Post-election uncertainty impacting investment prospects for property sector, says Vukile CEO

Laurence Rapp, the CEO of Vukile Property Fund. Picture: Nokuthula Mbatha/Independent Newspapers.

Laurence Rapp, the CEO of Vukile Property Fund. Picture: Nokuthula Mbatha/Independent Newspapers.

Published Jun 6, 2024


Vukile Property Fund CEO, Laurence Rapp, yesterday said that investor apprehension before and after South Africa’s 2024 general elections, as well as high interest rates, will continue to present some uncertainty for property sector investments.

The SA Reserve Bank (SARB) is maintaining a high interest cycle until inflationary pressures dissipate.

On the other hand, the ANC’s failure to win the required 50% majority vote has left it requiring to involve other parties in its bid to maintain its governance mandate.

Rapp said this was presenting some uncertainty for the real estate sector, especially in relation to the high cost of equity as investors wait on the sidelines pondering their next moves.

“Now you have the uncertainty until the elections are finalised. In (a) sense that is what's driving high cost of equity (and) and I'd say that the most significant driver of that is the interest rate cycle,” Rapp said during a presentation of the company’s annual financials for the year ended March 31, 2024.

“Property is a cyclical industry and people tend to evaluate it relative to other fixed income.”

However, Rapp added that the current high interest rate cycle was international, and not just a South African issue.

What was peculiar to SA was “the uncertainty up to the elections”, which had “heightened with what's going to happen to the coalitions” that the ANC has to form to retain its governing mandate.

Despite this, Vukile said its performance during the financial year to the end of March had surpassed the upper end of its full-year market guidance as it delivered a remarkable 10.5% increase in dividend per share (DPS) to 124.2 cents.

The real estate investment trust also posted a 6.7% growth in funds from operations to 154.2 cents per share.

With a portfolio of retail property assets valued at R40.2 billion spread across South Africa and Spain, Vukile is seeing “demand for space in shopping centres remaining exceptionally strong” amid a reduction in retail portfolio vacancies to 1.9%.

“Rental growth continued its rebound with positive reversions of 2.9%, with 87.0% of leases signed producing stable or growing rentals. Tenant retention increased to 94% of gross lettable area,” the company said.

“The portfolio achieved trading density growth of 2.4%, led by township and rural shopping centres and those in the Gauteng, Western Cape and North West provinces.”

With about 4.4% of the the debt in Vukile set to expire in its current year, the REIT managed to secure R1.1bn of funding through an innovative green loan and sustainability-linked loan post year-end.

This complements Vukile’s liquidity position underpinned by available cash balances of R2.4bn and undrawn debt facilities amounting to R2.9bn.

“We have been able to raise capital so we can actually afford to raise money where we saw a gap in the market and we can deploy that accretively,” said Rapp.

However, although the company was keen to invest further, it had seen investment opportunities amounting to $7bn to $8bn in South Africa but it had turned its back on these because of “the cost of equity” as well as weak fundamentals for the related properties and projects.

“It wasn’t 100% that we walked away because of cost of equity. It was the cost of capital (which) would have been a significant contributor,” explained Rapp.

“I would say about $5 billion of the $7bn was because of pricing and $2bn was quality of asset once we got into the detail.”