debts and repairs and maintenance costs increased considerably compared with a year ago. Bad debts as a percentage of gross revenue increased marginally from 1.5% to 1.8%, impacted by an increase in both residential and commercial arrears.
Repairs and maintenance costs increased by 12.6% to R44.8m, inclusive of tenant installations. This represents 7.4% of rental income, excluding recoveries.
The weaker rand contributed to increased costs through higher lift and airconditioning maintenance costs, which in Octodec’s portfolio are generally not recovered from tenants. These increases were, however, offset by a substantial decrease in generator costs and improved tenant recoveries, resulting in the total net generator costs halving compared with a year ago as well as the improved electricity recoveries, reflecting the return on investment in solar panels at some of its buildings.
Though Octodec anticipates a movement in the interest rate cycle in the medium-term, this is unlikely to have a bearing on the group’s performance in the second half of the year, it said.
“Our retail shopping centres and industrial assets are expected to improve despite the challenging economic climate. The improved occupancy at our residential buildings should continue to impact positively on our residential sector performance,” it said.
“We are excited at the prospects of our two value-accretive developments being HealthConnect (completed) and Yethu City on Sisulu (under construction) and will evaluate further prudent conversion opportunities on their respective merits,” it added.
The group will focus on the redevelopment and repurposing of other properties to improve its occupancy and grow rental income and ultimately distributable income.
“While expectations were that interest rates would decrease at the beginning of 2024, it is now anticipated that interest rates will remain higher for longer, and this will have a negative impact on Octodec,” it said.
As a result, the board will not at this stage, be providing any guidance on distributable income and dividends for the second half.
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