Vukile focuses its investment offshore

Laurence Rapp, CEO Vukile Property Fund.
Laurence Rapp, CEO of Vukile Property Fund.

Vukile Property Fund, the JSE-listed Real Estate Investment Trust (REIT), this week reported its results for half-year to 30 September 2017

Results Summary

  • 7.4% increase in dividends in line with guidance to 72.65 cents per share
  • Concluded landmark Spanish acquisition
  • Further investment of R407 million in Atlantic Leaf to facilitate portfolio acquisition
  • 24% of assets now offshore
  • 6.1% increase in like-for-like net property revenue
  • Gearing remains conservative at 29%

International Expansion

While there are few opportunities to grow its South African retail portfolio in the current market, Vukile is continuing to invest in the development, upgrade and expansion of its retail assets. During the half-year, the new 50,000sqm Vukile co-owned Thavhani Mall opened in Thohoyandou, Limpopo; the upgrade of its legendary Dobsonville Mall in Soweto launched; and building began on the major redevelopment of its Maluti Crescent Shopping Centre in Phuthaditjhaba, Free State.

However, in this macroeconomic environment, Rapp confirms that Vukile is focusing its investment offshore, primarily through Castellana in Spain and Atlantic Leaf in the UK.

Vukile’s investment in Atlantic Leaf is performing well. The UK fund’s management team is building a solid platform of assets with long-dated leases and strong covenants. Vukile invested a further R407 million into Atlantic Leaf to facilitate portfolio acquisitions, thereby increasing its shareholding to 35% and triggering a minority offer. Rapp explains: “Given the irrevocables in place from key shareholders, it is likely that our investment will remain at around the 35% to 40% level after the offer closes.”

Vukile also concluded the landmark Spanish acquisition of 11 retail parks for EUR193m via its new Spanish REIT subsidiary Castellana. Having employed a team of highly experienced Spanish retail experts into Castellana, Vukile is planning to combine its best practice governance and management principles with strong on-the-ground knowledge.

“We believe that with our dynamic management team our advantage lies in being able to operate as locals in the Spanish market,”

– Laurence Rapp, CEO of Vukile Property Fund

Spain’s 2017 forecast GDP growth is 3.2%, home consumption growth is 2.6%, and consumer price inflation is 1.9%. and had 11% growth in tourists in 2016 and is the second most popular shopping destination in Europe.

Castellana has assets of EUR225m. Some 90% of its portfolio by market value comprises retail properties. It has excellent vacancy levels of 0.4%, excluding development vacancy. Some 96% of its income is generated from national tenants, and it has a long weighted average lease expiry profile of 16.9 years.

Castellana is already experiencing good deal flow and is finalising the acquisition of two more assets at a combined value of EUR68m. The first is the 25,500sqm Alameda Park in Granada, which has an occupancy rate of 98.6%, strong anchor tenants and a good shopper base. This retail park and shopping centre are located next to Castellana’s Kinepolis Retail Park, which is currently being upgraded at an accretive yield. The transaction will establish Castellana as the primary retail owner in Northern Granada.

The second acquisition asset is Pinotar Park in Murcia, South-East Spain. It is a fully-let 10,650sqm retail park, anchored by strong retailers on long leases. Castellana also has the option to acquire an adjacent plot of land to extend the centre.

Our post-deal integration plan is well on track, and we plan to list Castellana on the Madrid Stock Exchange by mid-2018. We look forward to building a long-term sustainable business, which will have grown its asset base by close to EUR300m after its latest acquisitions. This is excellent growth from a standing start just six months ago

– Laurence Rapp, CEO of Vukile Property Fund