Vukile on track to meet full-year guidance

JSE-listed retail real estate investment trust Vukile Property Fund has reported a 6% increase in its interim cash dividend to 55.2c a share for the six months to September 30.

The company, in a media release, confirmed that this strong performance positions it comfortably to meet its full-year guidance of growth in funds from operations a share of 2% to 4%, with a trajectory towards the upper end of its 4% to 6% dividend a share growth target.

Valued at R16-billion, Vukile’s South African portfolio delivered strong performance and growth, with like-for-like net operating income growth of 4.6% and a 3.7% increase in the value of its retail portfolio.

Vacancies remain at an exceptionally 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 company says the portfolio achieved trading density growth of 4.2%, with Vukile’s shopper-first focus driving increased footfalls and sales.

It notes that a key highlight is the portfolio’s decreased cost-to-income ratio, down to 15%, the lowest level in a decade.

Additionally, Vukile says its solar PV rollout in South Africa has been successful, driving margin and propelling it towards carbon neutrality. During the six months, it added four PV plants with 4.9 MW of capacity to its existing 28 plants of 21.6 MW.

The company says it is also applying the same focus to water management and efficiency.

“What's been a real highlight in the South African portfolio has been the ongoing work in [solar] PV as we've really increased the capacity in these past six months, and there's more coming in the next six months, and what that's doing is driving our cost to income ratio down.

“So that's now at 15%, which is the lowest it's been in a decade,” said Vukile CEO Laurence Rapp during a results presentation on November 26.

Adding value to its South African portfolio through acquisitions and developments, Vukile says its redevelopment of the recently acquired Mall of Mthatha, in the Eastern Cape, is on schedule, with completion and substantial letting expected by the first quarter of 2025. Vukile anticipates a minimum 10% yield on this acquisition.

The reconfigured East Rand Mall, in Boksburg, Gauteng, is trading exceptionally well following the introduction of Checkers FreshX as its first-ever grocery anchor.

The R141-million Bedworth Centre upgrade in Vanderbijlpark, Gauteng, is progressing rapidly, 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 R101-million on an 8.6% yield, has broken ground. It is located adjacent to Vukile’s very successful Thavhani Mall asset.

Vukile says it remains keen to invest in South Africa.

“[We are] very upbeat about the South African environment, and we expect to see a strong second half coming through from the business,” said Rapp.

Reflecting on the company’s operating performance in Spain and South Africa over the last five years, Rapp noted that, despite challenging economic conditions, including poor economic growth, the Covid-19 pandemic, the 2021 riots and high interest rates, the company was now seeing positive tailwinds.

He noted that interest rates were coming down, and the macroeconomic picture in both South Africa and Spain was improving, leading to optimism for the future.

“If you've now got the very strong operating platform that's delivering such strong results, together with the healthy macro environment and some good tailwinds, I think that sets things up for a very good picture going forward,” he said.

IBERIAN PORTFOLIO

Meanwhile, Vukile has noted that its Spanish portfolio remains fully let, with marginal vacancies of about 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%. Vukile says the portfolio has the market’s lowest occupancy-cost ratio, 9.5%, providing further room for future rental growth.

Post-period in October, the company accepted the offer to sell its entire 28.8% stake in Lar Espana for €200-million, generating a capital profit of about €70-million and an internal rate of return exceeding 30% in euro terms.

Vukile says the proceeds will be redeployed into physical assets in well-advanced transactions currently being evaluated.

As previously disclosed, the company notes that its 99.5% held Spanish subsidiary Castellana remains in exclusive discussions to acquire the largest shopping centre in Spain’s Valencia province, Bonaire Shopping Centre, from multinational retail Reit Unibail-Rodamco-Westfield.

The company says the transaction’s closing has been extended owing to the floods in Spain, pending a full damage assessment and remediation timeline for the flood-impacted shopping centre.

Further, Rapp noted that a key highlight executed post the reporting period was Castellana’s strategic entry into Portugal, a compelling new market, which had expanded its Iberian investment footprint.

With its investment in a high-quality, blue-chip-tenanted portfolio of three Portuguese shopping centres valued at €176.5-million, Vukile said the expected 10%-plus cash-on-cash yield in euros underscored the market’s potential for value creation.

“Castellana’s on-the-ground expertise positions it to add substantial value to the Portuguese assets while growing in this market, with liquidity in place and further transactions under consideration. Vukile’s robust balance sheet and disciplined capital allocation are enduring merits for this Reit,” the company says.

Its balance sheet remains exceptionally strong, with a reduced loan-to-value of 35%, an increased interest coverage ratio of 2.5-times, and R6.4-billion in liquidity, including R5.1-billion of cash on hand and R1.3-billion in undrawn facilities.

“We are very, very positive about our business. We're very excited. We do see ongoing growth in the business and that's beyond financial year 2025 . . .

“Operationally, everything is on track, [we have a] clear idea of what deals need to be done, a good record in allocating capital and now finally, a bit of help from tailwinds and markets having woken up a bit,” said Rapp.