GCR upgrades Vukile’s issuer rating to AA

Vukile Property Fund’s (JSE: VKE) international diversification, proven portfolio strength and proactive balance sheet management have contributed to GCR Ratings upgrading Vukile’s national scale long-term issuer rating to AA(za) and affirming its national scale short-term issuer rating at A1+(za), with a stable outlook.

GCR’s view reflects Vukile’s continued disciplined capital and liquidity management and its strong operational performance and cash flow growth as its core markets continue to recover from the pandemic. 

Laurence Rapp, CEO of Vukile, comments, “The upgrade of our investment-grade ratings by GCR shows increased confidence in Vukile’s core credit quality and recognises our clear strategy and strong operating profile. We are extremely pleased with the new rating, which further highlights the strength of our business model and supports our ability to raise funding with attractive funding terms.” 

Vukile is a specialist retail REIT with assets of R33bn in South Africa (46%) and Spain (54%) through its 89.6% held Madrid-listed subsidiary Castellana Properties Socimi. 

GCR notes Vukile’s AA(za) /A1+(za) issuer ratings are supported by its strong market position as a specialist retail REIT invested in dominant, non-metropolitan, convenience-focused retail centres in South Africa and Spain, which have weathered the pandemic well and recovered rapidly back to or above pre-Covid levels. The fundamentals of both businesses are strong and provide Vukile with highly diversified income streams across different macro economies provided by blue-chip retail tenants. 

The new ratings are also based on Vukile’s property portfolios’ proven resilience and defensive positioning for structural shifts in the retail sector, and its asset management initiatives that are designed to unlock value and steady cash flow growth. Vukile’s stable cash flows are underpinned by its lease expiry profile, contractual rent escalations, low vacancy rates and diversification. 

GCR notes the strategic benefits of Castellana’s recent acquisition of a c. 24% (FY22 21.7%) stake in Lar España Real Estate Socimi which further strengthens its geographic diversification in Spain, giving Vukile access to a high-quality complementary investment portfolio that provides it with dividend flows and strategic optionality. 

The rating agency also points out Vukile’s leverage-neutral management of its gearing, capex and acquisition funding, noting a solid ICR of 3.4x, an LTV of around 43%, and a simplified capital structure. It says Vukile’s balance sheet is well positioned to mitigate against rising interest rates globally and notes demonstrated access to debt capital in multiple currencies across a wide range of funders, with good covenant headroom. 

Rapp remarks, “Vukile’s significant access to capital from diverse sources is thanks to the strength of our balance sheet, our investment-grade credit rating, the quality and diversity of our properties and clients, our core management skillsets, a strong culture of good corporate governance and a deep commitment to sustainability in everything we do.”