September 26 2024 16:05
Vukile Property Fund (JSE: VKE), a specialist retail real estate investment trust (Reit), is in a strong position and well-placed to take advantage of the tailwinds gaining momentum in its markets, the company said in a pre-close operational update for the first half of its 2025 financial year, which ends on September 30 2024.
“The period has been defined by exceptional operational performance from the Spanish portfolio, strong and further improving metrics from the South African portfolio, excellent capital market support with oversubscribed capital raises in both equity and debt markets, and securing our first investments in Portugal,” said CEO Laurence Rapp.
Off the back of robust performance in the prior financial year with growth in funds from operations (FFO) of 6.7% and 10.5% in dividends per share (DPS), Vukile was on track to achieve at least its projected guidance for the financial year to end-March 2025 of growth in FFO per share of 2% to 4% and DPS of 4% to 6%. These suggest that the group has enjoyed a surge in its momentum.
Vukile has investments in Southern Africa, Spain and Portugal. The group listed on the JSE 20 years ago.
Rapp said the group’s SA portfolio is defensive by design and contains malls and retail centres which dominate their catchment areas.
He said that in the first half of the 2025 financial year, the “consumer-focused retail Reit’s defensive, dominant South African portfolio delivered “strong performance and growth, with trade increasing, particularly in the township (+5.3%) and rural (+3.5%) segments”.
Trading density growth of 3.3% in Vukile’s South African portfolio exceeded the 2.4% it recorded for the 2024 financial year. Fashion, particularly women’s wear, and pharmacies, bottle stores, health and beauty, sports facilities and gyms, all experienced trading density growth. Trading density also climbed in the grocery category.
Like-for-like vacancies were at a low and stable level of 1.9%. Mall of Mthatha, which transferred into the portfolio in April 2024, would see a R200m upgrade due for completion in February 2025 and had a 13% vacancy factor, which is set to decrease materially in the short term. The incorporation of this asset increased the total portfolio vacancy figure slightly from 1.9% to 2.6%, according to Rapp.
“We are greatly encouraged by the economic, social and political green shoots and the heightened sense of positivity in South Africa,” said Rapp.
The Spanish portfolio’s shopper numbers increased 3.7% in the first eight months of 2024 compared with the numbers for January to August 2023. Similarly, sales rose 4.6%. Categories with the highest sales growth included homeware, health and beauty, and food and beverage, followed by solid performances from fashion, leisure and entertainment, and groceries. Its portfolio occupancies of 98.4 are better than the Spanish average for the sector of 94.7%. Rental increases are at spectacular levels of 31.45% on average, 42.43% on new leases and 9.83% on renewals.
Asset management interventions by the on-the-ground team in Spain saw the first phase of its value-add project at Valsur Shopping Centre, which introduced a new food and beverage area, boosting footfalls by 16% to all-time record highs.
Rapp points out, “This year’s projected Spanish GDP growth has been increased to 2.5%, following better-than-expected first-quarter data, demonstrating economic strength that specifically supports retail property performance,” said Rapp.
Vukile expanded its Iberian Peninsula footprint, entering Portugal in a milestone transaction concluded at projected cash-on-cash yields of more than 10%, due to close in October 2024. After this acquisition, around 64% of Vukile’s assets will be in the Iberian Peninsula, and nearly 56% of its property net operating income will be in Euros. As in Spain, the assets in Portugal will benefit from Vukile’s signature hands-on, in-country presence delivered by Castellana.
“We are actively exploring growth opportunities in South Africa as well as in the Iberian Peninsula, with its strong consumer confidence and exceptional tourism growth,” said Rapp.
Vukile’s strong balance sheet, proactive approach to funding, and dealmaking dexterity stand it in good stead to deliver on its growth strategy. The capital it raised earlier in September 2024 ensures it is investment ready, according to Rapp.
“Decreasing interest rates, increased consumer confidence and spending, and positive momentum in the equity market are positive drivers for Vukile’s business. We are well-positioned to take advantage of the economic tailwinds,” said Rapp.
247@propertyflash.co.za
