Octodec opts to withhold dividend
• MD says pandemic has made planning difficult after tenants battled with effects of lockdown
Uncertainty about whether there will be a third Covid-19 wave and when the economy will regain momentum is too high for Octodec Investments to commit to paying a dividend and to selling marketable assets in the next six months, says MD Jeffrey Wapnick.
Uncertainty about whether there will be a third Covid-19 wave and when the economy will regain momentum is too high for Octodec Investments to commit to paying a dividend and to selling marketable assets in the next six months, says MD Jeffrey Wapnick.
Wapnick spoke after the release of the company’s financial results for the six months to end-February when its tenants battled with the effects of the lockdown.
Octodec rehabilitates old properties mainly in Gauteng’s CBD and turns them into mixeduse properties, which are managed by Wapnick’s family business, City Property.
“We have had a very challenging six months, but we are optimistic that the next period will be better,” Wapnick said. “Nobody knows if and when a third wave of Covid-19 is coming and that creates a lot of uncertainty. Yes, we would like to sell certain assets, but we are struggling to find suitable buyers who are being backed by the banks.”
Asset sales would help to bring Octodec’s loan-to-value (LTV) ratio from 44.2% to below 40%. LTV measures a property fund’s debt relative to the value of its asset portfolio.
Fund managers prefer for property funds to have LTVs below 40%, as levels above 40% tend to indicate a degree of financial distress.
Octodec remains tightly held by its founding Wapnick family and has been criticised for its lack of liquidity. Institutional investors have tended to buy its shares so they can have access to dividends, which the real estate investment trust (Reit) paid regularly before Covid-19.
As a Reit, Octodec must pay a minimum of 75% of its distributable income each financial year as a dividend as long as it passes a solvency and liquidity test.
It opted not to declare an interim dividend for the six months to end-February. The company may still declare a dividend for the full financial year to end-August and meet its 75% minimum income target.
In addition to residential, Octodec also has retail and office assets. It has battled with reduced property values and rental income amid rising vacancies and after giving tenants discounts.
Octodec’s property portfolio fell 10.3% to R11.3bn, from R12.6bn a year before.
“The social and economic fallout from the Covid-19 lockdown restrictions weighed on our tenant base and consequently on our performance,” said Wapnick.
Economic hardship felt by the tenants in Octodec’s properties resulted in many residential tenants having to vacate due to affordability concerns, or students returning to their family homes due to colleges and universities remaining closed.
Vacancies as a percentage of gross lettable area in the total Octodec portfolio, including properties held for redevelopment, increased to 24.7% from 17.9% in the same period a year ago.
The group’s core vacancies, which exclude the gross lettable areas relating to properties held for redevelopment or disposal, increased to 18.2% from 11.7% a year ago.
The market reacted negatively, sending the share price down 12% to R7 on Wednesday morning before recovering to close 1% down at R7.90, giving the group a market capitalisation of R2.1bn.