Octodec’s portfolio quality assessment is constrained by high concentration to properties in the inner cities of Pretoria and Johannesburg, although this is counterbalanced by a very granular asset and tenant profile. We also note that despite the largely short-dated weighted average expiry profile, high core vacancies (1H FY20: 11.7%) and exposure to SMMEs, Octodec continues to achieve sound tenant retention and asset performance, with the relatively short lease profile helping to effectively manage bad debts and letting activity.
The constrained operating environment, as well as rising utility costs and property rates, continue to place pressure on the industry’s cost base. Octodec’s cost ratios have shown some compression due to pressure on rental rates, although its margins have been more stable versus similar-scale peers. Overall, we expect constrained industry dynamics to persist until the broader South African economy reverts to reasonable growth levels.