Vukile remains well positioned in turbulent macro-environment

Vukile Property Fund CEO Lawrence Rapp. Photo: Supplied

Vukile Property Fund CEO Lawrence Rapp. Photo: Supplied

Published Jun 13, 2023

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Vukile Property Fund produced its best results in two decades since listing in its year to March 31, and the specialist retail REIT, with some 60% of its assets in Spain is expected to continue to perform well, CEO Lawrence Rapp said.

Vukile reported a 6.2% increase in cash dividend to 112.4 cents per share for the year and 6% growth in its funds from operations (FFO) to 144.5 cents per share, both within guidance.

The group, which owns R34.6 billion in direct properties with 56% of it in Spain making it one of the most rand-hedged REITS on the JSE, also anticipated delivering FFO per share growth of between 3% to 5%, and growth in dividend of between 7% to 9% in the new financial year.

He said in an online presentation there was a misperception that the performance of their portfolio would weaken automatically with a drop in consumer disposable incomes, but 99% of the rental income from its tenants were contractual, and not based on tenant turnover as with other retail RETS.

In addition, 94% of the portfolio tenants in South Africa and 84% in Spain were national or international tenants, with contracts of the highest covenants.

Another defensive aspect was the inclusion of essential services in the centres, while the slight impact of consumer pressure that group had experienced in the South African portfolio in the second half of the past year, was not evident in Spain.

Rapp said he expected tenants might slow their expansion plans due to the weakening disposable incomes, but he did not foresee they would close stores.

He said the time was right for Vukile’s expansion, as there were good opportunities from a valuation perspective in Spain and other offshore markets, and capital raising options were being assessed.

In the South Africa portfolio, some R350 million was being invested in solar and battery power options, which would provide a yield of between 13% and 16%; provide certainty to tenants of available power at 17 of the group shopping centres, between 9am to 4pm at a lower cost than diesel generators; as well as provide shoppers with a full retail experience rather than currently where some stores might have power through load shedding, while others didn’t.

In the past year the South African portfolio continued to deliver “stellar results”, with a 5.8% increase in retail valuations in the year to March 31, and vacancies that had reduced to 2% in the year from 2.6%.

“We are confident that with our strong operating platform, clear strategic direction and solid balance sheet, Vukile is well positioned to manage the global macro-economic headwinds, dampened consumer confidence and specific South African-related challenges, such as load shedding and sluggish economic growth,” said Rapp.

“As we come closer to the peak of the interest rate cycle, Vukile and Castellana Properties Socimi (the subsidiary in Spain) remain well hedged,” he said.

The business was further insulated with a relatively long loan expiry profile and a strong liquidity position, he said.

The Castellana portfolio also outperformed in the past year with normalised net operating income growth of 9%, vacancies at 1.3%, rent collection rate at 99.2%, and an average lease expiry term of 12.6 years.

The strong balance sheet led to a credit rating upgrade – GCR upgraded Vukile’s corporate long-term credit rating to AA (ZA). Liquidity was strong with cash and undrawn debt facilities, and there was a R700m equity raise post year-end.

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