Low-key property stock Octodec Investments might be one to consider for value or special-situation investors.
Starting with the value argument: Octodec trades at about R17.50 a share vs its last stated NAV of R25.49 a share, so investors are buying the underlying assets at a discount of about 30%.
The asset base comprises properties in Pretoria and Joburg. It has a payout ratio in the mid-single-digit range just above 75% to preserve its status as a real estate investment trust (Reit), so there is potential for increases. The yield is about 7.75%. Its loan-to-value (LTV) ratio sits just below 40% — on the high side for a Reit — but management is committed to bringing it down over time to the sector average of around 35%. Recent debt financing has been secured at lower margins, which will help with cash available for distribution. The LTV has two sides, so investors will have to make a call on the value of the assets and the underlying NAV; it’s not solely about the debt side of the equation.
Octodec’s share price has run hard over the last year, from about R10 to R17, yet it still trades at a sizeable discount
Now for the special situation. Octodec could be seen as a mirror of Spear Reit’s 100% Western Cape focus, and if investors want a play on the election outcome, in which the DA or a local GNU takes control of the two municipalities where Octodec’s assets are, this could be a way to do it. Another special situation angle is that Emira Property Fund has taken a 23.5% stake in Octodec. In 2024 Emira sold 13 properties in the Western Cape to Spear for just over R1.1bn. It deployed some of this capital by buying Octodec at a discount to NAV rather than buying physical properties in Gauteng. Neither Emira nor Octodec has confirmed the long-term plan for the shareholding. However, its entry onto the shareholder register has caught the eye.
Octodec’s share price has run hard over the last year, from about R10 to R17, yet it still trades at a sizeable discount. The other key factors to consider are that it has a low payout ratio, an improving debt position and an intriguing corporate shareholder recently joining the register. What’s more, Octodec could be an outsized beneficiary from a change in local government and improved service delivery where its asset base is located.
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