JSE-listed real estate investment trusts (REITs) Premium Properties and Octodec Investments on Tuesday announced distribution increases of 19.4% for the year ended February 28 and 12.6% for the six months ended February 28 respectively, with MD of both companies Jeffrey Wapnick stating that the positive results were owing to the strategies the companies had been following over the past 10 to 15 years. 

“We are on the same road that we have been on over the last 10 to 15 years and that we are able to consistently produce above average results is a great source of comfort,” he told Engineering News Online.

Premium’s distribution grew to 150.7c a linked unit during the full year, while its rental income and net rental income increased 13.1% and 13.7% respectively.

The company’s residential portfolio, which comprised 28.8% of the total property portfolio by rental income, achieved strong growth underpinned by low vacancies and high demand for quality, secure and affordable accommodation. Bad debts, write-offs and provisions decreased from 1% to 0.5% of total tenant income, while arrears and doubtful debt provisions remained at acceptable levels and no significant deterioration was expected.

“In this high-cost environment, we focused on reducing vacancies with more aggressive leasing activities. We also introduced various energy management initiatives which significantly contributed to the bottom line,” Wapnick said.

With regard to Premium’s retail portfolio, Wapnick pointed out that most of the company’s properties were based in the central business districts (CBDs) of Johannesburg and Pretoria, a market that continued to be “extremely strong”.

During the period under review Premium had completed three major projects with a fourth still under construction. The cost of these projects was about R124.3-million of which R89.6-million had been spent by February 28. 

The projects included the construction of an additional residential block on the last remaining open space at The Fields, in Hatfield, Pretoria which was completed in February 2014 for R68.6-million, the redevelopment of the Silver Place mixed-use property, in Silverton, which was completed in early 2013 for R40.4-million and the upgrade of the Prinsman Place and Denmar Building properties, in the Pretoria CBD.

Meanwhile, Premium had also taken transfer of the The Hangar complex, in Centurion, in July 2013 for a purchase consideration of R114.7-million. This property was expected to yield a return of 8%.

Volksbank in the Pretoria CBD had also been transferred to Premium in November for a purchase consideration of R19.4-million. The construction of a high-end residential development would start in October this year at a total estimated project cost of R129.7-million and the project was expected to yield a return of 8% once fully let.

“A number of carefully selected upgrades and redevelopments completed during the period have improved the quality of our assets and grown the overall value of the portfolio,” Wapnick said.

Premium declared a dividend of 0.42c an ordinary share and interest of 84.08c a debenture for the six-month period. 

OCTODEC RESULTS
Meanwhile, Octodec Investments, with which Premium would soon be merging as the two companies’ management believed that a combined entity would make strategic sense, on Tuesday announced a linked distribution of 88.6c a linked unit for the six months ended February 28, despite tough trading conditions and subdued consumer confidence.

“The increase in revenue was mainly owing to contractual escalations and improvements achieved through letting efforts, the recovery of utility and assessment rate charges as well as an increased focus on energy management initiatives,” Wapnick said.

He told Engineering News Online that the company had been expecting utility management to be a major problem for the property industry and had been working towards mitigating these challenges for some time.

Wapnick said, therefore, Octodec’s strategy over the interim period remained much the same as it had always been – focusing on aspects such as leasing policy and good credit control, but with the added focus on managing its buildings’ utilities effectively.

During the period under review, Octodec’s rental income and net rental income increased by 8.2% and 12.2% respectively, while bad debt write-offs and provisions during the period were 1% of total tenant income and arrears and doubtful debt provisions remained at acceptable levels.

Vacancies, including properties held for redevelopment, amounted to 15.4% of total lettable area compared with 13.6% at year end. As expected, a number of properties under development or those recently upgraded, attracted high vacancies. Octodec was successful in letting a number of properties that had been vacant for a considerable period.

“We are proud to have achieved a 0.3% vacancy rate for our retail shopping centres. Killarney Mall, the company’s flagship centre maintained vacancies at below 2% of gross lettable area following a successful recent upgrade and delivered an extremely pleasing result for the period, contributing significantly to the growth in distributions,” added Wapnick.

“Killarney Mall has seen the worst of its tough times and we are now slowly but surely brining the mall to reasonable profit levels,” he said.

During the year, Octodec completed three major projects with two projects still under construction. The total cost of the projects was about R189.4-million of which R110.9-million had been spent by February 28.

The projects included the redevelopment of the abandoned and dilapidated Medical City, in the Johannesburg CBD, into a college with residential accommodation, which was occupied in November 2013; the upgrade of Time Place, a residential property in the Pretoria CBD as well as various upgrades and the construction of additional units in the Johannesburg CBD.

Octodec was also upgrading a number of residential properties in the Johannesburg CBD, including Essenby, and was also completing the redevelopment of Bosman Place for R106.4-million. The fully let initial yield is expected to be 8.4% following completion in 2015.

During the six months under review, Octodec increased its investment in associate company IPS Investments to 50%. IPS continued to deliver strong growth with profits earned from the associate increasing 62.3% to R19.2-million. The growth achieved by IPS was positively impacted by the improved occupancy levels achieved at most of its assets.

Octodec declared a dividend of 88.6c a linked unit for the period September 1 to February 28.

Wapnick added that Octodec and Premium still had future growth potential, stating that the companies had identified a number of large schemes they would be focusing on as part of their development over the next year.