Octodec director forecasts rebound

• Real estate investment trust expects growth of 4% as residential rentals improve in first quarter

Octodec Investments‚ which predominantly invests in the Johannesburg and Pretoria central business districts, should bounce back with positive dividend growth of 4% in its 2019 financial year, says financial director Anthony Stein.

Octodec Investments‚ which predominantly invests in the Johannesburg and Pretoria central business districts (CBDs), should bounce back with positive dividend growth of 4% in its 2019 financial year, says financial director Anthony Stein.

The real estate investment trust’s dividend shrank nearly 3% in the six months to February 2018, with the group saying its dividend was affected by rental income coming under pressure as a result of the sluggish performance of the local economy and “the reduction in distributable income during the let-up phase of The Manhattan, One on Mutual and Sharon’s Place”.

Sharon’s Place is a new residential development in the Tshwane CBD consisting of 400 units and ground-floor retail. Demand for units has been strong in 2018, with 90 having been sold in two weeks at the beginning of the year.

Octodec declared a dividend of 101.7c per share for the six months to February 2018, compared with 104.8c per share in the comparative six months to February 2017.

FLAT GROWTH

The company had forecast flat dividend growth for the full financial year to August 2018.

The real estate investment trust has been going through a difficult period in a listed property market that has become accustomed to inflation-beating and sometimes double-digit dividend growth. In the financial year to August 2017, Octodec grew its dividend payout by a paltry 0.8%.

“Business conditions were very bad last year,” said Stein. “Things pretty much came to a halt, but following the appointment of Cyril Ramaphosa as president there has been better sentiment in the country.

“Our residential rentals especially have improved in the first quarter of 2018. I believe if we sustain like-for-like rental income growth of 3.2% and keep our expenses in line, we should get 4% dividend growth in 2019,” he said.

CEO and founder Jeffrey Wapnick said it was key that his company had delivered sustainable returns for more than a decade. “We have always stuck to our knitting and offered an understandable investment case. We collect rent and then subtract expenses and some finance costs. It is that simple,” he said.

During the six months to February Octodec kept the increase in its operating costs relatively low while bad debt write-offs were maintained at “acceptable levels”, he said. Retail accounted for 36.9% of revenue earned during the reporting period while residential property contributed 30.5% and offices, 20.7%.

“Residential vacancies, which saw significant competitive pressures, specifically in Hatfield, was a key focus area for us,” Wapnick said. The residential sector saw an improvement in vacancies from 7.2% at endAugust 2017 to 3.7% just post the end of the period.

Anas Madhi, the executive director at Meago Asset Management, said residential property in Gauteng CBDs had been under strain given abundant supply and faltering demand.