JSE-listed real estate investment trust (Reit) Octodec has reported a 7.4% decrease in its attributable profit for the year ended August 31 at R215-million, on the back of a difficult macroeconomic trading environment and municipal service delivery issues.

This compares with an attributable profit of R610-million reported for the prior financial year.

The Reit’s distributable income after tax of R421-million in the year under review compares with R455-million of distributable income after tax generated in the prior financial year, while its distributable income a share of 158.5c compares with distributable income of 171.2c apiece in the prior year.

Octodec declared a dividend of 125c in the reporting year, compared with a dividend of 135c in the prior year.

The group’s loan-to-value ratio widened to 39.2% in the year, compared with 37.7% in the prior year.

Octodec has a portfolio of properties valued at R11.2-billion across 1.52-million square meters of gross leasable area (GLA) comprising 65% commercial properties (retail, office and industrial) and 35% residential properties across Gauteng.

The Reit’s total vacancy rate is at 21.1% as of August 31, compared with 19.8% as at August 31, 2023, which increased mostly owing to affordability challenges in the difficult economic environment.

The office sector remained under pressure with the highest vacancy rate of 39.1%, followed by street shops at 21.5%, industrial properties at 10.8%, shopping centres at 10.3% and residential properties at 9.2%.

The group had R679-million of cash and unused facilities available as at August 31.

Octodec invested R182-million in its properties in the reporting year and spent about R8.7-million a month on repairs and maintenance.

MD Jeffrey Wapnick says the company’s properties suffered from power failures in the year under review, with Eskom and municipal power failures having affected commercial operations and increasing vacancies.

The cost of ensuring a reliable power supply further exacerbates this challenge, with Octodec having installed 60 generators across its portfolio covering 49% of GLA in the last few years.

In the year under review, Octodec generated 3.1-million kilowatt-hours of solar power covering 6.3% of its GLA.  

“Dysfunctional municipalities hinder our and our tenants’ business operations. Older infrastructure in Johannesburg and Pretoria requires frequent maintenance and replacement, and it impacted by poor service delivery issues, making it challenging and costly for Octodec to maintain spaces for tenants, while investors view this as a growth impediment,” Wapnick explains.

Additionally, municipal water supply issues also hamper Octodec’s properties as tenants expect quality water. The increasing costs associated with ensuring a reliable water supply further compound this challenge.

There are overall uncertainties in the political and economic landscapes, which directly influences Octodec’s growth potential and shareholder value. Chairperson Sharon Wapnick says the group has been hit hard by factors such as high interest rates. “Tenant affordability issues drive higher vacancies and limit our ability to adjust rentals with inflation.

“Moreover, increases in building material costs and a weak exchange rate pushed up building and maintenance expenses [in the year under review], thereby limiting our investments opportunities,” she adds.

Octodec is confident that an increase in business confidence following the creation of the Government of National Unity will translate into increased foreign investment.

The group also believes the interest rate cutting cycle, which started in September, will undoubtedly contribute to economic growth in the country and thereby reduced pressure on consumers and businesses – which should support the Reit’s rental income.

Over the last few years, Octodec has disposed of more than 80 properties and the board and management are undertaking a strategic review of the property portfolio to focus its asset management on a portfolio that can yield increased returns yet remain invested in a well-diversified quality portfolio.