JSE-listed real estate investment trust Octodec Investments has declared a 200.9c a share distribution for the financial year ended August 31, compared with the 203.4c a share distribution reported for 2018.
MD Jeffrey Wapnick on Tuesday said this was against prevailing poor economic and consumer environments, which were unlikely to improve in the near term.
Octodec reported a net asset value (NAV) of R28.47 a share, compared with the NAV of R29.39 a share reported for the prior year.
The company’s total rental income grew by R97.1-million in the year under review, or 5.1%, compared with the prior year. Like-for-like rental income growth was at 2%, in the reporting year, compared with 2.6% in the prior year.
Wapnick explained that increased rental income was supported by the Sharon’s Place residential property, in Pretoria, and consolidation of wholly-owned subsidiaries.
“Despite comprising a smaller portion of the total portfolio, healthcare facilities, hotels and places of worship reflected the strongest growth in income of 12.7%, 18.7% and 16.2%, respectively.”
The company did not undertake major development activity in the financial year under review and instead focused its spending on meeting increasing operating and maintenance costs.
“We have successfully navigated a challenging period through our active management focused on vacancies management, smaller upgrades of existing assets to unlock value and the recycling of capital through the disposal of noncore or underperforming properties,” said Wapnick.
Octodec’s occupancy levels were stable during the period, showing a slight decrease in both total and core vacancies of 17.9% and 11.5%, respectively. The most notable reduction was in the industrial sector.
Improved occupancy levels at Killarney Mall and Woodmead Value Mart reduced shopping centre vacancies significantly. The Park – previously Elardus Park – experienced slightly higher vacancies while the centre was being upgraded.
The upgrade had resulted in several national tenants signing new leases. While the decision was made not to undertake significant developments, several smaller projects are under way which will improve occupancy levels, enhance the value of the portfolio and contribute to the upliftment of the areas in which Octodec is predominantly invested.
Wapnick told Engineering News Online that these smaller projects were valued at about R10-million and involved residential upgrades and installations for tenants.
“The disposal of 19 assets during the period valued at R213-million was concluded at premiums to book value. This process validated the quality of our assets and reflects our realistic approach to property valuations. The proceeds from asset sales will be used to pay down debt and support strategic upgrades.
“We have also continued to strengthen our balance sheet by reducing our exposure to interest rate risk and we are committed to reduce our loan-to-value (LTV),” commented Octodec FD Anthony Stein.
The company’s LTV in the year under review was 38.9%, compared with 37.8% in the prior year.
Eleven of the properties sold were transferred during the reporting period for a total consideration of R129.2-million, at an average combined exit yield of 5.7% and 2.6% premium to book value.
The transfer of the remaining eight properties will take place in the first half of the 2020 financial year for a total consideration of R83.7-million, and at an average combined exit yield of 12% and 2.7% premium to book value.
Octodec has approved the disposal of another five noncore properties with a carrying value of R125.6-million.
The company’s portfolio now comprises 285 properties valued at R12.8-billion, 67% of which is based in Pretoria and the balance in Johannesburg.
The vacancy rate at year-end, including properties held for redevelopment, amounted to 17.9% of gross leasable area – about 1.6-million square metres, compared with a vacancy rate of 18.6% in the prior year.
The company did not foresee growth in its share distribution for the 2020 financial year.
“The way in which we manage Octodec provides us with a high level of control and is based on management’s experience through many cycles over the past 40 years.
“We continue to position our portfolio to be resilient in nature, underpinned by the diversity of the portfolio, large tenant base, sound operating fundamentals and prudent capital management,” Wapnick said.