Vukile Property Fund has reported a 10% increase in its cash dividend to 52.10 cents per share for the six months to September 2023 and 5.2% growth in its funds from operations (FFO) to 85 cents per share.
The consumer-focused retail REIT has increased its full-year FY2024 growth guidance for funds from operations (FFO) per share to between 4% and 6% with its dividend per share to between 8% and 10%, notwithstanding the headwinds in the market.
“Vukile has sustained strong operational results and positive trading metrics in both our South African and Spanish portfolios and our balance sheet strength is supported by robust credit metrics. We have proven to be a resoundingly strong, sustainable business through some truly torrid times. Vukile has consistently and significantly outperformed the South African Listed Property Index (SAPY) over a ten-, five-, three- and one-year period. We are confident that we will deliver on our increased guidance,” confirms Laurence Rapp, CEO of Vukile Property Fund.
The REIT’s R39 billion portfolio of retail property assets is diversified across South Africa and Spain, through its 99.5% held Madrid-listed subsidiary Castellana Properties Socimi. With around 60% of its assets in Spain and almost 50% of its earnings in Euros, Vukile’s results were further enhanced by the Rand hedge nature of its earnings.
“Vukile’s strategy of owning dominant assets in their catchment areas and operational focus on the consumer as the source of value creation has become our differentiator in driving performance. Our South African assets are delivering excellent results, and our Spanish portfolio is maintaining its market-leading position,” says Rapp.
Vukile’s domestic portfolio of shopping centres located mainly in townships and rural areas achieved like-for-like net operating income growth of 5.1%, and property valuations increased by 3.9%.
Vacancies remained at a low 2.0%, and excluding office space within retail properties, this figure decreases to 1.3%. Rental reversions rebounded from -2.4% to +2.4%, and 86% of leases reverted flat or positively, the highest proportion since 2018.
Vukile’s spaces supported a 3.9% increase in tenant trading densities. Its township centres outperformed, and the retail assets in Cape Town and Ekurhuleni led the pack. In the Spanish portfolio, which is 95% let to top-tier international and national retail tenants, normalised net operating income grew by a sterling 13%. High tenant demand and excellent asset performance yielded vacancies of a mere 1%. Rental reversions gained a positive 8.3% and, including inflation adjustments, rose by 11.6%.
Castellana’s 25.7% investment in Lar Espana is performing well with a 12% dividend yield. Sound Spanish economic fundamentals underpin the portfolio’s positive and improving metrics. Spain is outperforming the Eurozone, and employment is at the highest levels since 2008. Households are both saving and spending more, indicating fiscally responsible consumers, and this is being supplemented by growing international tourism, up 14% from August 2022 to August 2023.
Vukile has a strong balance sheet and its corporate long-term credit rating of AA(ZA) by GCR was reaffirmed during the year, with a stable outlook. It has no refinancing risk in Europe until FY2026 and all its FY2024 debt maturities have already been repaid, refinanced, or renegotiated with Vukile’s High-Quality Liquid Asset (HQLA) status enabling it to access debt at lower margins, albeit that base rates are up. Its interest cover ratio (ICR) is a comfortable 2.9 times. Vukile engages closely with its diverse funders and has strong liquidity with cash and undrawn debt facilities of R3.1 billion.
“Despite constrained capital markets and real estate being out of favour globally, there is exciting potential for brilliant deals to be done at attractive pricing in this market. Those ready to move at the first signs of the global cycle turning have the potential to close exceptional deals.”
“We are realistic about the headwinds in the market but upbeat about the opportunities they create for us. Vukile is well-positioned, and we are confident that our clear strategic direction, robust operating platform, strong balance sheet and active ESG focus will enable us to deliver on our upgraded guidance,” he concludes.
