The Gauteng-focused property group says subdued economic performance has weighed on results

Gauteng-focused real-estate investment trust (Reit) Octodec Investments said on Monday that SA’s sluggish economic growth weighed on results in the year to August.

CEO Jeffrey Wapnick said Octodec, which invests largely in the inner cities of Johannesburg and Pretoria, was operating in the toughest economic conditions since it listed in 1990.

Octodec released financial results that, while flat, were disappointing for investors who have relied on the company for consistent dividend growth.

Group net profit available for distribution grew 0.9% to R541m during the period, with the group holding its dividend steady at 203.4c per share, in line with previous guidance. Its dividend for the year to August 2017 was 203.1c.

Wapnick said he expected dividend growth for the 2019 financial year to be similarly weak unless there were a sudden uptick in the performance of the South African economy.

“It worries me that we’ve been unable to give investors the kind of dividend growth we should be giving. We’re working in extremely difficult conditions. I think when there is just a small improvement in the economy, our numbers will see a strong improvement,” he said.

Total revenue on a contractual basis increased 3.1%, after growth of 5.3% in the year-earlier period, while recent investment activity resulted in finance costs growing 7.4% during the period, to R438.9m.

Two-thirds of Octodec’s property portfolio is located in Johannesburg and the rest in Tshwane, representing 306 properties at year-end valued at R12.9bn. The company is selling its noncore assets, including 20 properties during the period, 10 of which had been disposed of by year-end, for a total consideration of R69.8m.

The group said since it expected little dividend growth in the 2019 financial year, it would continue to consolidate its portfolio.

“For this reason Octodec has not committed to commence construction on any major new developments; instead we will continue to focus on improving our existing portfolio and retaining tenants,” the group said.

Jay Padayatchi, an executive director at Meago Asset Managment said while Octodec’s results were in line with expectations, the company was currently an investment that was paired with a number of risks.

“Their results are pretty much in line with expectations but I believe there is still a significant amount of risk attached to the when the leases at their offices, retail and industrial properties expire in the 2019 financial period,” he said.

“Their business is even more dependent on an uptick in the South African economy than most of the other listed property companies reporting recently,” he said.

Octodec wants to sell about 100 buildings over the next few years and then invest the proceeds in residential, which could create better rental returns than the old office buildings were generating.

At 11.05am on Monday Octodec’s share price was 0.35% lower at R20.20, having risen 7.45% so far in 2018.