Residential assets to provide growth

Octodec Investments is a R6bn market capitalisation fund that owns a substantial number of highquality residential assets, many in Johannesburg and Pretoria’s inner cities, and Killarney Mall in Johannesburg.

The group’s largest asset is The Fields, a retail asset with a value of R776.7m in Hatfield, Pretoria. It includes a hotel, shops, offices, flats and parking.

Killarney Mall, the second- largest asset, is worth R641.0m. It has been an underperformer but may be positioned to improve. Rosebank, a suburb next to Killarney, is booming, and this should have positive knock-on effects for Killarney.

Octodec also owns various high-quality residential units.

MD Jeffrey Wapnick expects much of his company’s future success to come from these residential assets.

“Demand for residential units priced from about R4,000 to R7,000 is growing steadily,” he says. “More and more middle-class people want to live in or close to our cities. I believe this is the sweet spot for Octodec’s residential portfolio.”

Wapnick also says Octodec is looking at deals at the coast for the first time. It could invest in housing a level above affordable housing, which is in demand in the Western Cape.

In its most recent set of results for the six months to February, Octodec reported 6.5% growth in dividends. These grew to 104.8c/share, compared with 98.4c in the previous corresponding period.

Wapnick says the residential portfolio showed lower growth in like-for-like rental income at 3.8%. He attributes this to lower escalations of rentals in Pretoria. The ratio of net property expenses to rental income remained unchanged at 29.6%. Like-for-like rental income increased 5.5%.

Vacancies in the portfolio, comprising 316 properties valued at R12.7bn, increased to 16.8%, from 15.6% in August. Core vacancies, which exclude the gross lettable area of properties held for development and those that were under redevelopment, increased to 10.1%, from 9.8% in August.

Over the past five years, Octodec’s share price has grown 42.84%.

Octodec is focused on SA and does not meddle in offshore markets. “We invest in what we understand and we manage assets and tenants in a manner which works for us,” says Wapnick

Octodec investors should expect share price appreciation in the coming months, while the company maintains dividend payouts of 6%-7%.