JSE-listed Octodec managed to grow its rental income by R47-million, or 5.2%, in the six months ended February 28, compared with the six months ended February 28, 2018, despite continued dampened consumer spend, lower growth in retail rental income and higher property operating costs.
Octodec MD Jeffrey Wapnick said the rental income growth recorded was mainly attributable to the increase in rental income of the company’s residential block Sharon’s Place, in Johannesburg, as well as the inclusion of the company’s acquisitions – Gerlan Properties’ Toyota Auto dealership and Jardtal Properties’ Kempton Place and The Brooklyn properties.
Sharon’s Place was 98% occupied by February 28.
The company’s core portfolio – which are properties held since the prior comparable period with no major development activity – had like-for-like rental income growth of 2.2%.
Octodec, however, recorded lower growth in rental income for retail shops, shopping centres, offices and auto dealerships during the reporting period, owing to increased vacancies and rental reversions, which were the result of the poor economic environment.
The company’s tenant retention strategy has paid off with residential rental income having increased by 3.9% in the reporting period, with stable occupancy levels and a continued focus on tenant retention.
Wapnick previously told Engineering News Online that its tenant retention and value-add strategy includes rewarding tenants with shopping vouchers or electricity discounts if they renew their leases upon expiry.
The increase in property costs, both on a gross and net basis, have increased compared with the corresponding period, largely owing to an increase in utility and assessment rate charges, and an overall increase in property management costs.
Octodec’s vacancy rate in the reporting period was 17.7% of gross leasable area, compared with 18.6% in the company’s financial year ended August 31, 2018, with the bulk of the vacancies in the office segment.
“In recent years, certain office properties such as Fedsure House, Reinsurance House, Van Riebeeck Medical Building and Midtown were acquired with high vacancy levels. The potential of these office properties, with 101 046 m2 of mothballed space, is being investigated and offers significant residential conversion, office redevelopment or disposal opportunities, the value of which will be realised in due course,” Wapnick pointed out.
Meanwhile, he noted that the prevailing poor economic and trading environment, exacerbated by political uncertainty, had weighed heavily on consumer confidence and spending power.
“We continue to focus on the core property fundamentals and have positioned ourselves to provide shareholders with long-term sustainable value creation.”
Octodec declared a dividend of 101.7c apiece for the reporting period, which was unchanged from that of the prior corresponding period, in line with the company’s guidance to shareholders.
The company’s rental income by sector comprises 10% shopping centres, 24% shops, 32% residential, 15.6% offices, 7% industrial with the balance specialised properties, across Tshwane and Johannesburg.
Further, Octodec has several small projects under way, including the refurbishment of the Elarduspark shopping centre, which is expected to be completed by October at a cost of R40-million.
Wapnick said these various upgrades should improve occupancy levels, enhance the value of the portfolio and contribute to the upliftment of the areas in which Octodec is invested.
The company disposed of 14 properties during the reporting period, of which six had been transferred by May for a consideration of R98.8-million. The company expected the transfer of the remaining eight properties by August, for a consideration of R39-million.
Octodec FD Anthony Stein told Engineering News Online that the company has identified a further 31 non-residential properties, with a combined value of R300-million, for disposal over the next year.
Octodec expects its dividend for the six months ending August 31 to be slightly lower than the current reporting period’s dividend, resulting in a decrease of about 2% in the dividend for the year.