Vukile Property Fund, the specialist retail real estate investment trust (Reit) which owns assets in South Africa and Spain, has enjoyed a strong six months to end-September, as shoppers continued to spend at the company’s national anchor tenants.
The Reit reported funds from operations (FFO) of 80.8 cents per share and declared an interim dividend of
47.32 cents per share for the six months to end September 2022. This strong performance placed
Vukile comfortably on track to deliver dividend per share growth of between 5% and 7%.
Laurence Rapp, CEO of Vukile Property Fund said omnichannel retailing had worked well for the Reit and activity had been very healthy.
“We are pleased with the excellent operational performance achieved in both the South African and Spanish markets. Our strong results show that we have sailed safely through the recent turbulent times and metrics are exceeding pre-Covid levels. The South African reversionary rental cycle has turned positive, which together with ongoing positive reversions in Spain, signals the increasing income generated from our assets,” said Rapp.
Vukile owns property portfolio worth R35bn, of which 44% is in South Africa and 56% is in Spain by value. The Spanish properties are held through Vukile’s 89.6% held Madrid-listed subsidiary Castellana Properties Socimi, offering diversified income streams. Both businesses are underpinned by blue-chip retail tenants which reported good performance and upward-trending trading. Vukile grew its net asset value (NAV) 6.6% in the period.
Rapp said the SA portfolio delivered another set of strong results, with net operating income increasing 4% and property values increasing 3%. Vacancies fell to 2.3%, and retail rental reversions rallied to plus 1.6% from minus 2.4%, with 79% of all leases reverting positively or equal to previous levels. Turnovers surpassed pre-Covid benchmarks, with shopper numbers 11% ahead of the previous comparable period. Like-for-like trading density increased 7% with notable growth on all key categories across the portfolio.
On the back of positive trading and supported by Vukile’s customer-centric strategy and approach, demand from retailers for space at Vukile’s centres continued growing, with six of Vukile’s top ten retailers opening 40 new stores in its portfolio, led by TFG, Mr Price and Pepkor, he said.
“We are reaping the benefits of our in-house strategic leasing team, which, with access to our state-of-the-art data and statistics, has boosted the defensive nature of the portfolio with a high percentage of essential services tenants, mirroring changing shopping patterns. We are also seeing good retailer growth in our market segment, and with Vukile’s dominant market position, its portfolio is the natural home to take up this demand. Consequently, we expect the drop in vacancies to continue,” said Rapp.
Vukile also strengthened its portfolio. It sold R280m of its non-core assets and the proceeds will be deployed into two strategically aligned assets: Pan Africa Mall in Alexandra, Johannesburg, purchased at a price of R421m and BT Ngebs City Mall in Mthatha, Eastern Cape, of which Vukile is acquiring a 50% undivided share in a joint venture with Flanagan & Gerard Property Group, for R400m.
Both acquisitions were made at yields of 9.25% and are still subject to conditions precedent and are expected to close within the next six months.
In Spain, Castellana’s strong asset management and impressive operational results delivered a
market-leading performance, with an increase in normalised net operating income of 7.5%. Together
with value-adding projects, this saw the portfolio value growing by 1.1%, taking it 1.3% higher than
Castellana reported a vacancy level of 1.6%, with a weighted average lease expiry of 12.1 years. It increased positive rental reversions to 4.6% and collected over 99% of rentals billed. Footfalls and turnover exceeded national benchmarks at 98% and 112% of pre-pandemic levels, respectively. Almost 100% of all Castellana’s leases are indexed to inflation.
Rapp said he was confident that Vukile would have a strong 2023 and that the rest of the financial year to end-March 2023 would be fruitful for the Reit.
“Notwithstanding a worsening global backdrop, the strength and defensive nature of our assets in SA
and Spain and strong tenant demand, coupled with our ongoing drive for operational efficiencies and
excellence and a cautious approach given the challenging macro environment, all position Vukile strongly to deliver on its full-year guidance, pursue future growth and continue to sustainably create
value for all our stakeholders,” Rapp said.