Earn­ing from stu­dent hous­ing

Some af­ford­able ac­com­mo­da­tion funds may list soon, writes Alis­tair An­der­son

Financial Mail - Investors Monthly - - Feature -

he pos­si­bil­ity of more spe­cialised prop­erty funds list­ing on the JSE is in­creas­ing.

Fund man­agers are seek­ing op­por­tu­ni­ties in a mar­ket that is over­shopped with re­tail as­sets and suf­fer­ing from slow de­mand from cor­po­rates for new of­fices.

While SA’s listed prop­erty sec­tor has grown tremen­dously in the past five to 10 years, it is still dom­i­nated by a few funds, which are in­vested in a mix­ture of re­tail, of­fice and in­dus­trial as­sets.

Re­cently, res­i­den­tial-fo­cused prop­erty com­pa­nies have come to mar­ket or an­nounced plans to do so. These in­clude com­pa­nies that own stu­dent hous­ing and af­ford­able hous­ing.

In the US, where the real es­tate in­vest­ment trust (Reit) dis­pen­sa­tion has been in force for decades, spe­cialised funds are far more com­mon than they are in SA, where the dis­pen­sa­tion is just a few years old.

One can find listed hospi­tal­ity, health-care, tele­com tower, stor­age and re­tire­ment as­set funds, to name a few.

Var­i­ous off­shore in­vestors, es­pe­cially those from the US, have said South African prop­erty funds need to be worth US$1bn be­fore they even con­sider in­vest­ing in them.

By­ron Car­lock, con­sult­ing firm PwC’s prac­tice leader for US real es­tate, has said he would like to see more spe­cialised prop­erty funds in SA.

In­stead of spe­cialised funds list­ing on the JSE, such as funds own­ing only re­tire­ment es­tates or only hos­pi­tals, SA may see some that are ge­o­graph­i­cally spe­cialised in that their prop­er­ties

Tare lo­cated in only one prov­ince or one city.

In­vestec As­set Man­age­ment port­fo­lio man­ager Peter Clark says while there are po­ten­tial spe­cial­i­sa­tions for South African prop­erty, many of the com­pa­nies in SA’s Reit in­dus­try still need more scale.

“Gen­er­ally Reit mar­kets evolve by build­ing scale with di­ver­si­fied funds, and once crit­i­cal mass is achieved, they spe­cialise.

“Spe­cial­ist funds make sense when there is suf­fi­cient scale, as man­age­ment can cre­ate more value with a deeper set of skills, and fund man­agers can al­lo­cate and get ex­po­sure to spe­cific un­der­ly­ing sec­tors and mar­kets,” says Clark.

“A num­ber of large global real es­tate se­cu­ri­ties in­vestors use a $1bn mar­ket cap as a min­i­mum thresh­old for in­vest­ment; this ul­ti­mately comes down to a func­tion of an in­vestor’s liq­uid­ity re­quire­ment.

“Within SA we should see a spe­cial­ist re­tail fund list to­ward the end of the year; other funds look­ing to list all have an in­ter­na­tional an­gle,” he says.

Evan Robins, listed prop­erty man­ager of Old Mu­tual In­vest­ment Group’s MacroSo­lu­tions bou­tique, says spe­cialised funds may be ben­e­fi­cial for the South African listed sec­tor. “Spe­cial­ist funds are more fo­cused and tend to out­per­form and al­low in­vestors to bet­ter po­si­tion them­selves,” Robins says.

A ge­o­graph­i­cally spe­cialised com­pany that is set to list next month is Spear, a Western Cape-only group. It is run by prop­erty stal­wart Mike Flax and will con­tain var­i­ous types of prop­er­ties.

In­ter­na­tional Hous­ing So­lu­tions (IHS), a pri­vate eq­uity group that owns a sig­nif­i­cant port­fo­lio of af­ford­able hous­ing as­sets, is con­sid­er­ing a list­ing as a res­i­den­tial-fo­cused real es­tate in­vest­ment trust in the near fu­ture. It part­ners with fi­nan­cial institutions, real es­tate de­vel­op­ers, pri­vate cap­i­tal groups and the state to pro­vide eq­uity fi­nance for var­i­ous res­i­den­tial projects. IHS has cre­ated about 27,000 new res­i­den­tial units for sale and rent since it launched its first hous­ing fund in SA in 2008.

The com­pany has tended to fund three-storey walk-up de­vel­op­ments that cater for buy­ers in the R400,000R800,000 bracket and ten­ants who can af­ford to pay a monthly rental of R4,000-R8,000.

The sec­ond res­i­den­tial list­ing ex­pected to come to the JSE is a stu­dent hous­ing-fo­cused list­ing, Stan­lib’s head of listed prop­erty funds, Keillen Ndlovu, has said.

Var­i­ous providers of stu­dent hous­ing in SA are growing as they look to fill the tremen­dous short­age of ad­e­quate hous­ing that of­fers help­ful study­ing fa­cil­i­ties.

Re­searchers have es­ti­mated the bed short­age to be more than 250,000 units.

One group that could list is Re­spub­lica, a sub­sidiary of Re­de­fine Prop­er­ties, which plans to pro­vide 20,000 beds to South Africans by 2020. It is also plan­ning to build prop­er­ties in Aus­tralia.

Cam­pusKey is another po­ten­tial list­ing. By Jan­uary 2017, Cam­pusKey will own and man­age 34 build­ings with 3,217 beds, 20 club­houses, 27 study rooms, 12 gyms, and 14 of­fices with 36 Cam­pusKey staff mem­bers, ac­cord­ing to MD Leon How­ell. The com­pany said in May it was planned to list in the next two to three years, but the list­ing could come sooner.

Re­searchers have es­ti­mated the bed short­age to be more than 250,000 units

Pic­ture: iSTOCK

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