Strong results across Octodec retail portfolio

Posted On Thursday, 19 April 2012 02:00 Published by
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The fund's overall positive performance is accredited to growth in rental income, the successful upgrade of properties and aggressive leasing initiatives.

Jeffrey WapnickOctodec Investments Limited invests in retail, industrial and office property and holds a small residential property portfolio. During the period, its rental income and net rental income increased by 17.3% and 15.9% respectively. Property expenses increased slightly from 48.4% to 48.6% of revenue.

“Improved letting and the increased recovery of utilities costs and assessment rates underpin the growth in revenue,” notes Jeffrey Wapnick, MD of Octodec. Bad debt provisions and write-offs remained at acceptable levels of 1.1% of total revenue. Octodec also reduced the number of defaulting tenants with an improved collection process.

However, the economy-wide higher occupancy costs from increasing utilities charges and rates and taxes, impact rental levels when leases expire.

During the period, Octodec expanded its property portfolio in the Johannesburg and Pretoria CBDs. It also continued to redevelop and refurbish its properties.

It bought two properties for a combined R178,6 million, providing an average weighted yield of 10.3%. They are The Tannery Industrial Park in Silverton, Pretoria, which comprises 36,000sqm of industrial units, and the 1,900sqm FNB Centurion.

Octodec invested R36,2 million in property upgrades with a combined 9.9% yield, and has further projects earmarked for completion in the 2012 financial year.

The company’s strong focus on reducing vacancies has paid off. Vacancies dropped by 1.4% during the period, to 14.5% of total lettable area.

Office vacancies came down from 9.3% to 7.0% and industrial vacancies reduced from 2.8% to 2.5%. Completed residential units in the portfolio remain virtually full at any given time, driven by strong demand.

Wapnick explains that portfolio vacancies are mainly from properties acquired with large vacancies, where little or nothing was paid for the vacant space. “This is an opportunity for Octodec. We will redevelop and lease them at suitable market rentals,” reports Wapnick.

Octodec’s retail vacancies are 0.2% in shopping centres and 3.4% in freestanding shops. Vacancies have reduced significantly, especially at Gezina City Shopping Centre and Killarney Mall which is performing solidly after the extensive refurbishment that extended the lifespan of this key asset. At the period’s close, Killarney Mall was effectively fully let and realising rental growth of over 9.0%.

In fact, Wapnick notes that Octodec is experiencing strong results across its retail portfolio, which also includes Woodmead Value Mart and Waverley Plaza Shopping Centre. “All our shopping centres are performing exceptionally, with rental income growth of around 10.0%”.

“Octodec’s aim to transform vacant space to a desirable lettable condition with refurbishments and upgrades has resulted in the overall strengthening of our portfolio with more sought-after buildings. This has increased tenancies and rental growth,” says Wapnick. “We are seeing positive performance across the portfolio, which continues to deliver sustainable distribution growth for investors”.

Regarding listed investment returns, Octodec posted 9.5% growth in distributions per link unit for its linked unitholders for the six-month interim period ended 29 February 2012. It's investment assets of R3,4 billion, achieved an interim distribution of 71,20 cents per linked unit.

During the interim period, Octodec’s net asset value increased by 3.5% to 1,860.0 cents per unit.

On the debt front, Octodec’s borrowings increased with acquired properties, the purchase of 615,653 Premium linked units, and development costs incurred. Its gearing increased from 39.1% to 42.2% of the total value of its investment portfolio. 54.0% of Octodec’s borrowings are hedged, maturing at various dates ranging from April 2013 to October 2018. The weighted average interest rate of all its borrowings is 9.2% per annum.

“Strong results have been achieved despite economic conditions and consumer confidence which remained weak during the financial period. Hard work has gone into upgrading and extracting value from the portfolio,” says Wapnick. “We are optimistic that, with these strategies in place, Octodec will deliver similar results for the full year.”

Last modified on Monday, 21 April 2014 17:15

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