Octodec Investments adjusts income outlook lower as economic landscape shifts

Octodec Investments, a real estate investment trust (REIT) boasting a R11.3 billion portfolio of apartments, industrial and retail properties in Johannesburg and Tshwane, has revised its distribution income growth guidance down due to an increasingly uncertain market outlook.

The new forecast ranges between 2% and 4% per share, a decline from the previously projected 3% to 5% growth. This shift comes in light of a changing geopolitical landscape, affecting trading conditions for the company.

Octodec’s directors highlighted Tuesday that several factors were influencing their revised outlook. Chief among them is a recent notice from the City of Tshwane vacating of 12,086 square metres of office space in the Pretoria CBD. There was also ongoing uncertainty regarding the sustainability of the Government of National Unity (GNU),

Despite the challenges, Octodec’s residential portfolio remains a beacon of resilience. Well-located and secure, the demand for its residential offerings continues to flourish. However, an unforgiving economic climate characterised by low growth, soaring unemployment, and high interest rates has resulted in financial pressure on tenants, complicating rental growth prospects.

The company reported an improvement in over vacancies, reducing them to 8.4% as of February 28, from 9.2% in August 2024. However, this figure is higher than the same period last year, particularly in areas of Tshwane and Kempton Place, while vacancies in the Johannesburg CBD have stabilised despite disruptions from a gas explosion on Lilian Ngoyi Street that has limited access to several properties.

Octodec deputy CEO and financial director Riaan Erasmus reinforced their cautious stance regarding interest rates. “The board has mandated a more assertive disposal strategy for non-core assets, where sales proceeds will be recycled into yield-enhancing investments or used to reduce borrowings,” he stated, underscoring a commitment to maintaining a disciplined balance sheet.

Significantly, Octodec’s retail portfolio—consisting of street shops within mixed-use buildings—continues to benefit from high foot traffic in the bustling Johannesburg and Tshwane CBD's. Yet, these areas are not impervious to external economic pressures. The lingering impact of the gas explosion on Lilian Ngoyi Street has created unfavourable trading conditions for retailers.

In a slight positive turn, Octodec has reported an increase in interim dividends to 62 cents per share, a rise from 60 cents previously. Distributable income post-tax also edged up to R221.7 million from R219.5m. Furthermore, the launch of Yethu City, a co-living accommodation project in the Pretoria CBD, has exceeded letting expectations, reaching an impressive occupancy of 40.7% by the end of February and nearing full occupancy soon thereafter.

On the financial front, solid revenue growth of 5.2%, totaling R1.1bn was driven by improved performance from both retail and office segments. The office portfolio witnessed an encouraging rental income increase of 6.4%, while residential rentals grew by 5.1% on a like-for-like basis, highlighting Octodec's adaptive management strategies amidst prevailing economic constraints.

Nevertheless, the ongoing influence of global geopolitics, exacerbated by uncertainties from the GNU and tariff increases by the US on multiple nations including South Africa, have stymied further optimism. Directors have reiterated the necessity for tenant support and the recovery of claims related to the Lilian Ngoyi incident, maintaining focus on enhancing financial health.

As management navigates the turbulent waters, their revised forecast for distributable income per share now anticipates a steady but measured growth, but it's directors say the group is poised to adapt and evolve.

Visit:www.businessreport.co.za