Retail, industrial and office property investment group Octodec has lifted its rental income for the year ended August 31 by 10.6% year-on-year to R506-million, following a solid twelve months in which the company grew its exposure to residential property in the Pretoria and Johannesburg central business districts (CBDs).

Similarly, net rental income improved by 7.2% to R251-million, while the group’s core portfolio, representing those properties held for the previous comparable period with no major development activity, reflected rental income growth of 6.7%.

Provisions and write-offs of bad debt remained at levels of 0.9% of total rental income.

MD Jeffrey Wapnick attributed the increase in revenue to contractual escalations, improved letting and an increase in the recovery of utility and assessment rate charges.

“Octodec delivered strong growth in distributions of 14.8% for the year, representing an income yield of 8.3% with a total return of 11.7%. A pleasing result, considering the continued pressure on consumers and challenging trading conditions faced during the year,” he commented.

He said the results reflected a well-executed strategy that came as the company initiated several value-enhancing upgrades and adopted a proactive approach to letting.

Octodec’s investment in IPS Investments (IPS) continued to provide strong earnings growth, with profits earned from its associate company, excluding fair value gains, increasing 41.4% on the prior year to R24.7-million.

The company reported an increased loan-to-value ratio of 35.9% of the total value of its investment portfolio, while interest rates in respect of 54.9% of borrowings had been hedged, maturing at various dates between November 2013 and October 2018.

The average weighted interest rate of all borrowings was 8.4% a year, with unused banking facilities in excess of R90.3-million.

In addition, improved occupancy levels were achieved during the period at Craig’s Place and at mixed-use developments Kempton Place and Tali’s Place.

Vacancies in Octodec’s portfolio, including properties held for redevelopment, amounted to 13.6% of total lettable area with core vacancies at 8.4%.

“The performance of Killarney Mall, our flagship shopping centre, was extremely pleasing, with vacancies below 2%. Although successful in letting a number of vacant properties, the company experienced increased vacancies in the office and industrial rental markets owing to subdued economic conditions.

“An aggressive strategy is being pursued to fill these vacancies, albeit in a challenging market,” said Wapnick.

He added that the group continued to advance its strategy of enhancing the profitability of the portfolio by improving the quality of the assets through carefully selected upgrades.

Meanwhile, various properties were redeveloped and upgraded during the review period at a total cost of R66.2-million, including the completed upgrades of mixed-use residential property Kerk Street in the Johannesburg CBD, and a 5 233 m² retail development in the Pretoria CBD.

The company also acquired a portfolio of properties for an aggregate purchase consideration of R140.5-million, comprising offices located in the established office nodes of Persequor Park, Menlyn and Centurion, in Pretoria.

Additionally, the Eloff Extension Mini Units property was disposed of for R6.65-million.

Meanwhile, the redevelopment of Bosman Place, which comprised a retail component and 13 000 m2 of vacant offices, in the Johannesburg CBD, was in the planning phase.

The offices would be converted into 225 residential units at a cost of some R90-million. The initial yield was expected to be 8.4%.

Wapnick added that the group’s improved performance was the result of disciplined work and project delivery, but was also owing to a clear understanding of the environments in which it operates.

“Our focus has been, and will continue to be, on creating maximum value for our unitholders. We believe the bulk of this will come from our redevelopment and refurbishment expertise.

“Looking forward, growth in the local economy is expected to remain subdued. Notwithstanding the environment, and barring unforeseen events, current indications are that the percentage growth rate in distributions per linked unit for the next financial year should be in line with the sector average,” he said.

During the period, the company attained Real Estate Investment Trust status, effective from September 1.