Pressure on Octodec due to delays in education

By Edward West Time of article published Mar 5, 2021

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Octodec Investments, which owns properties in Johannesburg and Tshwane, is experiencing pressure in its residential letting units due to the uncertainty about when university students will return to campus and how much traditional learning in lecture halls will take place.

This was according to Octodec chief executive Jefferey Wapnick during a pre-close briefing on the real estate investment trust's results for the six months to the end of February.

About 30 percent of Octodec's portfolio is residential, and about 10 percent of that comprises student accommodation, with the rest of the portfolio concentrated mainly in retail – shopping centres and High Street shopping – and industrial and offices.

Wapnick said students were not yet back at university due to the Covid-19-related delays in the education sector, such as the completion of university intakes and the issuing of matriculation certificates for 2020. As a result, “very few” students had headed back to their student accommodation in the cities, he said.

In addition, there were questions about how many students would be able to do lecture hall-based tuition at universities this year, because of the pandemic, and how many would have to do their studies online.

Octodec's student tenants were mainly from rural areas, where there was relatively poor internet connectivity, and he anticipated these students would come back to the cities for the better connectivity and the better learning facilities at their student accommodation. “If you consider this, the high unemployment and lack of disposable income, our residential portfolio is experiencing more strain at the moment than I would have thought possible a year or two ago,” said Wapnick. He said the group's shopping centres continued to display strong performances.

The High Street shopping retail portfolio was experiencing some pressure, but the group was not inundated with requests for rental relief, and the process of granting rental relief for shopping centres had ceased, although a few smaller retail tenants in the High Street Shopping portfolio were still being assisted.

In the office portfolio, the government-tenanted component was paying its rental, while the offices tenanted mainly by entrepreneurs had seen many of them return to their offices from working at home.

Chief financial officer Anthony Stein said cash flow remained strong in the group, running at between R25 million and R30m a month, after capital expenditure, and “more than sufficient” bank facilities of about R550m remained undrawn by the end of January.

The loan-to-value was comfortably within the 40 to 45 percent target range. Rental collections had slipped to 89 percent in January, due mainly to seasonal factors, but were expected to rise to about 97 percent again in February.

Wapnick said there was still a great deal of uncertainty about future trading conditions, and among valuers, but he did not anticipate a large-scale decline in valuations.

The share price was up 0.96 percent to R8.38 on the JSE yesterday morning, before closing the day at R8.60.

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