It will be interesting to see what level of support the JSE’s new property contender, Inkunzi Student Accommodation Fund, garners for its proposed R1.2bn prelisting equity raise later this year.

Inkunzi was founded earlier this year by chartered accountant Kameel Keshav — former CFO at Rebosis Property Fund — and Owen Nkomo, who spent 12 years as a securities trader and portfolio manger at JPMorgan, Deutsche Bank and Citigroup before he founded Inkunzi Wealth Group in 2012.

The equity raise won’t be easy. The student housing venture of Keshav and Nkomo will not only be introducing a fairly unknown asset class to JSE punters, but it will also have to compete with a growing number of offshore property counters jostling for investors’ capital.

This year the SA listed property sector has already tapped the market for close on R35bn — already R3bn more than was raised in 2016 — through various rights issues and book builds, according to Stanlib.

The bulk of the capital raised this year has gone to fund the offshore growth ambitions of rand hedge stocks. Nepi Rockcastle, which is focused on Central and East European property, raised a hefty R5.2bn last month to help pay for shopping centres it recently bought in Bulgaria and Hungary.

Craig Smith, head of research at Anchor Securities Stockbrokers, says SA-focused property companies may find it increasingly difficult to meet their equity targets, given the country’s economic and political malaise.

Smith expects most money to continue to flow to property stocks with an offshore focus. The exception is likely to be specialist local offerings that focus on alternative real estate sectors. Logistics, self storage, health care and student housing are perhaps the most promising of these.

This bodes well for Inkunzi. Smith says student housing is a particularly interesting growth sector, as there is an immense undersupply of such purpose-built accommodation in SA.

Still, investors may take some time to warm to it, given that it is a new asset class in SA’s listed property sector.

And it’s an area that isn’t without challenges.

For instance, Smith says running student housing portfolios can be extremely management intensive.

"Affordability is another issue, especially in light of the ‘fees must fall’ campaign. So you have to bring the right product to the market at the right price and have the right platform
in place to manage operating costs without compromising on the quality of your offering," he says.

It seems the JSE is also battling to familiarise itself with the dynamics of the student housing market, as it has taken longer than expected for the bourse to green-light Inkunzi’s listing.

Nkomo, chief investment officer for the new student housing fund, hopes the listing will get the go-ahead in the next few weeks once the JSE is satisfied that all the necessary regulatory requirements have been met. "This is the first student housing listing in SA so the JSE is still trying to get its head around the structure," he says.

At the moment, there are only a handful of companies (all unlisted) that provide student beds in SA — including Respublica, South Point and CampusKey.

Inkunzi’s initial portfolio is valued at R1.7bn. It consists of nine existing buildings with 5,220 student beds. Most of the buildings have only recently been completed and are within walking distance of the University of Pretoria (Hatfield and Prinshof campuses), the University
of Johannesburg, the Vaal University of Technology, the Witbank campus of the Tshwane University of Technology and Nelson Mandela University.

On average, students will pay R1,800-R6,000/month.

Inkunzi’s largest asset (in terms of value) is Studios@Burnett in Hatfield. It is a stone’s throw from the University of Pretoria and has a capacity of 919 beds at monthly rentals of between R2,800 and R5,000.

"We want to ensure our portfolio is as defensive as possible by servicing all income sectors of the market. But our key focus is on the
middle end, priced at R2,600-R4,500/month," says Nkomo.

While it may seem steep, Nkomo says students funded by the National Student Financial Aid Scheme (NSFAS) and other bursary providers can typically afford accommodation in this price bracket.

Inkunzi has already signed two-year leases with four universities for about 30% of the beds in its portfolio. It’s a savvy move, as it will provide Inkunzi with low-risk, contractual income.

The company has also recently tendered for a contract to house a further 5,000 NSFAS students in Pretoria next year.

Nkomo says Inkunzi’s BEE credentials should help it secure NSFAS contracts. And when the company lists, an empowerment scheme will be implemented aimed at black ownership of 25%.

He dismisses concerns that student housing portfolios may have less secure income streams than traditional rental housing portfolios because long varsity holidays mean student portfolios should have higher vacancy levels than other sectors of the market. He says Inkunzi’s rental model is based on a lease period of 12 months/year, which is now the norm.

"Given the huge shortage of decent student accommodation close to varsity campuses, vacancies aren’t an issue. Management has forecast a portfolio vacancy of less than 1% for 2018," he says.

It may be an idea whose time has come.

The department of higher education & training places the current shortfall of student beds at universities around SA at about 250,000. Throw in technical and vocational training colleges, and that number climbs to about 750,000.

Contrary to what you’d think, Nkomo argues, student housing is more defensive than other real estate sectors — such as offices or shopping centres — because demand doesn’t drop during a recession.

And the supply shortage means there’s also huge potential to expand Inkunzi’s portfolio over the next few years. It already has access to a development pipeline worth more than R2.5bn, with acquisition yields at about 11%.

Nkomo says Inkunzi’s strategy is well defined. "We won’t grow our portfolio with dilutive acquisitions and we buy only purpose-built buildings in the right locations," he says.

Inkunzi is expected to list at a dividend yield of about 9.5% — an attractive discount compared with the average 7%-8% yields on offer from most other SA-focused property counters.

mullerj@fm.co.za

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