JSE-listed REIT, Octodec Investments, has published results for the year ended 31 August 2024, reporting a 4.1 per cent increase in revenue with its residential portfolio seeing growth of 3.8 per cent and the shopping centre portfolio seeing 3 per cent growth, driven by lease escalations and offset by increased vacancies. For more insights on these results, CNBC Africa is joined by Jeffrey Wapnick, Managing Director of Octodec Investments.
JSE-listed REIT, Octodec Investments, has published results for the year ended 31 August 2024, reporting a 4.1 per cent increase in revenue with its residential portfolio seeing growth of 3.8 per cent and the shopping centre portfolio seeing 3 per cent growth, driven by lease escalations and offset by increased vacancies. For more insights on these results, I'm joined by Jeffrey Wapnick, Managing Director of Octodec Investments. Jeffrey, thank you for your time and welcome to Power Lunch Southern Africa. So the group saw revenue grow slightly but the profit lines all saw a significant decline. Can you just start off by taking us through the period that was and giving us a sense of what challenges you saw there between the top line and what trickled down to the bottom line? Good morning. Thank you. I think that it was a tough year that we've just gone through. Some of the major concerns that we had to deal with were firstly, obviously, the economy, a tough economy. Secondly was the gas explosion in Johannesburg where certain gas lines exploded and that's taken a long time for council to start fixing. And so our concern at this point in time is not necessarily the fact that there was a gas explosion but rather we are unaware as to when the council will not only start but therefore also when it will finish. This has had a major impact on approximately 14 buildings within the Johannesburg portfolio, adversely affected both in the retail as well as the residential perspective. Given the optimism around the anticipated economic growth driven by a reduced consumer pressure and lower interest rates, what specific areas of your portfolio do you see benefiting the most and how are you positioning yourself to capitalize or benefit from that? I think we are still fairly bullish on the residential part of our portfolio. Very difficult though when unemployment is currently where it is and so our vacancy factors in the residential sector are slightly more than we would want. But with the decrease in interest rates and improvement in the economy, we should see quite a marked uptick over here. Other than that, I do think our retail, both our shopping centres and our, how do we call, high street shopping would be substantially better. Still looking at macroeconomic factors, how significant do you think the increase in business confidence and the formation of the Government of National Unity will be in terms of attracting investment and potential opportunities for growth in the property industry? Well, the situation of the Government of National Unity, I think that from where we sit, it is excited because we think that that is positive for the country as a whole. But unfortunately, we don't think that this has trickled down to local government. So, for example, in Johannesburg, potentially there seems to be a lot of infighting. And as a result, the recovery of council to a position where they are able to improve their service delivery, not the best at the moment. I just want to make one point. I saw on the screen there was a number of 14.9%, a decrease in headline earnings. In the property sector, we don't really look at that number. The numbers that we look at is rather the distribution and the distribution in earnings per share. And this was calculated 7.4%, not the number published on your screen. Got that. Then if we look more specifically at some of the activities happening within the business, so you've mentioned the potential for unlocking value through the redevelopment of underperforming properties. Could you provide more detail on which properties you're focusing on? I think I saw that you mentioned Kalani. And what types of returns or value do you anticipate coming from the redevelopments? Alright, so I think we're very excited to announce a project. The name of the project is Yertu City, which is a new product that we hope to bring to the market sometime in the later half of January, whereby we will attempt to attract those that can't afford our traditional offering. A traditional offering typically starts at an entry point of R4,000 per month, plus some utility costs. This Yertu City, the entry point will be R3,000 per month, fully inclusive of both electricity and water. And I think that if this proves to be a success, well, then that gives Octadec an opportunity to roll this out significantly in those otherwise struggling buildings. One of the problems that Octadec has, we recognize the need to dispose of our assets. You mentioned Kalani Mall, that's one of them, but there are one or two, a number of others that we would like to dispose of. During this time, it's been proven not so easy. I think banks are not giving funding to the potential purchases of these buildings. And so we're not moving ahead as quickly as we would like to. But certainly our ability to develop at a positive yield in something called Yertu City is something we're quite excited about. And how are you managing vacancies and rent reversions within the current markets? And are there any particular regions or asset types where you're seeing difficulty or pressure in terms of vacancies or rental income growth? I think that the one that I mentioned to you was residential, normally something we can rely on. Very difficult at this stage to get rental growth because of, I think it's pure affordability. But in retail, both high street shopping in select areas, as well as certainly in our shopping centres, the smaller shopping centres, we're starting to achieve good growth now. I think during times of COVID, the tenants were strong and they forced us to take soft deals. Those days, I think, are over. And where we got strong, strongly well-positioned properties, well, those rentals are starting to move in the positive direction. With the appointment of Rianne Rasmus and his focus on internalising assets and property management services, what are the advantages you're seeing to bringing these in-house, and how will it impact your operational efficiencies going forward? So, in line with our stated objective to accelerate the sale of assets, Rianne is now being brought in for that purpose. We have had a strong demand or voice we've heard from our institutional shareholders, wanting to know about succession planning for myself. I've worked with Rianne for almost three years now. I think it's virtually three years to the day, and very comfortable that I can work side by side with Rianne to ensure that not only do we fill the role that's being vacated by Annabelle, but we have a strong financial director and somebody who knows the business well. Then finally, looking forward, your forecast for the 2025 financial year, you've said that you expect growth in distributable income of between 3% to 5%. What are your expectations for the 2025 financial year? What specific initiatives or activities do you believe will drive this growth, and how confident are you about meeting this target? I think fairly confident. We're moving, I think, into a reduced interest rate phase. Up to now, being an August year-end business, we haven't yet taken any of the benefit of the slightly lower interest rate. The lower interest rate will, however, come through in this upcoming year for the year ended August 2025. I think that early indications are that certainly in the commercial space, there's going to be a better environment in which to let our commercial properties. I also don't want to harp on it, but Yetu City, which is only at this stage a pilot project, we hope that this pilot project will give impetus for further development of a new residential offering that Octave currently has. Jeffrey, that is where we'll have to hold it for now. Thanks once again for your time. That was Jeffrey Wapnick, MD of Octadec Investments.
Theme: Octodec Investments' FY 2024 Results and Growth Forecast for 2025
Octodec Investments, a JSE-listed Real Estate Investment Trust (REIT), recently released their financial results for the year ended on August 31, 2024. The company reported a 4.1% increase in revenue, driven by a 3.8% growth in the residential portfolio and a 3% growth in the shopping center portfolio. Despite the revenue growth, the company experienced a significant decline in profit lines. Jeffrey Wapnick, the Managing Director of Octodec Investments, discussed the challenges faced during the year, highlighting economic pressures and the impact of a gas explosion in Johannesburg. The gas explosion affected approximately 14 buildings in the portfolio, leading to disruptions in both the retail and residential sectors. Wapnick expressed concerns about the uncertainty surrounding the timeline for repairs by the council, impacting the company's operations. As the economy shows signs of improvement, driven by reduced consumer pressure and lower interest rates, Octodec Investments remains optimistic about the growth potential in their residential and retail portfolios. Despite challenges with vacancies in the residential sector, the company anticipates a positive trend with improving economic conditions. Wapnick also touched on the formation of the Government of National Unity and its potential impact on investment and growth opportunities in the property industry. While optimistic about the national government, he raised concerns about local government issues affecting service delivery in regions like Johannesburg. When discussing specific initiatives within the business, Wapnick highlighted the redevelopment project Yertu City, aimed at providing affordable housing options. The company also plans asset disposals, including the Kalani Mall, to unlock value in underperforming properties. Managing vacancies and rent reversion remains a focus, with challenges in the residential sector but positive growth in retail properties. Rianne Rasmus's appointment to internalize assets and property management services aims to improve operational efficiency and accelerate asset sales. Looking ahead to the 2025 financial year, Octodec Investments forecasts growth in distributable income of 3% to 5%. Wapnick expressed confidence in meeting this target, citing the benefits of a reduced interest rate environment and opportunities in commercial leasing. The company remains hopeful that initiatives like Yetu City will drive further growth in their residential offerings. Overall, Octodec Investments navigated challenges in FY 2024 and remains poised for growth in the upcoming year.
"I think fairly confident. We're moving, I think, into a reduced interest rate phase. Up to now, being an August year-end business, we haven't yet taken any of the benefit of the slightly lower interest rate. The lower interest rate will, however, come through in this upcoming year for the year ended August 2025."
Octodec Investments, financial results, revenue growth, profit decline, real estate, property industry, economy, Government of National Unity, vacancies, asset disposals, operational efficiency, asset sales, 2025 forecast