OCTODEC Investments’ taxed distributable income fell by 14.1 percent after the relief it granted to tenants who couldn’t pay rent, due to lockdown restrictions, and negative rental reversions resulted in lower rental income in the year to August 31.
Managing director Jeffrey Wapnick, who has been managing Octodec since 1998 on behalf of his family, who control 39 percent of the shares, said in an interview yesterday that he was planning for succession of the management of the company, and they were in the process of establishing an executive team.
The company, which owns 267 properties in the Johannesburg and Tshwane CBD, said rental income from the residential sector and specialised sectors fell 10.6 percent and 15.4 percent respectively, due to the impact of Covid-19 on these sectors.
Rental relief through rent discounts nonetheless fell significantly to 1.6 percent of rental income for the year, compared with 5.3 percent in 2020, when the impact of lockdowns was at its worst.
More recently, tenants struggling with the impact of the pandemic were asking for lower rents on rental agreement renewals.
“The lockdown severely impacted certain sectors due to their level of social interaction, such as hospitality, places of worship and universities and colleges, many of which had moved their tuition online during the year,” Wapnick said.
He said vacancies in the residential properties were still high at around 15 percent, but he expected this to further recover as particularly students started recovering from the impact of the pandemic on their academic lives.
Rent collections were lower in January and February, in line with previous years. Although no properties were impacted by the July civil unrest, there was a temporary impact on collections.
Over a year, however, the level of collections was strong, averaging 100 percent. Loan to value edged up to 43.2 percent from 42.5 percent.
Wapnick expected that as vacancies declined, loan to value would improve. In addition, the decision to cut the dividend to strengthen the balance sheet and some sale of assets were also expected to lower the loan to value in the new financial year.
A dividend of 50 cents per share was declared. The decision to cut the dividend from 100c last year was to reduce debt, strengthen the balance sheet and conserve cash, he said.
“The decision is in line with Octodec’s decision to pay out the minimum distribution requirement to retain its real estate investment trust status while utilising the available assessed losses in the group.
“While we remain cautious on the outlook, there are green shoots and early signs that the worst of Covid-19 may be behind us,” he said.
GCR, the rating agency, yesterday affirmed Octodec’s issuer ratings of A-(ZA)/A2(ZA), with a Negative Outlook maintained.
“An upward rating movement is not expected over the rating horizon. However, a return to a Stable Outlook is dependent on improved property performance and gearing metrics over the rating horizon,” GCR said.
Octodec financial director Anabel Viera said the balance sheet had been strengthened, and they continued to generate good cash flows in spite of the tough environment.
No debt covenants were breached, and Octodec’s interest-cover-ratio was within the limit for each lender.
“The diversified and granular nature of the portfolio, with management’s intimate knowledge of the portfolio and the broader property market, have stood the business in good stead.
“Also, active balance sheet management and liquidity planning have shielded the business,” she said.
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