Vukile Property Fund has declared a cash dividend of 101.04 cents per share in its financial yearend results for the period 1st of April 2020 to 31st of March 2021.
A low-risk retail REIT with assets of R33.6 billion, Vukile Property Fund is significantly diversified in South Africa (49%) and Spain (51%) through its 82.5% held Madrid listed subsidiary Castellana Property Socimi. Castellana is the seventh largest retail landlord in Spain, with a portfolio of dominant shopping centre assets in all segments.
While the company’s financial year coincided with the emergence of Covid-19, Laurence Rapp, CEO of Vukile Property Fund, says the entire year’s operations were undertaken against the backdrop of the pandemic, crystalising key priorities for the business which has secured its long-term stability as a comfortably solvent and liquid going concern.
“Vukile performed admirably ensuring operational excellence, balance sheet strength, a simplified corporate structure and protecting the people who make our business exceptional. We are emerging from the pandemic in a robust financial position with a strong operating platform”, he says.
Vukile Property Fund leveraged its operational expertise to ensure the viability of its entire value chain. In South Africa and Spain, the company offered around R467 million of rental relief to assist its tenants. Demonstrating the effectiveness of this approach, the REIT closed the year with favourably low portfolio vacancy rates of 3.2% in South African and 1.7% in Spain. The company also met all obligations to its suppliers and funders.
“As lockdowns lightened, customers flocked back to our malls. Sales rebounded even faster than footfall, continuing the trend of bigger shopping basket sizes with less frequent visits and more focused shopping. People showed they still enjoy the experiential nature of physical retail, which puts us in a strong position for the future,” reports Rapp.
In South Africa, Vukile improved key operating metrics to deliver sustained performance. By the end of March 2021, overall portfolio footfalls in South Africa were 99% of pre-pandemic levels. Like-for-like trading densities grew 1.7%, and rental collection improved to 98%. It achieved a 90% retail tenant retention rate, with rental reversions contained at -3.3%. Rural and township centres, the bulk of Vukile Property Fund’s portfolio, outperformed all others.
Similarly in Spain, shoppers returned to Castellana’s centres as soon as restrictions were lifted. Larger basket sizes drove good sales performance, notwithstanding lower, albeit significantly recovered, footfall levels. Sales in March 2021 reached 98% of those achieved in March 2020 and 80% of March 2019. Retail parks, which comprise 42% of the portfolio, enjoyed sales above pre-pandemic levels.
Strong operating performance from the Spanish portfolio propelled its rental collection rate above 95%. Castellana’s proactive approach to tenant relationships ensured a cooperative response to the pandemic, which boosted income security through a longer weighted average lease term of 13.4 years. Highlighting the strength and dominance of its portfolio, Castellana signed more than 110 new leases, with an exceptionally strong combined positive 7.5% rental reversion.
Operational highlights that will contribute to Vukile’s portfolio operations and performance for years to come include the strategic introduction of highly competitive and growing second-tier tenants in South Africa. Its redevelopment projects undertaken in Spain are all more than 90% let and include some of the biggest brands in the world.
Rapp confirms that Vukile Property Fund remains committed to its strategy as a retail REIT and the company is excited about the changing retail landscape. As a specialist retail property investor and manager in South Africa and Spain, Vukile Property Fund’s core competency in active asset management and its growing capability in data-driven customer centricity places it advantageously for the structural shifts in retail that have accelerated over the past year.
“The data-driven shopping transformation is unstoppable. Omnichannel – the amalgamation of the offline and online worlds — is perhaps the most tangible trend driving the future of shopping. The digital age puts the customer in charge of ‘pulling’ what they want into their worlds, rather than retailers and producers ‘pushing’ products and services to them. While the future will be both online and offline, it will be singularly customer-driven. Vukile Property Fund has geared up to understand consumers better and become a bridge between our customers and retailers. We create more value for our tenants by providing great customer experiences,” says Rapp.
Vukile Property Fund is also growing its internal retail, marketing, tech, analytics, and innovation capacity. Embracing digital transformation and employing greater use of technology, it has invested R22 million in its in-mall Wi-Fi network, which is now available in 16 malls and has nearly 4-million registered users. Vukile Property Fund has also launched its Waya Waya app. It has started reaping the rewards of its investment in Fetch, a geolocation data service, and has set up an internal team to analyse data from Fetch and its Wi-Fi customer base to devise new strategies that add value to its tenant partners.
A milestone on Vukile Property Fund’s sustainability journey during the year was installing more solar plants at its shopping centres. Vukile Property Fund now generates 8% of its electricity through renewable energy.
“It has been a strong, albeit very different, year for Vukile. Usually, we are outwardly focused on growth and deals. This year, our focus shifted inward. We set out to ensure Vukile remains on a solid footing with reinforced sustainability and have comfortably achieved our goals,” explains Rapp.
Simplifying its corporate structure, Vukile Property Fund continued selling non-core assets, fine-tuning its focus on directly held retail properties in Spain and South Africa. It concluded the R1.1 billion sale of its stake in Atlantic Leaf and confirmed its support for the proposed transaction between Fairvest Property Holdings and Arrowhead Properties. Vukile sold all its legacy industrial assets and is exploring options for its final three legacy office assets.
Restructuring its balance sheet during the year, Vukile Property Fund lowered gearing levels by reducing its loan-to-value (LTV) ratio from 46.1% to 42.8%. It repaid debt, reducing it by R3.1 billion. 76% of debt maturing in its 2022 financial year has already been repaid or extended and Vukile Property Fund currently has undrawn debt facilities of R3.5 billion. It has also converted 90% of its foreign-denominated debt into ZAR debt. Vukile Property Fund’s interest cover ratio is 3.3-times, and it enjoys a well-diversified funding base. Its revised funding mix positions it firmly as a Rand hedge.
“We are cautiously optimistic about the clear trend of economic recovery unfolding in a post-Covid-19 world. However, some residual uncertainty remains, particularly around the pace of South Africa’s vaccine programme roll-out and the potential for stricter lockdown restrictions. Once this temporary uncertainty dissipates, we will be able to provide prospects to the market. We are confident in our business’s strategic, operational and financial strength, both in South Africa and Spain,” concludes Rapp.