Release Date: November 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Octodec Investments Ltd (JSE:OCT, Financial) has shown resilience in its rental portfolio, with residential vacancies reduced to 3%, excluding student accommodations.
- The company has successfully commenced the development of a medical center in Pretoria, with strong leasing interest anticipated.
- Investment in solar energy has been accelerated, with installations underway in three buildings, enhancing sustainability efforts.
- Shopping centers within the portfolio continue to perform well, with low vacancy rates and strong interest from national retailers.
- The company has refinanced a significant portion of its mortgage bonds, extending the expiry period and maintaining a stable loan-to-value ratio.
Negative Points
- The economic environment remains challenging, with high costs, particularly those administered by city councils, putting pressure on the company's expenses.
- Student accommodation has been negatively impacted by reduced government assistance, leading to higher vacancies in this segment.
- The office sector faces difficulties, with a 1.5% increase in vacancies due to downsizing by banks and educational institutions.
- The gas explosion in Johannesburg's CBD has created uncertainties, although no structural damage was reported, the long-term impact on valuations is yet to be determined.
- High diesel costs for backup power generation are a significant expense, with recovery from tenants being challenging, especially in residential properties.
Q & A Highlights
Q: Can you provide us with the like-for-like net rental growth rate achieved for the period year-to-date considering rising vacancies, positive residential rental uplifts, and rising costs?
A: On a like-for-like basis, excluding properties sold last year and this year, the growth is at 3.5%, primarily driven by strong performance in the residential sector. (Answered by Annabel, CFO)
Q: What is the new admin and corporate expense run rate post the New Manco Agreement?
A: The New Manco Agreement came into effect on July 1, 2023, and will not significantly impact current results. It runs on the same basis as the previous period, adjusted for inflation. More detailed feedback will be available in the interim results next year. (Answered by Annabel, CFO)
Q: Can you provide details on the conversion undertaken in Pretoria for the medical center, given the higher costs associated with conversions?
A: The conversion is from office to medical suites, not residential, so costs are not excessive. The building is linked to the Louis Pasteur Hospital, and the expected rental is over 200 rand per square meter. The yield on the 70 million CapEx is expected to be in excess of 10%. (Answered by Jeffrey, CEO)
Q: What is the current cost of conversion from office to residential per square meter, and how does it compare to the mid-2010s?
A: We haven't done a recent conversion, but costs have escalated beyond CPI. We're developing a model for a lower-cost conversion while maintaining quality, aiming to reduce both CapEx and operating costs. (Answered by Jeffrey, CEO)
Q: Can you provide details regarding backup power coverage for your portfolios, including total diesel costs and recovery rate from tenants?
A: We have a task team investigating generator supply for at-risk buildings. Diesel costs are high, and recovery from tenants is challenging, especially in residential areas. We anticipate spending 111 million rand on diesel in 2023, with recovery rates projected to increase to around 78%. (Answered by Annabel, CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
