JSE-listed real estate investment trust (Reit) Redefine Properties is eyeing diversifying outside the office, industrial and retail space and into the student accommodation market, with ambitions to potentially spin off and list a specialist play.

During the financial year ended August 31, the internationally diversified Reit acquired a 51% stake in Respublica Student Living (RSL) property fund, now a joint venture (JV) between Respublica and Redefine Properties, as the group believes there are “attractive opportunities” in the student accommodation market.

The R438.6-million deal, with an initial yield of 10.6%, will see Redefine, through RSL, offering up to 10 000 affordable student beds by the end of 2017 through the “recycling” of secondary offices.

“Despite the Fees Must Fall protests, we expect the demand for quality accommodation space to intensify, as students who are able to afford it, demand quality,” said Redefine CEO Andrew Konig on Thursday.

“There is a tremendous opportunity,” he told media during the company’s financial results presentation, referring to the inadequate existing facilities that are in need of upgrading.

RSL owns and manages student accommodation facilities with a current capacity of 3 687 beds.

Starting with the aggregate R834-million redevelopment of Hatfield Square, near the University of Pretoria, and the conversion of the Yale Village, formerly Absa Campus, opposite the University of the Witwatersrand, Redefine aims to steadily make available some 3 500 beds.

The refurbishment of Midvaal Varsity Lodge will also provide 400 beds, with an expansion planned for the course of 2017, Redefine CFO Leon Kok told Engineering News Online at a presentation of the company’s results on Thursday.

Redefine will review options of spinning off the JV into a separate listing should the initiative prove to be successful.

Plans are also under way to diversify into the student accommodation market in Australia.

FINANCIAL PERFORMANCE
Redefine delivered a solid performance for the full year to August 31, with total distributable income up 21.9% to R3.9-billion and full-year distribution increasing 7.5% to 86c a share, Konig said.

“There is no doubt that in the prevailing macroeconomic environment trading conditions have been difficult. For Redefine, this has been a year of alignment – we have aligned our structures and refined our business processes,” he explained.

Growth in distributable income a share for 2017 is anticipated to range between 7.5% and 8.5%.

“Despite the tough local trading conditions, it is gratifying that we have maintained our operating margin at 80%,” added Kok.

During the year under review, Redefine expanded its property base by R8.9-billion, mostly owing to a €1.2-billion investment into a high-yield commercial portfolio in Poland, bringing the group’s international property assets total to 22.6%, up from 14.8% a year ago, and contributing 25.9% of the group’s income.

Redefine now planned to progress on the proposed acquisition of Pivotal Fund, which will add R11-billion to the local property portfolio.

The group also acquired four properties with a gross lettable area (GLA) of 21 547 m², for an aggregate consideration of R228.3-million, at an initial yield of 9.4%.

In addition, Redefine acquired three development properties for R285.7-million with a developable area of 369 285 m².

The portfolio vacancy rate declined during the year by 0.5% to 4.9%, with 492 126 m² in leases, at an average rental increase of 3.3%, renewed during the year under review.

The tenant retention rate during the year to August 31 was 92%, compared with 87% in the prior year.

A further 401 128 m² was let across the portfolio.

Redefine also highlighted that some R1.1-billion in redevelopment projects were under way, while new developments at a value of R2.5-billion covering 156 876 m² of GLA were in progress.

This followed the completion of projects totalling R2.2-billion during the year under review.