Vukile announces Eastern Cape acquisition, delivers 16% dividend growth

JSE-listed Vukile Property Fund has reaffirmed its commitment to the South African retail property sector, announcing on November 29 that it is acquiring a 50% undivided share in the 57 000 m2 BT Ngebs City Mall, in Mtata, Eastern Cape.

The acquisition, for a consideration of R400-million, is expected to close within the next six months. Vukile will jointly own the mall alongside Flanagan & Gerard Property Group.

The company also recently invested R421-million to acquire the Pan Africa Mall, in Alexandra, Gauteng. The investment includes Phase 1 expansions to the mall.

Phase 2 expansions valued at R254-million will follow by April 2024.

Vukile CEO Laurence Rapp says the company continues to realise great value from its assets targeting lower living standards measure groups in rural areas and townships, especially as the company witnesses a trend towards more non-discretionary spending (groceries, fast fashion and fast food), and keeps its tenant mix aligned with these spending trends.

Vukile CEO Laurence Rapp
Vukile CEO Laurence Rapp

Vukile currently has assets in six of South Africa’s 20 most dense and populated townships and will continue to evaluate further acquisition options within these areas.

The company in the six months ended September 30 sold direct noncore properties valued at R280-million in South Africa, as well as sold a further R46-million worth of shares in fellow property company Fairvest.

Vukile also acquired a further 4% stake in Lar España for just under €16-million, increasing its total shareholding to 25.7%. The company’s portfolio is split 44% in South Africa and 56% in Spain, for a total R35-billion worth of assets.

Meanwhile, Vukile achieved a 4% like-for-like net operating income growth rate in the six months ended September 30, with vacancies reducing to 2.3%, for its South Africa portfolio.

Castellana Properties, Vukile’s 89.6%-owned subsidiary in Spain, recorded a normalised net operating income growth of 7.5%, with vacancies maintained at 1.6%. The rent collection rate for the group’s properties in Spain sits at 99.03% and its weighted average lease expiry is at 12.1 years.
Castellana increased positive rental revisions to 4.6% in the six months under review.

Rapp explains that while Spain is experiencing the same issues as the rest of Europe in terms of supply chains, gas and other macroeconomic headwinds, the subsidiary’s results have held up exceptionally well. The group remains suitably cautious, however, as risks of the ongoing war in Ukraine and rising interest rates prevail.

Commenting on the macroeconomic conditions impacting on the company, he says Vukile’s balance sheet is defensively positioned in a rising interest rate cycle, with 87% of the group’s interest-bearing debt being hedged and no debt maturities due for Castellana until the 2026 financial year.

More than 80% of the company’s debt expiring in the 2023 financial year has been repaid, refinanced or renegotiated, while it has R3.6-billion of undrawn debt facilities.

Vukile’s interest cover ratio of 2.9 times and stable loan-to-value ratio of 43% highlights the comfortable headroom it has on covenants, which is evidenced by the upgrade it received on its corporate long-term credit rating to AA by ratings agency CGR.

The company declared a 47.32c interim dividend in the six months under review, which is a 16.8% improvement on the prior interim dividend.

Vukile posted funds from operations of 80.8c apiece, compared with funds from operations of 79.8c apiece in the prior interim period, which places the company in good stead to achieve its full year dividend growth target of between 5% and 7%.

Rapp says the company’s strong results show the resilience of its assets and how it has managed to navigate through turbulent times, with metrics exceeding pre-Covid levels and South African reversionary rental cycles turning positive.

Demand for space at Vukile’s centres has continued growing, with six of Vukile’s top ten retailers opening 40 new stores in the period under review, led by TFG, Mr Price and Pepkor.

In the six months under review, Vukile added 800 kW to its installed solar photovoltaic capacity in South Africa, with another 1.7 MW being installed at the moment, and 2.5 MW of installations planned for the company’s assets in Spain.

The company has installed 12.7 MW of solar power capacity over the past five years, equating to 9% of its portfolio’s energy consumption.

Vukile aims to double its solar exposure to 25 MW by 2026, with 68% of assets having solar installed by then.

Rapp concludes that the company remains focused on driving operational efficiencies and excellence, with underlying tenant demand remaining strong into the second half of the financial year.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

Originally featured in Engineering News