Slow growth delays listing of student housing provider

Respublica misses its target to provide 20,000 beds

Student housing provider Respublica — in which SA’s second-largest listed property group, Redefine Properties, has a 51% interest — has shelved its plan to float on the JSE after it failed to meet its 2020 target.

Three years ago Respublica CEO and founder Craig McMurray said the company hoped to provide 20,000 beds to SA’s youth by the 2020 intake, after which it would consider a listing in the same year or the next. But market conditions have worsened so much that the company only has 9,300 beds.

“There has been slow growth off the back of various events. The Fees Must Fall protests made it harder to do deals for new developments or make new acquisitions. Some prospects were overvalued and we decided to narrow the campuses we would target as tenants,” McMurray said.

Respublica has nevertheless almost trebled its portfolio from 3,078 beds in February 2016 to the 9,300 beds it has now. Its current pipeline will see it own and service 12,000 beds in the next 18 months.

Even if it had managed to get 20,000 beds under management, a listing could still be risky now, according to McMurray, given the lack of uptake of listed property equity from institutional investors.

This means that no student accommodation providers are expected to list in 2020, despite the hype around this specialised asset class. The national beds shortage was 250,000 in 2016, and there were suggestions that there would be support from institutional investors.

Private tertiary institutions tend to have campuses scattered around the country, housing only a couple of hundred students in each. New tertiary institutions need to open close to one another, which would encourage student housing developers to build in these areas.

“It’s difficult to justify building a large student housing development if you are serving a small campus. Over time, student hubs will be built, but right now it is challenging to create these smaller residences at a feasible cost. This makes it tough for companies to gain scale and is a reason we haven’t seen a student housing listing yet — and I don’t think we will in 2020,” McMurray said.

Respublica operates 10 residences. Its biggest is Hatfield Square in Pretoria, with a 2,200bed capacity.

While residential funds such as Indluplace Properties and Transcend Residential have listed, no student housing funds have succeeded in securing a place on the JSE. Entrepreneurs Owen Nkomo and Kameel Keshav tried to list Inkunzi Student Accommodation Fund in 2018. The listing was abandoned after they could not get enough support from institutions.

CampusKey, the Western Cape based high-end student accommodation provider, also considered a listing but is yet to pursue this. It houses more than 4,000 students but MD Leon Howell said it needs 10,000 students before pursuing a listing.

Head of listed property funds at Stanlib Keillen Ndlovu said market conditions would encourage delistings rather than listings. Ndlovu also said local real estate stocks offer yields of more than 10% and have track records, size and liquidity. “Student housing yields will need to match these yields or offer amazing income growth prospects to be attractive to list.”

Business Day – 17 Oct 2019 – Alistair Anderson Property Writer