Property Flash


Vukile Property Fund CEO – Laurence Rapp

Retail assets are the commercial property type of choice, CEO of Vukile Property Fund said on Thursday.

Rapp spoke to Property Flash during a presentation following the release of financial results for the 12-month period to end-March 2022. During this period, Vukile managed increase its funds from operations (FFO) 9.5% and declared a total dividend of 105.8 cents per share, retaining R308m to fund growth. It also increased its exposure to Spain, Europe’s sixth largest economy.

“Globally many people expected retail properties to be ruined by Covid-19. While the lockdowns did have notable effects on retail trade, the asset class has now recovered across much of the world. In fact, it’s looking a hot healthier and tougher in SA than people thought. Meanwhile, in Spain, tourism rebounded strongly and shopping is in a strong place. Spanish multinational Inditex has just released its strongest results in 10 years,” Rapp said.

He said many people still wanted to shop in person as opposed to online only. Footfalls were recovering at malls as families and friends congregated in them for shopping, eating and entertainment.

Inditex which owns clothing brand, Zara, this week reported an 80% jump in first-quarter profit on the back of soaring sales as consumers refreshed their wardrobes across Europe.

Vukile has kept strong faith in Spain, having first invested in Castellana Properties in 2016. At the end of March 2022, Vukile had exposure to assets worth R33bn, 46% of which was in SA and 54% of which was in Spain. The group has also successfully disposed of the majority of its non-retail assets and also the majority of its exposure to markets other than its home and Spain.

“We’re very upbeat with the performance Vukile has delivered in the past year. We produced strong results from our South African portfolio and even better performance in Spain. Property valuations have started to rise in both countries, which shows the excellent quality of the cash flows emanating from the assets,” said Rapp.

“Our balance sheet is robust, and we delivered exceptionally well on our capital rotation strategy, jump-started our growth, and returned to business as usual, paying dividends and providing market guidance. Vukile really proved its mettle this year,” he said.

The SA portfolio’s vacancies reduced to 2.6%, a 93% tenant retention rate and 100% of billings were collected. Retail reversions rallied and shifted to positive growth of 4.9%. The rural malls rental reversions climbed 3.2% and the township mall’s reversions climbed 0.7%. Turnovers surpassed pre-Covid levels, with like-for-like trading density increasing 6.1%. The rent-to-sales ratio was 6.1%.

On the back of positive trading, there was keen demand from retailers for space at Vukile’s centres, and Vukile’s South African property values have actually increased an impressive 4.6%.

“We operate in the sweet spot in the SA market, with significant exposure to brilliantly performing township and rural shopping centres, where trading densities are up 10.2% and 6.9%, and footfalls are up 106% and 104%, respectively. These assets, with a high percentage of essential services tenants,
fortify the defensiveness of our portfolio,” said Rapp.

Castellana achieved reduced vacancies of 1.6%, positive rental reversions of 3.1% and a rental collection rate of 98.7%. Retail sales exceeded 2019 levels.

Since year-end, Castellana also increased its stake in Lar España, a large retail landlord, to 23%, taking advantage of the excellent value in the share price. Rapp said Lar España was trading at a an unjustified discount.

“Vukile is engaging with Lar España to understand their strategies and explore ways to reduce its discount to net asset value,” said Rapp.

All of Vukile’s balance sheet metrics were strong at year-end. Its interest cover ratio (ICR) of 3.4 times highlighted strong cash flow from its assets. It also had a stable loan-to-value ratio of 43%.

Vukile has a diversified funding base and has already repaid or extended 66% of debt expiring in financial year-end 2023, and has increased its undrawn debt facilities to R3.1bn.

Rapp said Vukile would continue to invest Lar España as long as the investment offered it stronger returns than new physical Spanish properties would.

Alistair Anderson

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