Growthpoint Properties, which is scaling up its investment in student accommodation to further diversify its revenue base, said on Thursday it was looking to manage the fallout from a decision to cap an annual subsidy at R45,000.
The National Student Financial Aid Scheme (NSFAS), which is funded by the department of higher education & training, set the limit earlier this year after providing full cover.
“Both private sector student accommodation providers and universities in Cape Town, Pretoria and Stellenbosch have been impacted negatively by this maximum as rentals in these areas and on campus exceed R45 000 per annum,” Growthpoint said in a trading update on Thursday.
The group said it was implementing “several initiatives to reduce the impact of the NSFAS cap”, but did not provide further details.
Growthpoint plans to ramp up its asset base in this market to R12bn over the next six years from R2bn announced at its official launch 18 months ago.
The country’s biggest property group said it was in advanced negotiations with an unidentified pension fund to invest in its student accommodation business which has about 7,000 beds.
The company, valued at R42bn on the JSE said it was on course to add more 1.500 more beds to its portfolio before the start of the 2024 academic year, through its two recent acquisitions.
Growthpoint’s trading and development division, in a joint venture with Feenstra Group, is developing Fountains View (formerly Capitol Gate), an 810-bed facility in the Pretoria CBD, targeting students from the nearby Tshwane University of Technology.
The group has also acquired a property in Auckland Park, which it is developing into an 800-bed property for students at the University of Johannesburg. Both projects are set for completion before the 2024 academic year.
“Growthpoint student accommodation REIT continues to attract capital and a large pension fund has received approval to invest R300m, for which agreements are being concluded,” it said.
The company said occupancies at its student portfolio were at 94%.
A report by World Bank’s investment arm International Finance Corporation says enrolments in SA’s higher learning institutions is set to grow to almost 1.6-million by 2025, and this will create demand gap of 781 000 beds by 2025.
With a total property portfolio valued at more than R160bn, Growthpoint is the bellwether of the commercial real estate, along with closest rival Redefine Properties, Its sprawling portfolio straddles office, retail and industrial sectors.
It expects to report muted earnings growth for the 12 months to end-June and has warned of a decline in distributable income per share in 2024 as a result of load-shedding and higher local and international interest rates.
These unfavourable economic conditions were worsened by frequent power outages and political uncertainty, Growthpoint added.
The company said costs in SA had soared, driven largely by diesel expenses — amounting to R87m — to keep its backup power generators running.
“Diesel recovery remains low for the retail sector and at circa 60% for the office sector,” the company said. “Only three industrial parks have generators provided by Growthpoint with a circa 74% recovery rate. Tenants’ occupancy costs increased across all sectors.”
The company, which is valued at about R42.6bn, had 13.5MW of solar power installed at the start of the 2023 financial year to offset the impact of load-shedding. That has since been increased by 4.4MW with another 14.48MW under construction and scheduled for completion by the end of the year.
Still, the domestic retail and industrial portfolios are “steadily recovering”, while the office sector “appears stable”.
Overall trading densities — which measures revenue generated per square metre — rose most in the retail sector, while rental reversions improved and arrears decreased.
Faster than expected recovery of Cape Town’s popular V&A Waterfront, in which Growthpoint has a 50% stake, was a highlight. The tourist hotspot bounced back from the sharp downturn during the Covid-19 pandemic as the number of international tourists more than doubled from pre-pandemic levels.
Retail sales, visitor numbers and hospitality at the V&A Waterfront were also boosted by new direct flights to Cape Town, and the resumption of conferences, sports and other events, helping operating profit to rise 23% and surpass pre-pandemic figures by 5%, Growthpoint said.
Its retail sales improved by 30% compared to the last pre-pandemic levels, reaching a record high of more than R1bn in December 2022, while rental relief provided to hospitality tenants was down more than four-fifths year on year.
Growthpoint will release its annual results on September 13.
Update: June 23 2023
This story has new information on Growthpoint’s student accommodation portfolio
mahlangua@businesslive.co.za
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