JSE-listed real estate investment trust (Reit) Octodec Investments on Tuesday posted a muted 0.8% growth in distribution for the 2017 financial year, in part owing to a sluggish economy and a more difficult second half.

Despite a strong start in the first half of the year, a weak second half underpinned by low growth in the residential sector, had led to a marginal increase in distribution to 203.1c for the year ended August 31, compared with 201.5c in the 2016 financial year.

This dip had also been attributed to the loss of income during the let-up phase of The Manhattan and One on Mutual developments and a slowdown in rental growth, particularly in the residential sector during the last six months of the year, Octotec MD Jeffrey Wapnick said.

The residential portfolio achieved lower rental income growth of 2.5%, as a result of increased competition in a saturated market and price sensitivity, and had dragged the overall 5.3% like-for-like growth in rental income during the 12-month period to August.

The offices and retail shopping centres income growth surpassed expectations in a weak environment with respective growth of 8.4% and 6.4%.

Further impacting on dividend growth were higher-than-expected increases in finance and repairs and maintenance costs, as well as net utility and assessment rate expenses during the second half of the year.

During the year under review, Octodec had reported a 0.7% increase in net asset value a share to R29.33.

DEVELOPMENTS
Meanwhile, the Reit progressed and completed three of its four major construction projects, valued at a collective R648-million, along with several other small projects, during the financial year.

The company’s R155-million mixed-use property One on Mutual, in the Tshwane central business district (CBD), was completed in February.

The property, which comprises 142 residential units and ground floor retail space and parking, was more than 90% let at year-end and is expected to achieve a fully let yearly yield of 7.1% in due course.

Completed in December 2016, The Manhattan, a 180-unit residential development in Sunninghill, has experienced a slow letting uptake, with occupancy levels at 45% as at August 31. Marketing efforts to let this development are in full swing.

Once fully let, the initial annual yield, inclusive of land costs, is expected to be 9%.

Meanwhile, the first phase – an office upgrade – of the renovation of Midtown, in Tshwane, is complete at a cost of R17.3-million.

The total cost of this project is R56.5-million at a fully let yearly yield of 9.5%. The second phase of renovations will start when a suitable office tenant is secured.

The property includes 7 133 m² of office space, 944 m² of retail space and 90 parking bays.

Further, the R356-million residential development Sharon’s Place, in the Tshwane CBD, despite facing challenges and delays, is now on track for completion early in 2018.

The retail portion of the property, which is now well let and anchored by Shoprite and Clicks, was completed in July.

The development, adjacent to the Tshwane House municipal development, comprises 400 residential units, 5 660 m² of ground floor retail and 289 parking bays, and is expected to deliver a yearly yield of 7.3% when fully let.

The group has several smaller projects under way.

“New and redeveloped properties will grow our rental income stream; however, phased take-up of units tends to have a negative impact on results in the short term,” Wapnick pointed out, noting that it takes between six and twelve months for residential developments to achieve full occupancy levels.

As a result, the distribution growth is expected to be negatively impacted in the 2018 financial year during the let-up of Sharon's Place and The Manhattan.

Meanwhile, Octodec sold and transferred nine properties worth R77.8-million during the period.

A further seven properties have been sold for a total consideration of R58.3-million; however, transfers of these properties had not taken place by year-end.