JSE-listed real estate investment trust Octodec announced a solid performance for the six months leading up to February 2015 earlier this month. The results show strong growth in earnings, with rental income increasing, following several successful property upgrades and a proactive approach to letting.

The total distribution per share increased by 9.3% for the six months to 96.8c a share, despite tough trading conditions and a slowing economic environment.

These results are also presented as Octodec’s first consolidated financial report after the merger of property management company Premium Properties and Investment Policy Statement (IPS) investments, becoming wholly owned subsidiaries of Octodec, effective from September last year.

MD Jeffrey Wapnick reports that the residential and central business district (CBD) retail portfolios, which together represent more than 40% of the combined gross leasable area, performed well, underpinned by strong demand for well-located top-quality accommodation and shops, specifically in the Tshwane and Johannesburg CBDs.

Four major projects, collectively worth R653.3-million, were under construction during the six-month period, and R151.8-million had been spent by February this year.

The R326.9-million Centre Forum greenfield residential development, consisting of 400 residential units, and ground-floor retail space and parking areas in the Tshwane CBD, is situated adjacent to the new Tshwane House municipal development and set for completion in late 2016, with a fully let yield of 8.1%.

The R140.4-million greenfield mixed-use development, 1 on Mutual, situated adjacent to Church Square, in the Tshwane CBD, will consist of 142 residential units, ground-floor retail space and parking areas. This project is set for completion in early 2016, with a fully let yield of 7.6%. Additionally, the R56.7-million second-phase retail redevelopment at Silver Place, in Silverton, Tshwane, will be completed this year at a fully let yield of 8%.

The R129.3-million redevelopment of Bosman Place, in the Johannesburg CBD, is nearing completion, with 225 residential units being added to the portfolio, together with a retail component. The fully let initial yield is expected to be 8.1%.

“Value creation through strategic developments is core to our business and the merger has enabled us to take on much larger scale developments at attractive yields. Many of these large developments also speak to our passion for urban renewal and the upliftment of the CBDs, which are our specialist focus areas.”

Octodec also acquired several smaller properties during the six-month period, at a total cost of R70.6-million, and disposed of three properties for a total of R15.9-million. The most significant of these acquisitions is Reinsurance House, an office block situated in the Johannesburg CBD, for R33.5-million. This building will be converted into 175 residential units at a cost of R68.3-million, with the fully let yield expected to be 8.5%.

Further, there was an overall reduction in vacancies from 16.7% to 15.3% of total lettable area, supported by improved letting in the residential, CBD retail and industrial portfolios during the
six-month period.

“The merger enabled us to access advantageous funding options to drive our growth strategy through further yield-enhancing upgrades, redevelopments and acquisition opportunities across the portfolio,” notes Octodec financial director Anthony Stein.

Currently, Octodec’s weighted interest rate for all borrowings is 8.8% a year, with 90.6% of outstanding borrowings fully hedged.