Photo by: Duane Daws
Real estate investment trust (Reit) Inkunzi Student Accommodation Fund (Isaf), which will list on the JSE in November, will acquire nine purpose-built, student accommodation assets valued at R1.7-billion.
The acquisition will be settled through a combination of debt financing, at 25% of the value, and from the proceeds raised through the company’s intended listing by way of private placement towards the end of the year.
The acquisitions are expected to complement Isaf’s existing portfolio of properties, which comprise established, purpose built, high-quality student accommodation with established relationships with their respective resident universities.
“Concluding price negotiations with the vendors and seeding the portfolio with these assets is a major milestone in achieving our ambition of listing the JSE’s first student accommodation-focused Reit,” Inkunzi CEO Kameel Keshav said on Wednesday.
He said the company’s focus was not only on the quality and distribution yield offered by these assets, but also on securing a robust pipeline of purpose-built buildings in key nodes going forward.
“We ticked all the boxes in aiming to provide prospective investors with an attractive and strong listing distribution yield, a high-quality portfolio, as well as immediate access to a pipeline of over R2.5-billion,” he said.
Speaking to Engineering News Online during a tour of the company’s Pretoria-based assets, Chief Investment Officer Owen Nkomo said there were several key aspects involved in selecting potential assets, such as proximity to campuses and security.
“We decided to buy purpose-built assets that are suitable for students to study successfully. These assets are fresh and very different to what is found in the central business district, where buildings are older,” he said.
Nkomo noted that Isaf was planning to acquire more assets, pointing out that it wanted to be the leading brand for purpose-built student accommodation across the country.
“We are looking at growing our portfolio without compromising the yield for our investors,” he said.
He added, however, that the company’s short-term focus post listing would be on bedding down the assets and consolidating systems and procedures before looking at expanding the portfolio.
He explained that the company had decided to focus on student accommodation because South African investors want differentiated asset clusters and specialist companies.
“The South African student accommodation market demonstrates a significant structural undersupply with a 75%, or 200 000, bed shortage. Owing to the less cyclical nature of demand and underlying supply demand dynamics, the sector is less sensitive to the performance of the underlying economy.”
He noted that high occupancy rates, fueled by increasing student enrolment rates, were not being matched by new accommodation supply.
Shorter lease agreements, normally 12 months, he said, provided an opportunity for more frequent, above-inflation rental increases.
Nkomo added that the multitenant nature of quality student accommodation, backed by university leases, bursary providers and parental financial guarantees translated into a low-risk default profile.
He pointed out that the #Feesmustfall movement, which directly affected the student accommodation sector, was a catalyst for additional funding to the National Student Financial Aid Scheme, underpinned by government and the private sector, with focused attention at national government level to avoid a repeat of the protests.
“The movement is a big concern for us, but it has actually achieved the opposite of what most investors’ fears are. The movement has ensured that government starts putting work on the ground to make sure they can assist students, who are demanding, rightly so, to be supported when they go to university,” he said.
He added that government was hard at work trying to find solutions.
“One way government has done that already is by providing support for the ‘missing middle’ students - trying to subsidise student fees going forward,” he said.
The company, meanwhile, has appointed Pieter Scholtz as CFO to assist with structuring and process implementation, along with efficient financial management and day-to-day operational authority.
He will join Isaf from JSE-listed real estate development fund Acsion.
“We are very excited about the appointment, which adds further depth to the management team. He brings a unique combination of strong financial capability paired with comprehensive property management experience in a JSE-listed real estate company. He has a wealth of knowledge on portfolio management and operations,” Keshav said.