Octodec stares down tough times

OCTODEC Investments MD Jeffrey Wapnick says the group is on track to achieve 6% distribution growth for its financial year despite sluggish economic growth.

OCTODEC Investments MD Jeffrey Wapnick says the group, which has a large exposure to central business districts, is on track to achieve 6% distribution growth for its financial year, despite sluggish economic growth and a lack of business confidence.

Octodec released financial results for the six months to February yesterday, reporting a 3.3% increase in its net asset value per share to R28.60.

Many property funds are expected to report weakening performances over the next few weeks, as interest rates rise and economic activity slows down.

“The portfolio performed in line with our expectations, delivering a 5.7% increase in revenue for the six-month period. These results are reflective of the challenging economic environment, and although we focused our efforts on cost-control, our firsthalf earnings were muted by rising interest rates, the phased take-up of units at Frank’s Place, and investment in a number of projects,” Mr Wapnick said. “The benefit of these projects will be seen in the short to medium-term.”

He said the period was marked by the successful upgrading of a number of properties, that, with a proactive approach to letting, had resulted in an increase in rental income.

Chief financial officer Anthony Stein said Octodec had a portfolio of 324 properties, 33 of which were being considered for sale. Most were “small assets which no longer fit into our portfolio”, he said.

The overall portfolio realised like-for-like growth of 5% in rental income.

Octodec’s board declared an interim cash dividend of 98.4c per share for the reporting period. Shareholders would be entitled, in respect of all or part of their shareholdings, to elect to reinvest the cash dividend in return for Octodec shares.

“Challenging trading conditions and muted economic growth are expected to continue, but we are confident demand for well-located and quality spaces will see us continue to deliver long-term value for shareholders,” Mr Wapnick said.

“Current indications are that full-year distribution growth will be in the region of 6%.”

Evan Robins, the listed property manager of Old Mutual Investment Group’s Macro-Solutions boutique, said the market wanted more than 6% distribution growth.

“I think 5% like-on-like rental growth, which is what they have achieved, is decent in this tough environment, but with gearing, should result in growth above 6%,” Mr Robins said.

“Octodec does not invest offshore or financially engineer using methods to boost its distribution growth. Octodec earnings can be lumpier than other companies, as it takes time to lease up new residential developments,” he said, adding, “Over the next few years, Octodec may also be more exposed to the interest rate hikes than many other funds.”

Three major projects, worth about R 708.9m were under construction during the period, with R 278.6m spent by February 29.