JSE-listed residential- and retail-focused real estate investment trust Octodec has increased revenue by 3.3% to R1.99-billion for the financial year ended August 31.

It also increased its full-year dividend by 3.8% to 135c a share.

Operating expenses, however, also increased, by 5.3%, to R1.06-billion.

Profit for the year was R610.5-million, up from R605.1-million in the 2022 financial year. Distributable income after tax decreased to R455.8-million from R466.1-million in the prior year. Distributable income a share also similarly declined to 171.2c a share, down from 175.1c a share in the prior financial year.

Further, the company's loan-to-value ratio improved to 37.7% from 39.2% achieved in the 2022 financial year and its net asset value a share increased by 4.1% to R24.24 from R23.28 in the preceding year.

Cash generated from operating activities before dividend payment increased by 13.4% to R447.2-million, up from R391.1-million in the 2022 financial year.

"At a group level, rental income excluding recoveries increased by 2.8% and, when excluding the impact of the disposal of properties, like-for-like rental income increased by 4.1%," said Octodec MD Jeffrey Wapnick.

"The revenue increase was mainly owing to improved occupancy in our residential portfolio and rental lease escalations, which were achieved under difficult operating conditions including a weak economy, high inflation and interest rates, increased fuel costs, and extensive loadshedding and long periods of power outages owing to failing infrastructure.

"These impact on the disposable income of our tenants and on Octodec, as it is more difficult to increase rentals in this environment, while at the same time maintaining our operating cost increases in line with inflation," he noted.

Further, Octodec’s residential income increased by 10.2% year-on-year and 10.3% on a like-for-like basis, said Octodec COO Charlene Conradie.

"This outstanding result was due to improved occupancy at our residential buildings both in Tshwane and Johannesburg, despite the impact of the higher vacancies at The Fields, which increased to 23% from 7% in the 2022 financial year owing to the reduction in the National Student Financial Aid allowance from R6 000 to R4 500 a month.

"Occupancy at our other residential properties improved considerably at the end of 2022 financial year and remained stable throughout the current period, which resulted in the increased rental income compared to the prior year."

Vacancies in the company's residential portfolio, excluding The Fields, decreased to 5.2% by the end of the reporting period, she noted.

Meanwhile, the cost of free WiFi provided to tenants increased to R12.6-million, from R5.3-million in the 2022 financial year, which added to higher operating costs, but indirectly benefitted Octodec through tenant retention and higher rentals.

"We continue to invest in value additions for our clients, and plan to rollout free WiFi to our remaining 11 small buildings in the portfolio in the new financial year. Further, our residential buildings also have generators to provide backup power during loadshedding and power failures to ensure the common areas, lifts, water pumps and services continue," she added.

Meanwhile, Octodec's retail street shops, concentrated in the Tshwane and Johannesburg central business districts, have felt the impact of the poor economic climate with high inflation and interest rates that reduced the disposable income of shoppers.

"Rental from our retail shops decreased by 2% year on year but increased by 1.2% on a like-for-like basis," said Octodec head of leasing Linda Chabula.

However, the company's retail shopping centres continue to perform well, with vacancies decreasing slightly to 6.8%.

"Excluding Killarney Mall, which has higher vacancies, vacancies at our convenience shopping centres were at an all-time low of 0.4%," she highlighted.

"Rental income from our shopping centres increased by 5.3% year on year and we are confident that this sector will continue to perform strongly."

Octodec’s industrial portfolio has performed relatively well during the year under review.

"Although vacancies have increased to 8.7% from 6.8% in the 2022 financial year, this is as a result of some large pockets of space in the outer lying areas of Tshwane West becoming vacant at year end as well as some tenant churn in Silverton. We expect vacancies in Silverton to reduce owing to a pipeline of enquiries for space in this area.

Additionally, the industrial portfolio has experienced rental growth of 3.8% and 8.6% on a like-for-like basis, with average rentals having increased, said Chabula.

"Given the tough economic conditions, I am comfortable that the results are reasonable while aiming for greater growth. We will continue to carry out our strategy and there is no event currently that we foresee as preventing us from growing further during the coming year, albeit slow growth," said Wapnick.

"While residential has been the darling of these results, we think there are still legs in this sector. Higher occupancy reduces the opportunity to grow, but we have started seeing an ability to increase rentals more than we had in the past," he noted.

"We are primarily based in the central business districts in Gauteng. This has been part of our strategy over the past number of years based on the premise that South Africa is still experiencing significant urbanisation and movement from rural areas to Gauteng."

Demand for accommodation is expected to continue into the foreseeable future owing to shortages of supply, he added.