Octodec Investments, the JSE-listed REIT, is launching an office-to-residential conversion of the Prinsproes building in Tshwane, called Yethu City, that breaks new ground in lowering the entry level for formal rental accommodation in the city.
Octodec CEO Jeffrey Whapnick yesterday said if the pilot project is a success - leasing starts in January 2025 - it may well pave the way for other similar conversions of its vacant offices in Johannesburg and Tshwane offices.
Speaking during an online presentation, Whapnick said the development was in recognition of the need for affordable housing in the country, and it also aimed to tap into a bankable market that were seeking accommodation at slightly less than the current entry-level rentals in Tshwane.
He said the conversion also provided an opportunity to deal with some of the group’s vacant office space.
“My acid test with all our residential developments is would I be able to live there with dignity and the answer is yes, at Yethu City,” Whapnick said.
The rental at Yethu City will be about R3 000 per month, including electricity and water, he said.
The group, which holds about 50% of its residential, industrial, retail, and office portfolio in the CBDs of Johannesburg and Tshwane, would continue to seek opportunities to convert and repurpose vacant office spaces, said Whapnick.
Octodec declared a final dividend of 65 cents a share for the year to August 31, bringing the total payout for the year to 125 cents per share, down from 135 cents per share a year earlier. Distributable taxed income fell to R421.9 million from R455.8m.
Group revenue increased 4.1% to R2.1 billion despite numerous headwinds. The residential and shopping centre portfolios saw the highest rental income growth at 3.8% and 3%, respectively, largely driven by lease escalations and offset by increased vacancies.
“I am pleased with the level of demand across our portfolio, and with the performance from our residential and shopping centre portfolios,” Whapnick said.
“Our strategy to upgrade, convert, and repurpose strategically located buildings continues to unlock value, better align our portfolio with market demands, and position us for sustained success," said Whapnick.
Average collections were strong at over 100% of billings; however, rental income was affected by rental concessions related to the impact of unrepaired damage following a gas explosion on Lilian Ngoyi Street in central Johannesburg.
Whapnick said some 14 buildings around Lilian Ngoyi Street that were impacted, and at this stage, he was not only concerned about when the municipality would complete the repairs, but when they would return to site to undertake the repairs.
Octodec was actively supporting affected tenants until road repairs were completed and was encouraged by the strong interest from large national retailers to take up vacant space, albeit on beneficial occupation or low initial rental, he said.
Octodec’s residential portfolio was affected by the low economic growth, increased unemployment, and prolonged high interest rates that had put financial pressure on tenants, leading to a higher vacancies compared to new lettings. Vacancies were compounded by the effects of the unrepaired damage on Lilian Ngoyi Street.
Vacancies, excluding properties held for redevelopment, increased slightly to 14.9% from 14.2%. High inflationary cost pressures and an increase in net finance charges saw distributable income before tax end lower.
The Fields property in Hatfield recorded an over 50% reduction in vacancies, demonstrating the competitiveness of its enhanced student offering.
Octodec invested in The Fields, adding event space for student wellness workshops, entertainment, and other social activities, a quiet green rooftop space for students to relax, and a student centre to study individually or in work groups.
The retail shopping centres portfolio, made up of mainly convenience centres, performed well. The portfolio attracted high foot traffic and interest from large nationals, said Whapnick.
The group loan-to-value ratio was kept within Octodec’s target range at 39.2%, with all bank covenants met during the period. The group ended the period with R679m in cash and unutilised debt facilities, sufficient for its capital commitments.
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