JSE-listed real estate investment trust Octodec on Monday announced distribution growth of 6.5% for the year ended August 31.

The company’s R12.3-billion portfolio, comprising 324 properties, realised like-for-like growth of 5.3% in rental income during the year under review.

Net asset value per share increased 5.2% to R29.13 supported by a conservative increase in the valuation of properties and swaps to protect against interest rate fluctuations.

Speaking to Engineering News Online, MD Jeffrey Wapnick said the growth in distributions was the result of careful management, tight cost controls and an improvement of the company’s portfolio.

He pointed out that Octodec was seeing strong growth in the areas where it operated, despite the tough economic environment South Africa found itself in.

“The increase in distribution growth talks a lot to our belief in the central business district (CBD). We came in at a point when [confidence] in CBDs was low. They have now improved and that’s what you see coming through in the company’s growth,” he said, adding that the Johannesburg and Pretoria CBDs had changed and improved drastically.

In line with its strategy to dispose of noncore assets, six properties, worth R55.5-million, were sold and transferred during the period under review at a 15.3% premium to book value.

A further ten properties were sold post year-end with proceeds expected to amount to R179-million, at above book value.

Two properties in Tshwane were also acquired for R29-million.
 
Octodec had major projects worth R672-million under construction during the year under review, with R368-million invested in these projects during the year.
 
“1 on Mutual, a R160-million mixed-use development situated adjacent to Church Square in the Tshwane CBD will consist of 142 residential units, ground floor retail space and parking and will be completed in February 2017,” said Wapnick.
 
He added that Sharon’s Place, a R375-million new residential development also in the Tshwane CBD, comprising 400 residential units, parking and ground floor retail anchored by retailers Shoprite and Clicks, was situated adjacent to the new Tshwane House municipal development and set for completion in April 2017.
 
Wapnick added that The Manhattan, a 180-unit residential development in Sunninghill, Johannesburg was progressing well. The total development cost of this 50%-held joint venture amounts to R80.9-million and completion is expected in late 2016.
  
“Two additional residential developments are in [the] planning phase at a cost of R240-million, but these will only be undertaken if they meet our hurdle rate of return of 9%. Strategic partnerships that will support our growth and entry into new markets are also being considered,” he said.
 
Octodec’s continued focus on cost control saw the ratio of net property expenses to rental income decrease to 29.6%, while bad debt write-offs and provisions remained low at just 0.8% of total tenant income.
 
Octodec has reduced its exposure to interest rate risk by entering into interest rate swap contracts in respect of 82.9% of all borrowings.

The all-in average weighted interest rate for all borrowings was maintained at 9% a year. The group says it has significant committed bank facilities to complete all developments with headroom to raise more funds.
 
“We have retained a strong financial position with sufficient facilities in place to fund our development pipeline. In addition, we have protected our exposure to interest rate risk by hedging 83% of our borrowings,” said FD Anthony Stein.
 
A final cash dividend of 103.1c a share was declared for the 12 months to August 31. Shareholders will be entitled, in respect of all or part of their shareholdings, to elect to reinvest the cash dividend in return for Octodec shares.
 
“[Looking ahead], we are fortunate because we have a lot of developments in the pipeline, so without acquiring anything we can stick to our strategy of developing within various CBDs,” Wapnick said.