Octodec FY2025: Profit doubles and vacancies fall, but liquidity pressures persist

Key topics:Profit rebound: Profit more than doubles; FFO per share up to R1.72; vacancies fall to 18.8%.Liquidity strain: Current liabilities exceed current assets by R669m; major FY2026 maturities loom.Operational headwinds: CBD gas explosion impacts collections; ECL ratio rises to 59.3%.Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here.Support South Africa’s bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up to the BizNews channel here..BizNews Reporter.Octodec Investments Limited (JSE: OCT), the Pretoria- and Johannesburg-focused Real Estate Investment Trust (REIT), has reported a strong rebound in profitability for the year ended 31 August 2025, delivering improved operational metrics and a more stable balance sheet despite ongoing liquidity pressures, high credit losses and lingering fallout from the 2023 Johannesburg CBD gas explosion.The group received an unmodified audit opinion from Ernst & Young, underscoring the improved quality of its financial reporting after several years of operational pressure in Gauteng’s inner-city markets.Profit more than doubles as core metrics strengthenOctodec more than doubled its profit to R491.1 million (2024: R216.0 million), lifting basic earnings per share to 184.5 cents, up from 81.1 cents. Headline earnings rose to R434.9 million, with HEPS improving to 163.4 cents (2024: 141.9 cents). The REIT’s preferred metric, Funds From Operations (FFO) per share, increased to R1.72, from R1.58.The stronger financial performance enabled the board to hike the total annual dividend by 7.6% to 134.5 cents, while still retaining a prudent distribution ratio of 78.4% to preserve liquidity and maintain REIT status.Gross rental income and utility recoveries increased to R2.17 billion (2024: R2.08 billion). Vacancies fell meaningfully, with the SA REIT GLA vacancy rate improving to 18.8% from 21.1%, reflecting stabilisation in the residential and retail portfolios.Property valuations also swung positive, with Octodec recording a R60.8 million fair-value gain, compared with a R161.5 million loss in the prior year. The group’s average annualised property yield edged up to 8.7%.Balance-sheet health improved modestly, with the SA REIT Loan-to-Value ratio moving to 38.2% (2024: 39.2%). Interest cover remained compliant at 2.19 (Nedbank covenant 2.0) and 2.11 (Standard Bank covenant 2.0). Debt hedging increased to 71.9% of long-term borrowings.The group also executed several post-year-end transactions, including the disposal of five properties for R48.4 million and the issuance of a R200 million, three-year corporate bond to support refinancing requirements.Liquidity risk remains the central concernDespite the improvement in profit and capital metrics, Octodec continues to face a significant near-term liquidity challenge. Current liabilities exceed current assets by R669 million, an improvement from the R1.7 billion deficit in 2024 but still substantial.A large portion of short-term pressure stems from R590.7 million in debt facilities maturing in FY2026. The group has R799.7 million in cash and unutilised banking facilities available to manage working capital and refinancing, but directors have emphasised that resolving upcoming maturities remains a priority for FY2026.CBD gas explosion continues to cast a shadowThe July 2023 Johannesburg CBD gas explosion remains a drag on parts of the portfolio. Octodec owns 41 CBD properties, 14 of which were directly affected. While rental income at impacted buildings increased by 3.3%, rental collection in the area “remains problematic,” reflecting economic stress and tenant turnover.A R10.8 million provision for bad debts was raised—equivalent to 7.1% of income from the affected assets. The group has initiated an insurance claim, and underwriters have accepted liability. The claim is expected to exceed the R20 million policy sub-limit.High credit losses and tenant arrears reflect tough conditionsExpected credit losses increased to R46.3 million (2024: R44.1 million). The ECL ratio to gross trade receivables rose to 59.3%, partly due to a major tenant entering business rescue. This underscores ongoing strain in Octodec’s tenant base, especially in the inner-city commercial portfolio.Focus areas for FY2026The Audit Committee identified key areas for monitoring: liquidity management, expiry profiles of debt and hedging, covenant headroom, property valuations, and continued improvements in ICT controls and cyber resilience within the City Property management environment.Despite the challenges, the group continues to benefit from rising demand for affordable accommodation in the Pretoria and Johannesburg CBDs and ongoing improvements in portfolio quality..Read the results in full by downloading the PDF below

Octodec FY2025: Profit doubles and vacancies fall, but liquidity pressures persist

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