Redefine Properties to capitalize on Student Accommodation
The popularity of the student housing market has grown steadily, attracting JSE-listed funds that have traditionally invested in office, retail, hotel and industrial properties.
Redefine Properties is among a number of new investors buying up student accommodation. The company is converting its office complexes Yale Village in Parktown and Hatfield Square into student residencies.
During the past year, it acquired stake is student housing developer, Respublica Student Living for R438.6m, in which it has a 51% shareholding.
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Speaking at the annual results presentation on Thursday, CEO Andrew Konig says the company sees attractive opportunities in the student accommodation market.
“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” says Konig.
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By the end of 2017 Redefine intends supplying around 10,000 student beds in SA, and is also diversifying into student accommodation in Australia.
Company Performance
The company produced a 7.5% growth in distributions a share to 86 cents or the year to end-August from 80c in the previous year.
Gross distributable income for the year benefited from a number of substantial acquisitions and increased by 21.9% to R3.9 billion.
Net arrears improved to R39.8m, representing 6.3% of gross monthly rental, down from 8.3% in 2015. Total revenue was flat at R6.65 billion and aftertax profit declined 18% to R4.61 billion.
Its total vacancy rate improved to 4.9% from the previous year’s 5.4%.
The company expanded its property base by R8.9 billion, with the bulk of the investment into a 1.2 billion Euro high-yield commercial portfolio in Poland.
Its international property investments contributed 25.9% of income in the period compared with 16.7% in the previous year.
The local property portfolio was valued at R54.7 billion and its international real estate investments at R18 billion.
Prospects for 2017 are subject to numerous factors which remain uncertain, including volatile financial markets, the continuing possibility of a sovereign credit downgrade and the outcome of the offer to acquire Pivotal. Growth in distributable income per share for 2017 is anticipated to range between 7.5% to 8.5%.
In September, Redefine successfully placed Euro 150 million exchangeable bonds due in 2021, with the proceeds to be used in part settlement of the bridge facility used to fund the investment into Poland.
Redefine’s loan to value ratio was 38.5% at the year end, which chief financial officer Leon Kok says is regarded as satisfactory. “Given concerns about higher interest rates, 82% of our debt is fixed, which protects us against interest rate spikes and the impact on income going forward,” says Kok.
Given ongoing currency volatility, Redefine adopted a policy of hedging foreign currency. Kok says the company took a decision in late May that the rand was looking unusually weak and hedged exposure to the pound, the euro and the Australian dollar just ahead of Brexit.
Notwithstanding a low growth environment, Redefine has continued a strong focus on improving its local portfolio through development, including expansion and improvements at the Centurion, Benmore, Kenilworth and South Coast malls.
“We are looking at all sectors where we have strategically located positions,” says Konig.
“For example, we are in the process of developing the Rosebank Link on the doorstep of Gautrain and are also harnessing the use of our industrial land in KZN, Cape Town and Johannesburg with specific expansion into the industrial logistics sector.”
In the new financial year, Redefine will progress on the proposed acquisition of the entire issued share capital of listed Pivotal Fund, a development focused fund with an A-grade portfolio of completed income producing properties and developments, which will add R11 billion to the local property portfolio.
Redefine’s market capitalisation of R58bn makes it the third-largest constituent of the JSE’s Reit index, behind Growthpoint Properties, which weighs in at R72bn, and Intu Properties, at R60bn.