November 26 2024 16:00
Laurence Rapp, CEO of Vukile Property Fund
Vukile Property Fund, the JSE-listed real estate investment trust (Reit) is carefully allocating its capital as it looks to acquire the largest shopping centre in Spain’s Valencia province, Bonaire Shopping Centre, from multinational retail landlord Unibail-Rodamco-Westfield, as well as another Portuguese shopping mall before the end of its financial year to end-March 2025.
This was revealed during a media presentation where financial results for the six months to end-September were discussed.
Vukile reported a 6% increase in the interim cash dividend to 55.2 cents per share for the period. The fund owns property assets worth R23.5bn in Spain and assets worth R16.6bn in South Africa. CEO Laurence Rapp said the group had performed strongly and was positioned to meet its full-year guidance of growth in funds from operations (FFO) per share of 2% to 4% with a trajectory towards the upper end of its 4% to 6% dividend per share growth target.
Vukile was close to finalising its acquisition of Bonaire Shopping Centre before parts of the country were devastated by floods. The Spanish government has since stepped in and helped damaged towns in Spain. The country is on track to be the most visited place in the world in 2024 and 2025 as its tourism sector thrives.
Rapp said Vukile had enjoyed a strong six month reporting period to end-September.
“Our strong first-half performance delivered outstanding operating results and solid trading metrics across our property portfolios, which positions us well for continued growth. Vukile’s businesses in South Africa and Spain are intentionally structured for seamless success, driving the strategic and operational progress that we’re pleased to report,” he said.
Vukile is a landlord which solely invests in retail centres with total property assets worth R40.1bn. Rapp said the group was committed to customers through its convenient, community-focused, needs-based retail centres in SA and its Spanish exposure. Vukile is invested in a portfolio of 33 urban, commuter, township, and rural malls in SA. Through its 99.5% held Spanish subsidiary Castellana Properties, it has a portfolio of 15 shopping centres in Spain and a portfolio of three newly acquired shopping centres in Portugal. Some 59% of Vukile’s assets are in Spain and Portugal, and almost 48% of its property net operating income is earned in Euros.
Rapp said that domestically Vukile’s robust operating platform, coupled with a strengthening macroeconomic environment, delivered strong results.
“With sentiment improving, loadshedding decreasing, consumer confidence rising, and interest rates falling, the sustained strong metrics produced by our successful operating platform enjoyed a welcome boost. We anticipate this momentum to persist into the second half and beyond,” he said.
The R16bn South African portfolio achieved like-for-like net operating income growth of 4.6% and a 3.7% increase in the value of its retail portfolio. Vacancies were at a low 1.9%, supported by active letting, with 85% of leases signed at better or the same rental level and 93% tenant retention success. The portfolio achieved trading density growth of 4.2%. A highlight was the portfolio’s decreased cost-to-income ratio, down to 15%, the lowest level in a decade. Vukile listed in 2004.
The company’s solar PV rollout in South Africa has driven margin and is pushing the company towards carbon neutrality. During the six months, the group added four PV plants with 4.9MWp of capacity to its existing 28 plants of 21.6MWp. Rapp said Vukile was applying the same focus to water management and efficiency.
During the reporting period, Vukile continued to redevelop the Mall of Umthatha, with completion and substantial letting expected by the first quarter of 2025. Vukile anticipated a minimum 10% yield on this acquisition. The reconfigured East Rand Mall in Boksburg was trading well, following the introduction of Checkers FreshX as its first-ever grocery anchor. The R141m Bedworth Centre upgrade in Vanderbijlpark was progressing, with both new anchor tenants, Boxer and Shoprite, opening in time for the festive season. The development of Thavhani Retail Park in Thohoyandou, Limpopo, where Vukile acquired a 33% stake for R101m on an 8.6% yield, broke ground. It is located adjacent to Vukile’s very successful Thavhani Mall asset.
Vukile was keen to invest in South Africa.
“We are actively exploring opportunities and are currently in the early stages of evaluating several potential deals in the market,” said Rapp.
The Spanish investments through Castellana Properties were progressing well.
“With Spain’s economy leading the Eurozone and its financially healthy consumers driving growth, Castellana’s consistent consumer-focused model has excelled, surpassing market benchmarks and outshining peers with high footfall and sales,” said Rapp.
The Spanish portfolio was fully let, with marginal vacancies of around 1% and 95% of space let to blue-chip international and national tenants. It achieved like-for-like rental growth of 2.1% and high positive rental reversions of 45.5%. The portfolio has the market’s lowest occupancy-cost ratio, 9.5%, providing further room for future rental growth.
Post-period in October, Vukile accepted the offer to sell its entire 28.8% stake in Lar Espana for €200m, generating a capital profit of some €70m and an IRR exceeding 30% in Euros. The proceeds will be redeployed into physical assets.
Rapp said a highlight post the reporting period was Castellana’s strategic entry into Portugal.
“The move capitalises on Portugal’s strong economic growth and fragmented retail property sector ripe for consolidation, mirroring opportunities seized in Spain,” Rapp said.
With its investment in a blue-chip-tenanted portfolio of three Portuguese shopping centres valued at €176.5m, the expected 10%-plus cash-on-cash yield in Euros underscores the market’s potential for value creation.
Vukile’s robust balance sheet balance sheet had reduced loan-to-value (LTV) of 35%, an increased ICR of 2.5-times, and R6.4bn in liquidity, including R5.1bn of cash on hand and R1.3bn in undrawn facilities.
“Vukile delivered excellent first-half operating performance and has laid a firm foundation for future growth. We remain committed to our scalable consumer-led model to create value for all our stakeholders,” Rapp said.
alistair@propertyflash.co.za
