Growthpoint Properties (JSE: GRT) has launched South Africa’s first unlisted purpose-built student accommodation real estate investment trust (REIT), the Growthpoint Student REIT – the third specialist, unlisted alternative real estate investment opportunity to be launched under Growthpoint’s funds management business. The Student REIT has acquired a R2bn seed portfolio with 5,000 modern beds.
Globally, the thriving purpose-built student accommodation sector is giving rise to the growth of specialist REITs. They are attracting record capital inflows by outperforming based on consistently high occupancies and rental growth.
Locally, the launch of Growthpoint Student REIT has opened up focused investor access into this defensive alternative asset class, with its strong fundamentals and proven resilience.
The introduction of the purpose-built student accommodation REIT received strong market interest. Its first close exceeded expectations, attracting third-party capital commitments of some R1.1bn and around R1.5bn in total, including the capital commitments from Growthpoint as well as Feenstra Group, one of the largest seed portfolio vendors.
Growthpoint’s R240m investment represents a 16% shareholding in the unlisted REIT and is in line with its co-investment philosophy underpinning its funds management business. It will remain a core investor in the fund, owning between 5% and 20% of the equity in the REIT in future. Feenstra’s R160m gives it an 11% holding, with a three-year “lock-in” commitment.
Growthpoint is the fund manager and assumes overall responsibility for the success of the Student REIT, while Feenstra will be the property manager. The Student REIT leverages the entrepreneurial vision and skill of Growthpoint’s management team and the proven student accommodation property management capability of the Feenstra Group in order to create value for investors.
The Growthpoint Student REIT’s R2bn seed portfolio comprises seven high-quality purpose-built student accommodation properties acquired from a group of vendors led by Feenstra. A two-year rental underpin, to mitigate against short-term impacts of Covid-19, was included in the deal. After the conclusion of the acquisition, the Student REIT launched in December 2021.
The Student REIT is unlisted – giving investors exposure to direct real estate that tends to be driven by long-term fundamentals rather than listed real estate volatility driven by short-term sentiment. However, JSE-listed Growthpoint’s control ensures excellent governance oversight frameworks, extensive dedicated environmental, corporate social investment and sustainability resources, and regular investment income from the Student REIT’s six-monthly dividend payment policy.
Growthpoint’s fund management business seeks to identify investment opportunities in sectors that are underpinned by strong fundamentals and that have the potential to be built to scale. It aims to grow the new Student REIT towards R12bn in assets and a stock exchange listing within seven years.
A focused investment mandate in purpose-built student accommodation differentiates the Growthpoint Student REIT. This type of accommodation is built specifically for university students by private developers and is designed to be student-centred.
Head of Corporate Finance at Growthpoint, George Muchanya, explains, “The demand for specialised student accommodation in South Africa far outstrips supply, making it an attractive investment. Given the constrained fiscal budget, to address the shortfall, the Government and Universities have shifted student accommodation provision from universities to partnerships with the private sector. This is a very positive step for all stakeholders and will contribute towards job creation as new developments are rolled out. This growing market remains disaggregated, and as SA’s first unlisted REIT investing in this asset class, Growthpoint Student REIT is poised to become the institutional player of reference in the sector that is likely to re-rate in the next decade.”
The massive demand for quality student accommodation in South Africa is driven, in part, by the demographics of a young population. Education accounts for a significant share of public and family budgets, and Government’s commitment to tertiary education supports purpose-built student accommodation.
“An investment in the Growthpoint Student REIT is also an opportunity to invest for positive social and economic impact. Education is a major social need in South Africa. Around 60% of students in the fund’s initial portfolio are from low-income households and supported by the National Students Financial Aid Scheme (NSFAS). Their student accommodation provides them with a conducive learning and living environment, improving education outcomes,” adds Muchanya.
The REIT’s NSFAS-approved, Gauteng-based portfolio is geographically split between Pretoria (71%) and Johannesburg. Each property is only a short walk from the University of Pretoria or the University of Johannesburg campuses. All have a history of high occupancy levels and rental growth, notwithstanding the disruption to education, and the ability to attend lectures in person, experienced since the onset of the Covid-19 pandemic.
The Growthpoint Student REIT has several acquisition and development opportunities on the horizon, including an immediate growth portfolio of two development projects currently underway and opening in time for the 2023 academic year, a further acquisition of a Feenstra property under development, and another asset which will commence construction later this year.
With significant growth expected to come from new development, the Growthpoint Student REIT has access to large and complex projects by leveraging Growthpoint’s exceptional property development expertise and Feenstra’s experience as one of the largest private developers in the country. New developments expand Growthpoint Student REIT’s positive impacts beyond education outcomes alone as investing in development boosts job opportunities, municipal revenues and communities.
With extensive deal flow in place for this specialist REIT, investors will have an ongoing opportunity to invest in this high impact social investment.
The Growthpoint Student REIT furthers Growthpoint’s strategy to introduce new co-investment opportunities that leverage its management strength. Growthpoint’s funds management business is now actively managing three funds. It first commenced Lango (formerly Growthpoint Investec African Properties) in 2018. Lango’s assets have since grown to USD650m with over USD300m third-party funding raised, and it has emerged as a leader in the African real estate market. Growthpoint Healthcare Property Holdings launched later in 2018 and as SA’s first unlisted REIT focused exclusively on healthcare property investment, has now grown its assets to R3.2bn and raised over R2bn of third-party funding.
Norbert Sasse, Group CEO of Growthpoint, says: “Funds management provides Growthpoint and our co-investors with access to alternative opportunities in the unlisted and co-invested environment. We are pleased that our funds management platform has gained even stronger momentum with the launch of the Growthpoint Student REIT and continues to attract third-party capital successfully. Growthpoint remains committed to adding depth to the real estate market for the broader investment community. Ultimately, growing our funds management further diversifies our assets and harnesses new opportunities to create sustainable value.”