Octodec and Premium to refurbish 76 CBD buildings

JSE-listed sister companies Octodec Investments (OCT) and Premium Properties (PMM) have 76 active property refurbishment projects on the go in Gauteng’s central business districts (CBDs)‚ amid continued improvements in the province’s inner cities.

The value of the group’s on-the-go projects is about R600m‚ while the inclusion of planned projects pushes this number to more than R1bn.

Managed by City Property‚ Octodec and Premium are unique players in the listed real estate space given their significant exposure to the residential sector‚ which is more management-intensive than other sectors.

The group’s conversion of a number of formerly dilapidated office buildings into higher end residential units now sees it managing more than 11‚000 residential units mainly in the Pretoria and Johannesburg CBDs.

Octodec and Premium MD Jeffrey Wapnick said on Monday that of City Property’s 8‚000 residential units in Pretoria‚ only about 50 were vacant‚ indicating the strong demand for quality accommodation in Gauteng’s inner cities.

While the inner city office property market was less buoyant‚ the retail sector was robust with strong and increasing interest from national tenants over the past few years. “Prime retail” properties in the CBDs had zero vacancies‚ Wapnick said.

Premium’s investment portfolio‚ which has a 29% exposure to the residential sector‚ was valued at R4.7bn at the end of February while Octodec’s was worth R3.7bn. Octodec has a much smaller residential component.

Wapnick said Pretoria and Johannesburg’s CBDs were in their most positive positions in many years “and it’s getting better all the time”. City Property was “very bullish” about the outlook for inner city real estate‚ he said.

Octodec and Premium financial director Anthony Stein said with new entrants into particularly the Johannesburg market‚ and a scramble for inner city properties over the past few years‚ “prices have moved significantly”‚ which meant there were relatively few acquisition opportunities remaining.

But the group held a number of properties in Johannesburg which it could redevelop‚ as well as upgrade opportunities and new development opportunities in Pretoria‚ where City Property had abundant land holdings.

A few planned office-to-residential conversions would push Premium’s residential exposure to over 30%. Stein said given the massive demand for high quality inner city accommodation‚ “we haven’t tested the demand yet”.

Octodec and Premium have been eyeing a potential merger after each company converts to a real estate investment trust.

Earlier this year‚ Premium reported above-market distribution growth of 9% to 126.2c per linked unit for the year ended February‚ while Octodec reported a 10.5% rise in distributions per linked unit to 78.7c for the six months ended February.