Octodec focuses on tenant retention, property value-add in challenging market
JSE-listed real estate investment trust Octodec has declared a 203.4c distribution a share for the financial year ended August 31, which is nearly unchanged from the 203.1c a share distribution reported for 2017.
Net asset value per share also remained virtually unchanged at R29.39, compared with R29.33 in 2017.
The company’s net profit available for distribution was R541-million, which is a 0.9% increase compared to 2017.
Octodec MD Jeffrey Wapnick said the dividend was impacted on by pressure on rental income growth, as a result of the sluggish performance of the local economy and an anticipated reduction in distributable income during the let-up phase of the company’s most recently completed residential and retail development Sharon’s Place.
Octodec reported 2.6% like-for-like growth in rental income, compared with 5.3% in 2017.
Octodec has a portfolio of 306 properties valued at R12.9-billion, which includes a 50% interest in three joint ventures. Most of the properties are situated in the Tshwane (67%) and Johannesburg (33%) central business districts.
The portfolio comprises residential (31.1%), retail (34.4%), industrial (7.1%), office (16%) and specialised properties (11.4%), such as hotels, places of worship, education facilities, auto dealerships, healthcare facilities and parking facilitates.
Wapnick told Engineering News Online that challenging economic conditions and political uncertainty in the year under review weighed heavily on consumer confidence and local economic growth.
With this in mind, the company’s strategy continued to focus on the core property fundamentals and the business was positioned to provide stakeholders with sustainable value creation. Octodec is continually disposing noncore properties in driving this strategy.
The company expects eight disposals to finalise in early 2019, after having sold 20 properties during the financial year under review. Post year-end, disposals in process amount to R160-million.
The group's administrative costs increased by R5.1-million, compared with those of 2017, mainly owing to a provision for a value-added tax liability.
Finance costs for the year amounted to R438.9-million, an increase of 7.4% year-on-year. Wapnick stated that this was in line with an increase in investment activity resulting in increased debt levels, as well as a reduction in borrowing costs capitalised in respect of the completion of Sharon's Place.
The all-in weighted average cost of borrowings a year reduced slightly
to 9%, compared with 9.2% in 2017, as a result of the expiry during the year of interest hedges at unfavourable rates.
Vacancies in the Octodec portfolio amounted to 18.6% at period-end, including properties earmarked for redevelopment.
While the change in South Africa's political leadership earlier in 2018 brought about a renewed sense of optimism across the country, the economy continues to be constrained by growing unemployment and higher costs of living, which do not bode well for economic growth.
“We, therefore, anticipate another challenging year in 2019, which will impact on our ability to deliver growing distributions.
“The disposal of noncore or underperforming properties will remain a key focus area for the foreseeable future. Octodec's objective for the 2019 financial year is to consolidate its portfolio and continue positioning the portfolio for long-term sustainable growth,” explained Wapnick.
Octodec has not committed to building any major new developments, instead it will continue to focus on improving its existing portfolio and retaining tenants.
To remain competitive, Octodec is executing its residential tenant retention and value-add strategy, which includes, for example, rewarding tenants with shopping vouchers or electricity discounts if they renew their leases upon expiry.
The forecast dividend for the year to end August 31, 2019, is expected to be similar to the dividend for the year under review, and therefore no growth in dividend per share is anticipated.
The board declared a cash dividend of 101.7c apiece for the six months ended August 31.
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