Octodec’s retail performance in Johannesburg continues to be affected by the unrepaired damage on Lilian Ngoyi Street while many tenants in nearby buildings remain directly exposed to the site and are unable to operate sustainably.
Despite the challenges, the JSE-listed Real Estate Investment Trust (Reit) is making efforts to retain tenants until the road, which suffered serious damage from a gas explosion in July 2023, is repaired, the company said in its annual results to end-August on Monday.
The group’s rental income from retail shops saw a year-on-year increase of 1.4% and a 2.2% rise on a like-for-like basis. However, the growth remains limited due to a high vacancy rate of 14.9%.
Octodec CEO Jeffrey Wapnick said: “I am pleased with the level of demand experienced across our portfolio and with the overall performance from our residential and shopping centre portfolios, which delivered the strongest growth despite the lacklustre economy.”
Wapnick said the company’s strategy to upgrade, convert and repurpose strategically located buildings continued to unlock value, better aligning its portfolio with market demands. The moves were complemented by strategic efforts to enhance the retail tenant mix across the shopping centre portfolio to drive future returns.
Though facing a challenging economic environment with high inflation and interest rates, and infrastructure issues, Octodec reported a 4.1% increase in revenue to R2.1bn. However, inflationary pressures and higher finance charges led to a decrease in distributable income before tax to R422m. The group declared a final dividend of 65c per share, bringing the total for the year to 125c.
I am pleased with the level of demand experienced across our portfolio and with the overall performance from our residential and shopping centre portfolios, which delivered the strongest growth despite the lacklustre economy
— Octodec CEO Jeffrey Wapnick
Octodec’s residential and shopping centre portfolios reported a higher rental income growth, with increases of 3.8% and 3%, respectively. The growth was primarily driven by lease escalations, though it was partly offset by higher vacancies. Despite the challenges, average collections remained robust.
The group’s industrial portfolio saw smaller operators affected by high interest rates and failing rail and port infrastructure, leading to some tenant failures. As a result, vacancies rose slightly and rental growth was limited to 2.5%, or 3.8% on a like-for-like basis.
Cash generated from operations was R433m while total borrowings stood at R4.4bn, with the loan-to-value ratio at 39.2%, within Octodec’s target range. The group successfully refinanced R400m in funding, with terms of three to five years, and the weighted average cost of funding increased slightly to 9.5%.
“Post year-end, a further R370m was refinanced and management is advanced in proactively negotiating the refinancing of a further R600m of debt maturing in 2025. In anticipation of a declining interest rate cycle, only 68% of Octodec’s borrowings were hedged with a short weighted average term of one year,” reads the results.
The group also ended the period with R679m in cash and unused debt facilities that is sufficient for its capital commitments.
“Octodec’s cash generation and prudent management of capital has ensured a robust financial position going into the 2025 financial year, with opportunities to take advantage of lower interest rates in the period ahead to reduce the cost of funding,” said Wapnick.
The conversion of an office building in Tshwane CBD into Yethu City, which will contain residential elements, is under way, with leasing set to begin in January 2025. The group is optimistic about the project’s prospects. The new space will have a solar power system installed after development to reduce electricity costs and provide backup power, boosting the project’s yield.
Wapnick said: “I am excited about the completion of Yethu City. The new offering represents a significant step forward in addressing critical market needs. By providing quality co-living spaces at accessible prices, we are not only meeting the high demand but also playing a vital role in supporting our community by ensuring more people have the opportunity to live in secure, well-maintained accommodation.”
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