JSE-listed real estate investment trust Octodec has increased its rental income by 3.2% to R974.2-million for the six months ended February 28, and increased like-for-like rental growth to 4.1%.

The net asset value (NAV) a share increased by 3.9% to R24.01 a share, up from R23.1 a share at August 31, 2022. The company's loan-to-value ratio also improved to 38.8%, down from 39.7% at August 31, 2022.

Additionally, cash generated from operating activities before the dividend payment was R239.8-million, up 23.7% from R193.9-million in the interim period in 2022.

Octodec's distributable income after tax increased by 10.7% to R234.5-million from R211.8-million in the 2022 interim period. Similarly, distributable income a share also increased by 10.7% to 88.1c a share.

The board declared an interim dividend of 60c a share, up 20% from the 50c a share interim dividend declared for the six months to February 28, 2022.

Octodec's residential and retail properties, which account for 32.8% and 24.1% of its income, have been performing particularly well during the six months under review, said Octodec MD Jeffrey Wapnick during its interim results presentation.

"We have experienced an increase in leasing activity and rental in all sectors, with the exception of the office sector, which translated into the positive results.

"We continue to roll out the value-added measures that have been introduced at some of our properties and are focusing on the redevelopment and repurposing of further properties to improve our occupancy, and grow our rental and distributable income," he said.

The company's residential portfolio achieved 10.4% like-for-like rental growth, mainly owing to a significant decrease in vacancies, with vacancies at the end of February 2023 being 6.9%, compared to 15.4% at the end of February 2022, said Octodec COO Charlene Conradie.

Further, the company started to increase rental rates towards the end of 2022, which also made a small contribution to the growth achieved, she said.

Octodec achieved 3.6% like-for-like rental income growth in its commercial portfolio for the interim period and saw a reduction in vacancies to 6.4% from 7.4% in the 2022 interim period, said Octodec key accounts and government leading head Linda Chabula.

Its industrial properties performed well, reflected in a like-for-like rental income growth of 7.8% and vacancies decreased to 5.7% for the interim period, improving from 6.7% at the end of August 2022, she said.

"Our [industrial] rental options are affordable, and we provide security and access control at industrial parks. The company is also renewing leases at an average increase in rental of 7%, with escalations of between 6% and 7%.

"Arrears are under control and stable and there is continued demand in this space," she said.

Meanwhile, Octodec FD Anabel Vieira said property operating expenses increased by 1.1%, and the small increase in property expenses was attributable largely to a reduction in assessment rates owing to favourable outcome of several municipal appeals, as well as the successful resolution of various municipal accounts under dispute, resulting in credits to the company.

Octodec has managed to contain most property costs through hands-on management of property expenditure, driving efficiencies where possible and ensuring that its buildings remain well maintained and attractive to its tenants, she said.

Further, bad debts decreased to 1.5% of gross revenue compared to 1.9% in the prior period.

"These gains were, however, offset by a substantial increase in repairs and maintenance costs owing to a number of scheduled value-accretive maintenance projects carried out during this period, as well as an increase in generator costs of R6.9-million, up from R1-million in the six months to end February 2022, because of extensive loadshedding experienced during the six months to end February 2023," Vieira said.

Net finance costs increased by 3.2% to R189.2-million from R183.3-million, which is attributable to the increase in interest rates. The increase was contained through active cash flow management and lower use of debt facilities, she said.

Octodec owns three fully mothballed office properties with a carrying value of R94.3-million, and a further three partially mothballed properties with a carrying value of R50-million, said Wapnick.

"In the current economic climate, it is not feasible to develop or convert all of these office properties and Octodec is pursuing the disposal of some of these properties.

During the interim period, the group sold and transferred five non-core properties at an exit yield of 6.44% and at a loss of R4.7-million, or 5.7%, to the carrying value of R80.6-million.

"The board and management of Octodec are committed to identifying and disposing of those properties that do not yield an acceptable return or that no longer form part of the core operations of the group, and/or are located outside of our investment core nodes.

"However, concluding the disposal of these smaller properties has been challenging, as the purchasers of these properties often require financing, which often delays the final transfer of the properties," he noted.

"We continue to review our property portfolio with a view to redevelopment or disposal where feasible," he emphasised.

The vacant office Ina Building, which is adjacent to Louis Pasteur Medical Building, will be repurposed into a medical centre offering medical suites to medical specialists. The suites will be linked to Louis Pasteur Medical Building via two bridges, providing medical specialists with direct access to the Louis Pasteur Hospital.

"This project is expected to be completed in December. At the same time, we are considering upgrading the façade and ground floor retail of Louis Pasteur Medical Building, as well as improving the area surrounding the medical precinct," Wapnick said.

During the past three years, Octodec has focused on strengthening its balance sheet, positioning it for development and growth.

"During 2022, management took the strategic decision to retain a portion of the distributable income, which, together with the proceeds from the disposal of properties, would be used to refurbish its current portfolio and investigate opportunities for further development and conversions."