Commentary

NATURE OF OPERATIONS

Vukile is a high-quality, low-risk, retail-focused Real Estate Investment Trust (REIT) operating in South Africa and Spain. Our results reflect a strong operational focus and a hands-on, proactive approach to property asset management and balance sheet risk management.

FINANCIAL PERFORMANCE

Executive summary

As the world economy emerges from the COVID-19 pandemic, Vukile is well positioned for recovery and continued growth, following a strong operational performance in South Africa and Spain. Our retail property asset management expertise and conservatively managed balance sheet continues to be amongst our key strengths.

Vukile continues to simplify its business, with non-core asset disposals, reduction of South African Euro debt and termination of cross currency interest rate swaps (CCIRS). Our capital allocation and risk management strategies are guided by robust balance sheet management, while we pursue growth opportunities that are aligned with our core strategy.

The following significant events and transactions took place during the year ended 31 March 2022:

In line with Vukile's strategy of disposing of non-core assets:
- A c.64% shareholding in the Namibian portfolio was sold during March 2022 for c.R700 million. Vukile has retained a c.36% interest in the portfolio, which is equity accounted
- c.R789 million of direct SA property assets were sold during FY22 at or above book value
- c.€26.5 million Castellana non-core office assets were sold during FY22 at above book value
- Further, c.R187 million of direct property sales in SA are unconditional and expected to transfer in Q2 2022

In December 2021, Vukile purchased 3.5 million Castellana shares from MEREV
In January 2022, Castellana acquired a 21.7% shareholding in Lar España for a total investment of c.€100 million (including costs). The transaction was partly funded with a €75 million shareholder loan from Vukile, which has subsequently been converted to equity. The acquisition of additional shares in Castellana, together with the conversion of the Vukile shareholder loan to equity, has resulted in Vukile’s shareholding in Castellana increasing to 89.6%
In February 2022, R300 million of new equity was issued (24 million Vukile shares)
Following the merger of Fairvest and Arrowhead, Vukile disposed of c.58% of its holding in the enlarged Fairvest for
c.R504 million, reducing Vukile's shareholding to 7.0% of Fairvest (c.108.7 million Fairvest B shares)
All remaining CCIRS nominal exposure has been hedged (no foreign exchange rate risk in respect of CCIRS) with
c.R119 million to be net settled at maturity in June 2022

The SA REIT ratios, together with comparatives, are included in a separate section at the end of this report, following the condensed financial statements.

DIVIDEND

The board approved a final dividend of 65.28653 cents per share for the year ended 31 March 2022. This equates to a final dividend of R640 million. A dividend declaration announcement in respect of the dividend, containing information relating to the salient dates and tax treatment of the dividend will be released separately on SENS.

CALCULATION OF FUNDS FROM OPERATIONS (FFO)

	31 March 2022 Rm	31 March 2021 Rm	Variance %
Property revenue	2 607	2 242	16.3
Property expenses (net of recoveries)	(384)	(379)	(1.3)
Net Income from property operations	2 223	1 863	19.3
Corporate administration expenses	(296)	(286)	(3.5)
Investment and other income	393	318	23.6
Loss on realisation of derivative	(59)	—	(100.0)
Operating Income before finance costs	2 261	1 895	19.3
Finance costs	(809)	(707)	(14.4)
Income before equity-accounted income	1 452	1 188	22.2
Share of income from associate and joint venture	23	17	35.3
Income before taxation	1 475	1 205	22.4
Taxation	(21)	(40)	47.5
Income for the year	1 454	1 165	24.8
Net Income attributable to non-controlling interests (NCI)	(47)	(49)	4.1
Attributable to Vukile group	1 407	1 116	26.1
*Non-IFRS adjustments**	(71)	104
Early termination of derivative	(58)	—
Accrued dividends	15	98
Equity-accounted profit from associate	(33)	—
Non-cash impact of IFRS 16 — Leases	5	6

FFO	1 336	1 220	9.5%
Number of shares in issue at year-end	980 226 628	956 226 628
* International Financial Reporting Standards (IFRS).

REVENUE AND NET INCOME FROM DIRECT PROPERTY PORTFOLIO

Geographical segment	Revenue⁽ⁱ⁾ 31 March 2022 Rm	Revenue⁽ⁱ⁾ 31 March 2021 Rm	% change	Net property income 31 March 2022 Rm	Net property income 31 March 2021 Rm	% change
South Africa	1 624	1 501	8.2	1 335	1 228	8.7
Spain	983	741	32.7	888	635	39.8
Total	2 607	2 242	16.3	2 223	1 863	19.3
Split percentage
South Africa	62.3	66.9		60.1	65.9
Spain	37.7	33.1		39.9	34.1
⁽ⁱ⁾ Excludes straight-lining and recoveries.

The majority of the impact of COVID-19 on operations and rental income (both in South Africa and Spain) was felt in the year ended 31 March 2021. As a result, net property income increased by 19.3% from R1.9 billion to R2.2 billion in the current year. Portfolio-specific measures, operational results and trading are discussed more fully in the relevant South African and Spanish portfolio reviews hereafter.

GROUP INVESTMENT AND OTHER INCOME

	31 March 2022 Rm	31 March 2021 Rm	Movement
	31 March 2022 Rm	31 March 2021 Rm	Rm	Variance %
Income from listed investments	129.6	94.6	35.0	37.0
Early termination of forward exchange contract (FEC)	101.4	—	101.4	100.0
FEC realised	26.4	(12.0)	38.4	100.0
Other income	—	2.9	(2.9)	(100.0)
Interest income	27.8	36.6	(8.8)	(24.0)
Net interest received on cross-currency interest rate swaps (CCIRS) (after deducting finance costs)	107.7	195.6	(87.9)	(44.9)
Total	392.9	317.7	75.2	23.7

Income from listed investments includes income from Fairvest and Arrowhead only (no income from Lar España has been accrued in FY22). See further detail in respect of income from listed investments below.

In terms of SA REIT best practice, only R43.8 million of the R101.4 million gain from early termination of FECs has been included in FFO for the current year.

Net interest received from CCIRS was reduced by 44.9%, due to the settlement of a nominal €117 million in CCIRS in June 2021.

The remaining nominal €65.5 million in CCIRS will be settled on maturity in June 2022. See further detail in this regard under CCIRS in the Treasury Management section of this commentary.

LISTED INVESTMENTS


Entity	31 March 2022			31 March 2021
Entity	Carrying value Rm	Number of shares held	% held	Carrying value Rm	% held
Fairvest (B shares)	359.8	108 688 143	7.0	538.1	26.6
Arrowhead	—	—	—	309.0	11.0
Lar España Real Estate SOCIMI	1 452.4	18 157 459	21.7	—	—
Total	1 812.2			847.1

Fairvest — 7.0% shareholding

During the year, Fairvest and Arrowhead merged by way of a share swap on a basis of 0.54054 Arrowhead B shares per Fairvest share. The listing of Fairvest shares on the Main Board of the Johannesburg Stock Exchange (JSE) was terminated, effective from 26 January 2022. Arrowhead remained listed on the JSE and changed its name to Fairvest. The effective date of the transaction was 1 October 2021.

The share price of Fairvest B shares at 31 March 2022 was R3.31, resulting in a carrying value and Vukile interest in the merged entity at 31 March 2022 of R359.8 million.

Total dividends received for the year from Fairvest and Arrowhead amounted to R129.6 million (R75.0 million from Fairvest and R54.6 million from Arrowhead) (31 March 2021: R57 million from Fairvest and R38 million from Arrowhead)). Dividends from Fairvest and Arrowhead included in FFO for the year ended 31 March 2022 amounts to R102.2 million (R71.7 million from Fairvest and R30.5 million from Arrowhead), (31 March 2021: R56 million from Fairvest and R34 million from Arrowhead).

Lar España Real Estate SOCIMI (LarEspaña) — 21.7% shareholding

On 26 January 2022, Castellana acquired 18 157 459 shares in Lar España at a price of €5.35 per share. Lar España is a leading, Madrid-stock exchange-listed, 100% retail-focused Spanish SOCIMI comprising a high-quality, low-risk retail real estate portfolio offering predictable cash flows. The share price of Lar España at year-end was €4.95 per share, resulting in a ZAR equivalent carrying value of the investment of R1.45 billion at 31 March 2022.

Further narrative in respect of Castellana's investment in Lar España is provided in the portfolio review (Spain), further in this commentary.

GROUP CORPORATE EXPENDITURE

	31 March 2022 Rm	31 March 2021 Rm	Variance Rm	Variance %
Total corporate expenditure (South Africa)	157.0	153.5	3.5	2.3
South Africa (excluding environmental, social and governance (ESG) costs)	152.4	150.6	1.8	1.2
South Africa — ESG costs	4.6	2.9	1.7	58.6
Total corporate expenditure (Spain)	138.9	132.3	6.6	5.0
Spain (excluding ESG and innovation costs)	122.6	126.2	(3.6)	(2.9)
Spain — Innovation costs	7.6	3.9	3.7	94.9
Spain — ESG costs	8.7	2.2	6.5	100.0

Group total	295.9	285.8	10.1	3.5

Corporate expenditure equates to 0.85% of total assets (31 March 2021: 0.79%), being 0.96% attributable to South Africa (31 March 2021: 0.84%) and 0.76% attributable to Spain (31 March 2021: 0.75%). Admin and other overhead costs in South Africa include head office costs that benefit both the Vukile and Castellana portfolios.

GROUP CASH FLOW

The major items reflected in the composition of cash generated and utilised during the period under review are set out below:

	31 March 2022 Rm	31 March 2022 Rm
Cash from operating activities	2 054	1 178
Dividends paid	(1 376)	(556)
Net finance costs paid	(338)	(359)
Increase in borrowings	8 974	2 647
Borrowings repaid	(9 169)	(4 173)
Equity issuance	300	—
Disposal of investment property (net of additions)	1 188	(454)
Net acquisition of listed investments	(1 099)	1 103
Cash from the settlement of derivatives	(269)	(21)
Purchase of additional shares in Castellana	(545)	—
Other cash movements	(158)	4
Net decrease in cash and cash equivalents⁽¹⁾	(438)	(631)

⁽¹⁾ Excluding foreign currency movements of R25 million loss (2021: R75 million profit).

NET ASSET VALUE (PER SHARE)

The net asset value (NAV) of the group decreased by 1.3% from R18.16 per share to R17.92 per share at 31 March 2022, as set out in the table below.

		Rand per share
NAV 1 April 2021		18.16
	Net property income	2.31
	Investment property disposals	(1.29)
	Decrease in borrowings	0.19
	Equity issuance	(0.45)
	Change in fair value of listed equity investments	1.02
	Change in fair value of investment property	0.72
	Dividends paid	(1.42)
	Foreign currency and other movements	(1.32)
NAV 31 March 2022		17.92

The primary reason for the marginal reduction in NAV per share was due to a strengthening of the Rand to the Euro, from R17.32 at 31 March 2021 to R16.16 at 31 March 2022. Following the reduction in SA Euro debt and CCIRS (refer to the Treasury Management section of the commentary), Vukile's NAV has become more positively exposed to a weaker Rand going forward, hence becoming more of a Rand hedge.

Vukile's share price of R14.06 per share at 31 March 2022 represents a 21.5% discount to the NAV per share of R17.92.

SHARE TRADING AND LIQUIDITY

During the year, 535.7 million Vukile shares were traded, equating to approximately 44.6 million shares per month. The shares traded represent 54.7% of shares in issue.

TREASURY MANAGEMENT

Balance sheet and treasury risk management remain one of Vukile's key focus areas.

At 31 March 2022, consolidated group LTV net of cash was 43.0% (31 March 2021: 42.8%), which should be viewed in the context of a very healthy group ICR of 3.4 times (31 March 2021: 3.3 times). Vukile's debt metrics are comfortably within covenant levels at a group (consolidated) and subsidiary level.

Payment of the FY21 and HY22 dividend (R1.35 billion), settlement of CCIRS (R0.3 billion), purchase of Castellana shares (€31.6 million) and Lar España acquisition (€98.9 million) were largely offset by the sale of non-core properties (in SA, Namibia and Spain, R1.5 billion and €26 million, respectively), the sale of Fairvest B shares (R0.5 billion), equity issuance (R0.3 billion) and increase in property valuations (in SA and Spain), in aggregate resulting in a negligible increase in the consolidated group LTV.

Stress testing of 12-month historic earnings before interest, taxes, depreciation, and amortisation (EBITDA) (which is impacted by once-off COVID-19 relief) indicates that the portfolio would need to undergo a further 40% reduction in group EBITDA before reaching the two times bank group interest cover covenant level. Vukile and Castellana continue to benefit from very strong relationships with their diversified funding providers and have made significant progress in extending expiring debt with the debt maturity profile increasing to 3.8 years (31 March 2021: 2.9 years). During the year, Castellana refinanced the syndicate loan into a new seven-year €185 million facility. During the COVID-19 pandemic, debt was strategically refinanced with shorter terms (two-years) as margins had increased significantly. As this debt has matured, it has been refinanced into new three to five years facilities, increasing the debt maturity profile.

Stress testing of LTV indicates that group assets would need to undergo a further 13% reduction in asset value to reach a 50% group LTV ratio and Castellana's assets would need to undergo a further 34% reduction in asset value to reach a 65% Castellana LTV ratio.

CREDIT RATING

Global Credit Ratings Co. (GCR) reviewed Vukile's credit rating in July 2021 as part of their annual review, and all of Vukile's ratings remained unchanged at investment grade. GCR affirmed the national scale issuer rating of AA-_(ZA) and A1+_(ZA), for the long and short term respectively, with a stable outlook. Concurrently, the ratings assigned to outstanding Senior Secured Group 1 Notes issued by Vukile have remained unchanged and affirmed at AAA_(ZA)(EL).

In March 2022, Fitch Ratings Inc. (Fitch) assigned Castellana a first-time Long-Term Issuer Default Rating (IDR) of BBB-, with a stable outlook. The rating reflects an international investment-grade rating for Castellana.

GROUP BORROWINGS SUMMARY

The group's funding strategy is to optimise funding costs while minimising refinance risk. Total debt at 31 March 2022 amounted to R14.7 billion (31 March 2021: R15.4 billion). A summary of funding by currency is provided below:

Funding breakdown	Number of funders	Rm

Foreign Spanish funders (EUR)	3	8 049	Secured against Castellana's balance sheet with no recourse to Vukile
South African bank funders (EUR)	3	590	Secured against Vukile's South African balance sheet
South African bank funders (ZAR)	4	4 271
Domestic medium-term note (DMTN) programme (ZAR)		1 744
Total⁽¹⁾		14 654

⁽¹⁾ Excludes amortised cost.

SOURCES OF FUNDING

Vukile's debt funding is well diversified across several funders, in line with the group's strategy to manage concentration and refinance risk.

Group debt and hedging exposure per bank (ZAR)	Debt⁽¹⁾ Rm	Debt exposure per bank %	Hedging and fixed debt⁽²⁾ Rm

Aareal⁽³⁾	7 683	52.4	7 123
ABSA	2 200	15.0	1 864
DMTN — corporate bonds	1 744	11.9	—
RMB	1 051	7.2	—
Nedbank	873	6.0	603
Standard Bank	737	5.0	751
Liberbank⁽³⁾	239	1.6	—
Pichincha⁽³⁾	127	0.9	—
Investec	—	—	294
Goldman Sachs	—	—	300
Grand Total	14 654	100	10 935

⁽¹⁾	Foreign currency-denominated debt is converted at a EUR/ZAR spot rate of R16.16 at 31 March 2022. All amounts are nominal debt exposure and exclude amortised transaction costs and accrued interest.
⁽²⁾	Hedging exposure is represented by exposure per banking relationship.
⁽³⁾	Group exposure includes Castellana debt of €489 million (R8.049 billion equivalent).

VUKILE GROUP LOAN AND SWAP EXPIRY PROFILE AT 31 March 2022

As part of the group's funding strategy, Vukile proactively manages its debt expiry. Two-thirds (66%) (R2.3 billion) of debt due to mature in FY23 has been repaid, refinanced or extended. FY23 debt that remains to be refinanced amounts to R1.2 billion, compared to cash and undrawn committed facilities of R3.7 billion (3.1 times covered). Vukile continues to maintain material undrawn committed facilities, to reduce refinance risk while providing an ability to quickly deploy capital for strategic opportunities.

	FY23	FY24	FY25	FY26	FY27	FY28 and beyond	Total
Loan expiry profile including access facilities (%)	7.9	11.4	14.2	37.3	8.3	20.9	100.0
Term loan expiry profile (Rm)	1 001	1 675	2 085	5 469	1 221	3 041	14 492
Access facility expiry profile (Rm)	162	—	—	—	—	—	162
Hedging (swap and fixed debt) profile (Rm)	992	4 616	1 338	622	603	2 764	10 935

A summary of group debt ratios at 31 March 2022 is provided below:

	31 March 2022			31 March 2021
	Group	South Africa	Spain	Group	South Africa	Spain
Total debt (excluding access facilities) (Rm)	14 492	6 443	8 049	15 226	6 521	8 705
Hedged portion (interest rate swaps, caps and fixed debt) (Rm)	10 935	3 812	7 123	11 882	4 187	7 695
Interest-bearing debt fixed/hedged (%)	75.5	59.2	88.5	78.0	64.2	88.4
Hedged (swaps and fixed debt) maturity profile (years)	2.7	2.4	2.9	2.6	3.3	2.2
LTV ratio (net of cash)⁽¹⁾ (%)	43.0	42.9	43.0	42.8	37.9	47.6
LTV covenant level (%)	50	N/A	65	50	N/A	65
LTV stress level margin (% asset value reduction to respective covenant levels)	13.0	—	33.8	14.1	—	26.7
ICR⁽²⁾	3.4 times	4.0 times	2.6 times	3.3 times	4.7 times	2.1 times
ICR covenant level	2.0 times	N/A	1.15 times	2.0 times	N/A	1.15 times
ICR stress level margin (% EBITDA reduction to respective covenant levels)	40.3	—	55.6	39.8	—	43.9

⁽¹⁾

LTV ratio (net of cash) is calculated as a ratio of nominal interest-bearing debt less cash and cash equivalents (excluding restricted cash) divided by the sum of (i) the amount of the most recent directors' valuation (external valuation in the case of the Spanish portfolio) of all the direct property portfolio on a consolidated basis; (ii) the market value of listed investments and (iii) investments in associates (Namibian portfolio) and joint ventures (Dream).

⁽²⁾

ICR is based on operating profit excluding straight-line lease income plus earnings from investments less corporate costs (EBITDA) divided by finance costs, after deducting all finance income (net interest cost) over the respective period.

GROUP FINANCE COSTS

The group's average cost of finance (including amortisation of capitalised raising fees) for the period ended 31 March 2022 increased to 4.9% (31 March 2021: 3.9%), mainly as a result of Vukile EUR debt (€128 million) being converted to ZAR debt as well as an increase in ZAR base rates. Interest costs are expected to increase by c.R40 million for FY23 as a result of interest rate hikes (assumed 100bps) and further hedging costs.

Interest-bearing debt (excluding access facilities) is 75.5% hedged with a 2.7-year hedged maturity profile (31 March 2021: 78.0% with a 2.6-year hedge maturity profile). While cognisant of an interest rate hiking cycle over the next few years, the current cost of hedging with interest rate swaps is at all-time highs in South Africa. Hedging with interest rate swaps in the current market does not mitigate the risk of interest rate hikes, but will rather lock in future potential higher rates. Vukile will continue to dynamically hedge interest rate risk utilising interest rate CAPS, to ensure interest rate risk is mitigated, while still benefiting from lower interest rates in the short to medium term.

Vukile has repaid/converted €127.6 million (R2.3 billion equivalent) of Vukile EUR debt into ZAR facilities, such that the total Vukile EUR debt has been reduced to €36.5 million, a 78% reduction from the total Vukile EUR debt of €164 million at 31 March 2021. The reduction in EUR debt makes Vukile's NAV more positively exposed to a weaker ZAR going forward, hence becoming more of a "Rand hedge".

Finance costs by currency, using the historical weighted average cost of debt, are indicated below:

	FY22 historical cost of debt %	Debt at 31 March 2022 Rm	FY21 historical cost of debt %	Debt at 31 March 2021 Rm
ZAR	7.2	6 015	8.1	3 856
EUR	3.1	8 639	2.6	11 548
Total	4.9	14 654	3.9	15 404

UNDRAWN FACILITIES

Undrawn facilities at 31 March 2022 amount to R3.1 billion (31 March 2021: R1.9 billion). The ratio of cash and undrawn committed facilities to debt expiring over the next 12 months, is 3.1x, which demonstrates Vukile's strong liquidity position, with more than sufficient capacity to repay debt expiring over the next 12 months, if required.

UNSECURED DEBT AND UNENCUMBERED ASSETS

Unencumbered assets	31 March 2022 Rm	31 March 2021 Rm
Property assets (external valuation)	1 168	3 795
Listed shares	9 113	2 811
Unencumbered assets	10 281	6 606
Unsecured debt	1 550	1 735
Covenant exclusive facilities⁽¹⁾	428	459
Unsecured + covenant exclusive	1 978	2 194
Unsecured debt to unencumbered assets (%)	15.1	26.3

⁽¹⁾	Covenant exclusive facilities form part of the bank's secured debt, with rights to the its secured security pool, however, they do not form part of transactional financial covenants.

The increase in unencumbered assets is primarily due to the inclusion of unpledged Lar España shares held by Castellana and the release of Castellana shares that were previously pledged.

MOVEMENT IN GROUP DEBT

During the year, total group debt decreased by R750 million. The most significant movements in debt were as follows:

	Nominal debt drawn/ (repaid) Rm	Foreign exchange movements Rm	Net Rm
Vukile ZAR DMTN debt	(185)	—	(185)
Vukile ZAR bank debt	2 344	—	2 344
Vukile EUR debt	(2 062)	(190)	(2 252)
Castellana EUR debt	(74)	(582)	(656)
Total	23	(772)	(749)

During the year ended 31 March 2022, Vukile repaid R685 million of unsecured corporate notes, comprising VKE12 (R150 million) and VKE13 (R535 million), in May and August 2021, respectively. An auction for R500 million of unsecured corporate bonds was held in August 2021. The auction was 4.4x oversubscribed (R2.2 billion of bids). Vukile issued a R158 million unsecured one-year note at a margin of 135bps (mid of guidance) and a R342 million unsecured three-year note was issued below guidance at 185bps.

Vukile rebalanced R515 million of ZAR interest rate swaps at no cost and executed R900 million interest rate caps at a once-off cost of R2.6 million. Vukile terminated €71.8 million of EUR interest rate swaps and €15.0 million of EUR interest rate floors at a once-off cost of R4.0 million. Castellana terminated €102.2 million interest rate swaps at a once-off cost of €0.6 million.

Vukile is committed to ESG principles and has entered into a new five-year R200 million use-of-proceeds Green Loan with Nedbank to fund 19 solar energy projects.

The group has comfortably complied with all bank and DMTN covenants.

GROUP FOREIGN EXCHANGE CURRENCY HEDGES

Vukile has adopted a layered approach to hedging its EUR dividend exposure (in aggregate) with FECs, targeting an average hedge ratio of c.60% across a five-year period (tiered 100% hedging in year one, 80% hedging in year two, etc.), in line with Spanish Generally Accepted Accounting Practice income and anticipated dates of dividend receipts, to minimise adverse foreign exchange fluctuations and to provide stable, predictable income streams for investors. Castellana FFO is not hedged, thus ensuring Vukile's FFO is more positively exposed to a weaker Rand, allowing Vukile to be a "Rand hedge", while still providing predictable dividends over the short term to medium term.

64% of Castellana's net forecast FY23 dividends are hedged. Given the recent ZAR strength against the EUR, forecast income related to the acquisition from Lar España has not yet been hedged. The intention is to hedge this income when the EUR/ZAR foreign exchange rate has stabilised.

CROSS-CURRENCY INTEREST RATE SWAPS (CCIRS)

At 31 March 2022, the following CCIRS were in place:

	EUR nominal €m	ZAR nominal Rm	EUR/ZAR initial rate	EUR fixed rate over term %	ZAR average rate over term %	Maturity	Market to Market (MtM) Rm
Absa CCIRS July 2018	40.0	630	15.7465	3.70	11.88	13 June 2022	1
Investec CCIRS July 2018	25.5	401	15.7400	3.72	11.88	13 June 2022	(2)
Total	65.5	1 031					(1)

The board limits CCIRS to 45% of the total value of offshore investments. At 31 March 2022, CCIRS were 11% of total offshore investments on a consolidated basis (31 March 2021: 38%). The CCIRS ratio was reduced due to the settlement of the Nedbank CCIRS in June 2021. No new CCIRS were entered into during the year. The balance of MtM of CCIRS at 31 March 2022 amounted to a R1 million net liability. The remaining CCIRS nominal of €65.5 million has been hedged, eliminating foreign exchange risk at maturity in June 2022 (with the amount to be net settled amounting to R119 million). Following the maturity of the last remaining CCIRS in June 2022, Vukile will have no further CCIRS exposure on its balance sheet.

PORTFOLIO REVIEW – SOUTH AFRICA

The full-year results for the South African portfolio were delivered in a challenging environment that not only had COVID-19 induced headwinds, but also civil unrest, worsening basic service interruptions, deepening social polarisation and more recently the flooding in KwaZulu-Natal. These headwinds have been exacerbated by an environment of slow macro-economic growth and continued public maladministration at municipal level, resulting in an environment of increased unemployment and voter disenchantment. Notwithstanding these significant and persistent macro and social challenges, the financial and diversification benefits of holding a well managed, nodally dominant, diversified portfolio of retail assets geared for mostly non-discretionary spend in the mass market are self-evident through the continued improvement in our overall operating metrics. The rural, township, value and commuter mall environment is undoubtedly the sweet spot of SA retail real estate. In our journey to be even more entrenched in the communities we serve, we will continue putting our customers at the forefront of our asset management endeavours, which should augur well for the continued strong performance of the portfolio.

The South African total direct property portfolio on 31 March 2022 consisted of 44 properties with a total value of R14.5 billion, and a gross lettable area (GLA) of 845 659m, with an average value of R329 million per property.

The South African retail portfolio, which accounts for 95% of the value of the assets, was valued at R13.8 billion and consists of 36 properties with an average value of R382 million per property. In total, 86% of retail space is let to national tenants. Vacancies have decreased from 3.2% to 2.6%.

OPERATING ENVIRONMENT

Portfolio overview

The South African retail portfolio has recovered significantly over a sustained difficult trading environment since the onset of the COVID-19 induced lockdowns 26 months ago. It has delivered a normalised, like-for-like net operating income (NOI) growth, excluding the impact of COVID-19 of 3.9%. Including the base effects of COVID-19 concessions, additional security and increased bad debts necessitated by last year's strict COVID-19 trading environment, NOI growth was 18.5%. Compared to the FY21 vacancy of 3.2%, the retail portfolio's vacancy reduced to 2.6% partly due to the sale of the Namibian portfolio, but more importantly due to significant leasing activity in the rural and township portfolio. Vacancies are trending downwards and are the lowest they have been since listing in 2004. Tenant retention has improved from 90% (March 2021) to 93% (March 2022).

There has been significant leasing activity over this period. In total, 30 260m² of vacant space (3.9% of total retail GLA) has been let, contrasted with 31 001m² of tenants who vacated. Out of the total number of tenants which have vacated over this period, c.56% of them have been small, medium, and micro-enterprises (SMMEs). Over the period under review, 716 leases were concluded (536 renewals and 180 new leases) covering 171 580m², with a total contract value of R1 336 million. This equates to 22% of the portfolio's lettable area compared to 11% FY21 and 14% FY20. This is in line with what was achieved in pre-COVID-19 FY19, when the leasing activity was 23% of the lettable area. 83% of the leasing activity was concluded with national and second-tier retailers.

The portfolio rent-to-sales ratio decreased by 20bps to 6.1% and the annualised trading densities increased to 6.1% (1.7% FY21; 3.4% FY20) measured on a 24-month
like-for-like basis. The township, commuter, rural and urban portfolios grew by 10.2%, 7.9%, 6.9% and 4.5% respectively, while the value centres remained flat after showing significant growth of 16.4% in FY21. On average the turnover within the portfolio was 6.6% higher than in the preceding 12 months.13 of the 14 retail categories within the portfolio showed growth, in both annualised trading densities and overall turnover.

The portfolio has operated over the second half of FY22 with no prohibition in trade due to COVID-19-related lockdowns. As a result, we have communicated to tenants that COVID-19 concessions will no longer be entertained, unless there is a government-imposed prohibition on trade in future. Over the duration of this reporting period, limited COVID-19-related concessions to the value of R6.8 million were granted to tenants, assisting those primarily in the hospitality, gyms, bottle stores and restaurant categories. The concessions granted in FY22 were significantly lower than the R141 million granted in the previous reporting period.

Footfall is now at 91% compared to pre-COVID-19 levels. Township (94%) and rural (107%) malls' footfall have exhibited a strong recovery towards pre-COVID-19 levels, while commuter (76%) and urban (84%) malls continue to lag with regards to a recovery in footfall. Although footfall was affected over the COVID-19 lockdown period, spend per head was sustained, indicating that shoppers spent more per visit than in the past. The COVID-19 environment has undoubtedly evolved the way shoppers interact with the mall, but not to an extent where the overall operating metrics are affected. We have launched a customer-centricity desk to ideate and solve for instances where there will most likely be changes, to ensure that our malls remain relevant, primary shopping and lifestyle destinations for our communities.

Pine Crest, Dobsonville Mall, Daveyton Mall, Hammarsdale Junction, The Workshop and KwaMashu were damaged to varying degrees in the July 2021 unrest. All of these malls have been fully reinstated and, in all instances, are ahead of the competition in their respective primary catchment areas and are trading well. The expected reinstatement claim for damages is R150 million, with 473 shops affected. Also quantified is the loss of rental as a result of the unrest which equates to R59 million. The full claim submitted has been approved by SASRIA. Vukile has received R160 million (77%) thus far, comprising R104 million (69%) for material damages and R56 million (95%) for loss of rental. The remainder of R49 million (23%) is expected to be received by end July 2022.

We are excited by the current robust leasing environment driven by both national and second-tier retailers.

We are engaging with these stakeholders creatively and continuously to ensure that we are property partners of choice, who not only provide bricks and mortar suites, but other value-add services, such as customer and community insights in order for them to thrive.

Communities and shoppers will continue to be a strong focus area for the business. The success of our malls is strongly linked to community stability at a micro level, to this end we will continue to proactively engage all key community structures and work towards mutually symbiotic relationships.

Although the operational results for the past 12 months are on most key metrics ahead of pre-COVID-19 levels, we remain cautious in our optimism, as there are still significant structural changes needed to ensure that our economy regains a sustainable growth trajectory.

Our sustained operating metrics, focus on continuous operational improvements, symbiotic tenant relationships and forward-looking investment into sustainable energy and customer-centric technology will be the bedrock off which we will position the business for ongoing and sustainable growth.

Operational highlights

Footfall is trending towards pre-COVID-19 levels, with rural and township centres leading the recovery. Urban centres have recovered to pre-COVID-19 levels, and commuter centres are slower to recover at 94% of pre-COVID-19 levels.
Retail vacancies decreased from 3.2% to 2.6%.
- 10 malls fully let
- 19 malls with vacancies less than 1 000m²
- Rural vacancies decreased to 1.5%, the lowest in four years, and value centres at a record low of 0.8%
Retail reversions of negative 2.4% are steadily improving relative to the prior period at negative 3.3%. Out of the 536 leases renewed, 55% were positive, 13% flat, and only 32% were negative. An improved average lease term of 4.3 years has been attained on recent transactions.
Strong rebound in rental collections following the lockdown; now at 100% of billings.
In-contract escalations of 6.4%, still ahead of inflation.
An improvement in the retail retention ratio from 90% in the prior period to 93%.
WALE has increased from 3.3 years to 3.4 years.

Operational efficiencies

Our inwardly focused operational strategy has yielded positive results. We have focused on low capital-intensive interventions that return sustainable savings into the future.

Continuous investment in high-yielding Photovoltaic (PV) projects

9.0% of the electricity is now generated through 17 PV projects.
Total installed PV plant capacity to date is 12.7MW (17 PV plants installed).
New PV projects were completed at Gugulethu Square (837kWp), Atlantis Phase 2 (500kWp), Ermelo Game (250kWp) and Bedworth Phase 2 (300kWp).

Continued energy management spend

Energy-efficient LED light fittings were installed at Atlantis and Mdantsane. Lighting levels were improved, and the two projects cumulatively produced estimated savings of 335 000 kWh per annum.
Additional borehole water of 6 100kl per annum at Giyani Plaza and Highland Mews, increasing the current 85 000kl of current borehole water within the portfolio.

Footfall and turnover

Compared to the corresponding period in the prior years, footfall is trending towards pre-COVID-19 levels, with consistent recovery in rural and township shopping centres.

	Footfall
	March 2022 versus March 2019 %	March 2022 versus March 2020 %	March 2022 versus March 2021 %
Rural	107	111	106
Township	94	104	104
Urban	84	100	101
Commuter	76	94	106
Total portfolio	91	103	104

Annual turnover increased by 6.6% when comparing the 12 months ended 31 March 2022 to 31 March 2021.

		Movement in annual turnover %	Portfolio exposure based on turnover %
Total		6.6	100.0
Grocery and food		7.6	43.9
Fashion, department and home		3.6	34.7
Other categories		9.8	21.4
Grocery and food
	Grocery/supermarket	7.5	34.2
	Food	7.9	9.7
Fashion, department and home
	Fashion	4.3	22.6
	Department stores	5.4	6.3
	Home furnishings/art/antiques/dcor	(0.8)	5.8
Other categories
	Bottle stores	37.4	2.5
	Restaurants and coffee shops	22.3	1.5
	Accessories	8.8	0.8
	Sports utilities/gyms/outdoor goods and wear	7.8	3.9
	Pharmacies	6.8	5.8
	Electronics	6.6	0.9
	Health and beauty	3.9	0.3
	Other	3.6	4.0
	Cell phones	2.8	1.7

Annualised trading densities (annualised turnover per m² of occupied space) increased by 6.1%.

	Township %	Urban %	Rural %	Value Centre %	Commuter %	Total %
Total	10.2	4.5	6.9	(0.4)	7.9	6.1
Grocery and food	11.7	3.3	9.8	(0.3)	5.4	7.8
Fashion, department and home	4.3	3.2	2.3	(4.4)	9.2	2.8
Other	13.1	7.5	8.7	5.1	7.6	8.7

	Annualised trading density growth %
Total	6.1
Bottle stores	32.1
Restaurants and coffee shops	22.0
Food	8.0
Grocery/supermarket	7.7
Sports utilities/gyms/outdoor goods and wear	6.6
Pharmacies	6.4
Electronics	5.2
Department stores	4.8
Fashion	4.3
Health and beauty	3.7
Cell phones	2.7
Other	1.3
Accessories	0.1
Home furnishings/art/antiques/décor	(4.3)

Short-term focus areas

The key focus areas for the portfolio in the short term will be on strengthening tenant and community relationships, further understanding customer behaviour and continuing our pursuit of operational excellence.

Tenant relationships

Continue to be a partner of choice by providing well managed and a safe shopping environment for our retailers to thrive
Be the home of innovation, allowing low barriers to entry for innovative game-changing retail offerings
Execute on renewal programme without changing the key tenets of current lease covenants and agreements
Continue to incubate new entrants and SMMEs into the portfolio via our retailer academy programme.

Customer insights

Utilise accumulated data on consumers to improve shopper journey in a tangible and meaningful way
Integration will include current portfolio metrics, psychographic information, nodal dynamics and individualised customer data from the Wi-Fi database
This will enable the business to respond in real time to consumer behaviour changes
It will open other avenues for alternative revenue sources.

Operational excellence

Continue exploring sustainable solutions to manage costs through integration, efficiency of operations, and cash flow management
This will be across soft services, hard services, marketing and promotions, property, utility and alternative income management.

People and communities

Empower community-based service providers to become partners in mall operations
Continue to invest in corporate social investment initiatives that make a difference in the communities in which we operate.

Key risks

Utility supply

Water scarcity remains a risk across the portfolio with interruptions in most cases linked to either local municipal capacity challenges or regional droughts. To protect our assets, fire and domestic water backup tanks have been constructed in high-risk areas. Boreholes have been drilled at shopping centres with constant water outages. This will ensure that the centres will be able to trade should there be water outages. We identified centres with high water consumption, with a focus on common areas and cooling systems and installed smart water meters, enabling us to detect abnormal consumption and take remedial action where necessary.

Tenant arrears

Tenant arrears (net of provisions) amounted to R58.3 million on 31 March 2022 compared to R75.8 million at 31 March 2021. Excluding provisions, the balance on 31 March 2022 amounted to R107.9 million compared to R118.1 million at 31 March 2021.

Management remains critically focused on arrears, demonstrated further in the collection statistics provided.

The allowance for the impairment of tenant receivables on 31 March 2022 increased to R49.5 million from R42.3 million at 31 March 2021.

Bad debts written off for the year ended 31 March 2022 amounted to R33.0 million (31 March 2021: R18 million).

Acquisitions

We increased our stake in Springs Mall from 27% to 28% at an acquisition price of R11.6 million yielding 8.75%.

Sales

The sale of 64% of the shares in MICC Properties Namibia (Pty) Ltd was registered on 1 March 2022.

Seven properties were transferred during FY22:

Ulundi King Senzangakona Shopping Centre	R308.7 million
Letlhabile Mall	R164.2 million
Soshanguve Batho Plaza	R160.0 million
Makhado Nzhelele Valley Shopping Centre	R70.0 million
Centurion Samrand N1	R46.2 million
Pretoria Rosslyn Warehouse	R25.0 million
Kempton Park Spartan Warehouse	R23.8 million

In aggregate, these sales represent a total value of R798 million (excluding the sale of the Namibian portfolio), at a combined aggregate yield of 9.8%.

Valuation of South African portfolio

The South African portfolio consists of 44 properties with a total GLA of 845 659m².

The accounting policies of the group require that the directors value the entire portfolio every six months at fair value. Using a discounted cash flow (DCF) methodology, approximately half of the portfolio is valued every six months, on a rotational basis, by registered independent external valuers. The directors have valued the South African property portfolio at R14.5 billion⁽ⁱ⁾ with a forward yield of 8.8% on 31 March 2022. The value of the stable portfolio (excluding sales and acquisitions) is R554.1 million or 4.0% higher than the March 2021 value. Reporting of the remaining 36% in MICC Properties Namibia (Pty) Ltd is included in investments, and portfolio performance is excluded from the direct property portfolio.

The external valuations by Quadrant Properties (Pty) Ltd and Knight Frank (Pty) Ltd are in line with the directors' valuations.

⁽ⁱ⁾	The South African property portfolio value takes into account Moruleng Mall at 80%, whereas in the summarised consolidated interim financial statements the group property value reflects 100% of Clidet No 1011 (Pty) Ltd, which owns Moruleng Mall.

Top 15 properties by value

Vukile's top 15 properties are all retail assets. They are 86% exposed to national, listed and franchised tenants. These properties comprise 67.9% of the total portfolio value and 53.7% of the total portfolio GLA.

Property	Location	GLA m²	Value Rm	% of total portfolio	Valuation R/m²
Pinetown Pine Crest	KwaZulu-Natal	43 338	1 111.6	7.7	25 650
Boksburg East Rand Mall⁽ⁱ⁾	Gauteng	34 261	1 107.9	7.7	32 337
Durban Phoenix Plaza	KwaZulu-Natal	24 072	851.7	5.9	35 381
Phuthaditjhaba Maluti Crescent	Free State	35 741	839.1	5.8	23 477
Pretoria Kolonnade Retail Park	Gauteng	39 665	685.8	4.7	17 290
Soweto Dobsonville Mall	Gauteng	26 438	639.7	4.4	24 196
Gugulethu Square	Western Cape	25 699	631.2	4.4	24 561
Queenstown Nonesi Mall	Eastern Cape	27 971	562.0	3.9	20 092
Mdantsane City Shopping Centre	Eastern Cape	36 604	542.7	3.8	14 826
Daveyton Shopping Centre	Gauteng	19 815	533.3	3.7	26 914
Germiston Meadowdale Mall⁽ⁱⁱ⁾	Gauteng	33 156	486.5	3.4	14 673
Thohoyandou Thavhani Mall⁽ⁱⁱⁱ⁾	Limpopo	17 779	472.7	3.3	26 588
Moruleng Mall^(iv)	North West	25 246	458.3	3.2	18 153
Atlantis City Shopping Centre	Western Cape	21 984	455.7	3.1	20 729
Bloemfontein Plaza	Free State	44 159	412.9	2.9	9 350
Total top 15 properties		455 928	9 791.1	67.9	21 475
% of total portfolio		53.7	67.9
% of retail portfolio		58.8	71.1

⁽ⁱ⁾	50% undivided share in this property.
⁽ⁱⁱ⁾	67% undivided share in this property.
⁽ⁱⁱⁱ⁾	33.33% undivided share in this property.
^(iv)	80% share in the company.

SUMMARY OF PORTFOLIO CHANGES

GLA reconciliation	GLA m²
Balance on 31 March 2021	987 768
GLA adjustments	481
Disposals	(145 230)
Acquisitions and extensions	2 640
Balance on 31 March 2022	845 659

Vacancy reconciliation	GLA m²	%
Balance on 31 March 2021	38 123	3.9
Less: Properties sold since 31 March 2021	(12 420)	8.6
Remaining portfolio balance on 31 March 2021	25 703	3.1
Leases expired	215 379
Tenants vacated or relocated	39 947
Renewal of expired leases	(147 901)
Leases to be renewed	(48 205)
New letting of vacant space	(60 838)
Balance on 31 March 2022	24 085	2.9

PORTFOLIO PROFILES

Geographic profile

Vukile's portfolio is well represented in most South African provinces. At the same time, it is focused on high-growth nodes and some 77% of the gross income comes from Gauteng, KwaZulu-Natal, Free State and Limpopo.

	% of gross income	% of GLA
Gauteng	39	44
KwaZulu-Natal	21	15
Free State	9	9
Limpopo	8	8
Western Cape	8	6
Eastern Cape	7	8
Mpumalanga	4	6
North West	4	4

Sectoral profile

Based on value, 95% of the South African portfolio is in the retail sector, followed by 2% in the office, 1% in the industrial, 1% in the motor-related sector and 0.4% in the residential sector.

Tenant profile

Large national and listed tenants and major franchises account for 83% of our tenants by rentable area. In the retail portfolio this is even higher, with 86% exposure to national, listed and franchised tenants.

	% of rent		% of GLA
	Retail	Total portfolio	Retail	Total portfolio
A — Large national and listed tenants and major franchises	71	70	76	73
B — National and listed tenants, franchised and medium to large professional firms	11	11	10	10
C — Other (1 026 tenants)	18	19	14	17

Lease expiry profile

Vukile's South African lease expiry profile shows that 32% of the leases based on rentals are due for renewal in 2023. Some 27% of leases are due to expire in 2026 and beyond.

	March 2023	March 2024	March 2025	March 2026	Beyond March 2026
% of contractual rent	32	26	15	7	20
Cumulative	32	58	73	80	100

	Vacant	March 2023	March 2024	March 2025	March 2026	Beyond March 2026
% of GLA	2.9	26	24	13	10	24
Cumulative	2.9	29	53	66	76	100

Vacancy profile

The total portfolio's vacancy (based on GLA) decreased from 3.9% in March 2021 to 2.9%. Compared to the FY21 vacancy of 3.2%, the retail portfolio's vacancy reduced to 2.6% partly due to the sale of the Namibian portfolio but more importantly due to robust leasing activity. The focused in-house leasing drive to fill vacancies resulted in retaining retail vacancies at 2.6% amid turbulent times during the July 2021 unrest and the lagging impact of the COVID-19 pandemic. Industrial, office and residential markets remain under pressure, but significant traction was made to reduce vacancies in these segments as well.

Vacancies (% of GLA)	31 March 2022 %	31 March 2021 %
Retail	2.6	3.2
Offices	4.2	7.5
Industrial	6.7	9.3
Motor related	—	—
Residential	12.5	30.9
Total	2.9	3.9

Including development vacancy, the 31 March 2022 vacant GLA is 3.0%.

Vacancies (% of gross rental)	31 March 2022 %	31 March 2021 %
Retail	2.7	3.5
Offices	6.9	6.5
Industrial	6.1	12.2
Motor related	—	—
Residential	23.5	15.5
Total	3.0	3.8

Including development vacancy, the 31 March 2022 vacant rent is 3.3%.

Individual property vacancy profile

The properties with the highest vacancies as a percentage of GLA, where each had a vacancy higher than 1 000m during the period (excluding development vacancy), are:

	Vacancy
	31 March 2022		31 March 2021		Movement
	m²	%	m²	%	m²
Pinetown Pine Crest	1 560	4	285	1	1 275
Mdantsane City Shopping Centre	1 571	4	711	2	860
Durban Workshop	1 236	6	390	2	846
Queenstown Nonesi Mall	1 212	4	705	3	507
Randburg Square	2 855	7	2 476	6	379
Johannesburg Houghton 1 West Street	1 190	27	1 375	31	(185)
Mbombela Shoprite Centre	3 051	22	3 688	26	(637)
Boksburg East Rand Mall	517	2	1 194	3	(677)
Midrand Allandale Industrial Park	1 866	9	2 575	12	(709)
Randburg Square Apartments	941	13	2 318	31	(1 377)
Roodepoort Hillfox Power Centre	601	2	3 743	10	(3 142)

Leasing profile

Vukile concluded new leases and renewals in excess of 188 000m² with a contract value of R1 366.8 million. Tenant retention on the total portfolio was 91%, with retail retention at 93%.

Rental profile

There were negative reversions of 2.4% on the retail portfolio. Although transactions were limited in the industrial and office sectors, reversions were concluded at flat or marginally negative to retain tenants. Retail reversions were stronger in the value, rural and township segments, and are starting to show an improvement in the urban and commuter portfolios.

The weighted average base rental rates (excluding recoveries) increased by 5.4% from R141.26/m² to R148.91/m² during the year.

Base rental rates (excluding recoveries)	31 March 2022 R/m²	31 March 2021 R/m²	Escalation %
Retail	152.69	146.40	4.3
Offices	113.72	110.23	3.2
Industrial	69.48	60.05	15.7
Motor related	196.78	183.90	7.0
Residential	130.63	140.48	(7.0)
Portfolio weighted average base rentals	148.91	141.26	5.4

The higher average rental rate growth on industrial properties is due to the sale of Pretoria Rosslyn Warehouse, Kempton Park Spartan Warehouse and Centurion Samrand N1. Excluding the sold properties, average rental growth on the industrial portfolio is negative 2.5%.

Retail escalations of an average 6.4% are easing with national tenants demanding lower in-contract escalations. Escalations, however, remain ahead of inflation rates.

	31 March 2022 %	31 March 2021 %
Retail	6.4	6.7
Offices	7.5	7.5
Industrial	7.5	7.7
Motor related	7.0	7.0
Total	6.5	6.7

Retail tenant profile and exposure

Vukile's tenant exposure is well diversified and low risk, with national tenants representing c.82% of retail rental income.

Our top 10 tenants account for 44% of total rent and 51% of GLA. Pepkor and Foschini are our two single largest tenants, respectively accounting for 7.3% of total rent.

Our data-driven asset management enables us to identify risk early. It is our strategy to mitigate the risk of overexposure to a single retail group or brand, and we have strategies in place where there is a potential risk. In this way, we mitigate risk but can also respond quickly to opportunities to introduce new retail brands to our portfolio.

Weighted average lease expiry (WALE)

Vukile has a retail tenant expiry profile based on rent of 2.8 years, with 26% of contractual rental expiring in 2026 and beyond.

Costs

The largest expense categories contribute 78% to the total expenses. These are government services (44%), rates and taxes (17%), cleaning and security (11%) and property management (6%).

We continuously evaluate methods of containing costs in the portfolio and urge our property managers to implement innovative solutions to achieve this.

The cost-to-income ratio is now tracking closer to historical averages.

Net cost-to-income ratio: remaining portfolio	2016 %	2017 %	2018 %	2019 %	2020 %	2021 %	2022 %
All expenses	18.4	15.4	15.6	16.4	15.9	18.9	16.8
All expenses excluding rates and taxes and electricity	17.2	15.2	15.1	15.4	15.5	18.4	17.7

Like-for-like net operating income (NOI) growth

Although most of the COVID-19 impact was felt in FY21, delayed effect is still visible in FY22 due to deferred occupancy of new stores, lower turnover rental, increased bad debt and marginal rental concessions. The stable portfolio delivered 17.7% NOI growth versus the comparable period in FY21. Excluding the effect of COVID-19, growth of 3.5% was achieved.

Like-for-like growth (stable portfolio) — including COVID-19 impact	31 March 2022	31 March 2021	% change
Property revenue (Rm)	1 474.7	1 283.9	14.9
Net property expenses (Rm)	248.3	242.3	2.5
Net property income (Rm)	1 226.4	1 041.6	17.7
Net cost-to-income ratio (%)	16.8	18.9

Like-for-like growth (stable portfolio) - excluding COVID-19 impact	31 March 2022	31 March 2021	% change
Property revenue (Rm)	1 465.5	1 415.4	3.5
Net property expenses (Rm)	248.1	238.8	3.9
Net property income (Rm)	1 217.4	1 176.6	3.5
Net cost-to-income ratio (%)	16.9	16.9

PORTFOLIO REVIEW – SPAIN

The Spanish portfolio demonstrated its high quality and resilience. With over 94% of its GLA let to international and national tenants, the business continues to show its strength, nodal dominance and long-term sustainability.

At 31 March 2022 the Spanish portfolio consisted of 16 properties externally valued at €1 001 million, with a GLA of 350 271m², and an average value of €63 million per property. Total property-related assets are valued at €1 091 million, including the 21.7% stake in Lar España acquired during the period.

OPERATING ENVIRONMENT

Operational highlights

Asset management in action

Castellana again demonstrated the importance of having specialist retail management, with the portfolio continuing to show its strength and reliability despite the ongoing challenges posed by the pandemic. Castellana strengthened its relationships with key tenants, leading to new store openings, growing rents and low vacancies across the portfolio.

Highlights for the period include the following:

Castellana became a 100% retail-focused SOCIMI by disposing of the Konecta office portfolio for an 18% premium on the original purchase price and at 101% of book value.
Acquiring a 21.7% stake in Spanish-listed retail-focused SOCIMI Lar España at €5.35 per share, representing a discount to NAV of approximately 50%.
A 98.4% portfolio occupancy, with negligible vacancies of 1.6%. The market considers a portfolio with an occupancy rate above 97% as fully let.
A long and stable portfolio WALE of 13.2 years, and WALE to break at 2.6 years.
Positive rental reversions of 3.12% at an average of €21.7/m² for renewals, relocations and replacements.
Increasing average base rentals to €15.17/m².
Growing footfall and growth trends over the entire year that outperformed national benchmarks. Footfall increased to 94.4% of pre-COVID-19 levels. Sales grew by 2.21%.
More leasing activity with 170 leases covering 36 366m² of GLA signed, representing an incremental annualised NOI of €3.2 million.
Successful completion of redevelopment projects with rental projections already exceeding budgets and with 95.2% of related GLA already occupied.
New anchor tenants opened stores across the portfolio, such as Primark in Bahía Sur (4 100m²), Lefties (2 700m²) in Los Arcos, Aldi (1 352m²) in Parque Oeste, Massimo Dutti (718m²) in El Faro, and Muebles Boom (1 687m²) and Homelandia (4 158m²) in Granaita. Furthermore, Pepco signed leases for Granaita (795m²), Parque Oeste (609m²) and Los Arcos (100m²). Notably Pull&Bear relocated within Los Arcos, whilst increasing its GLA (887m²).

TENANT ARREARS

Tenant arrears amounted to €1.02 million (R17 million) at 31 March 2022, and were reduced significantly from the prior year when arrears stood at €3.3 million. Castellana’s in-house property administration team collected 98.7% of monthly rental invoices.

The allowance for the impairment of tenant receivables at 31 March 2022 decreased to €1.2 million (R20.5 million) (31 March 2021: €1.5 million).

PROJECTS

Castellana secured 95.2% of the leases on its value-adding redevelopment projects in Los Arcos, Baha Sur and El Faro. The projects aim to strengthen the existing offerings and dominance of the centres by adding new and exciting retailers, creating pedestrianised open spaces, and introducing attractive fashion, food and beverage, and leisure operators in the centres. These projects have already demonstrated their ability to enhance the customer experience and improve the number and quality of retailers in the centres, with most stores already open.

In Los Arcos, 91.3% of the project GLA is signed and committed, and there have been 20 new store openings. During the year, new tenants such as Juguettos, Mary Paz, Miniso, Jolfer and Game have opened, with Pepco and RKS due to open soon. The centre has reinforced its position as the best, and most convenient shopping centre in its area, with the most extensive tenant offering.

Some 97.1% of the El Faro project GLA is secured with signed leases. This project was essentially complete at year-end. The shopping centre reinforced its tenant mix with Max Colchn, Ginos, Taco Bell, Loco Arroz, Don G and Cantina Mariachi.

Baha Sur has 95.2% of project tenants signed and committed. New brand, Inside, opened in September 2021, and Primark opened in January 2022.

KONECTA DISPOSAL

With a selling price above the current valuation and at a significant premium of 18% to the original purchase price, the sale of the Konecta office portfolio increased available cash on Castellana's balance sheet, providing flexibility for balance sheet management and the pursuit of new opportunities.

INVESTMENT IN LAR ESPAÑA

In January 2022 Castellana acquired approximately 21.7% of the shares in Lar España for €97 million at €5.35 per share. The investment was acquired at a 48% discount to net tangible asset value with a forward FFO yield in the range of 9% to 11%.

Lar España is a Spanish retail-focused REIT externally managed by Grupo Lar. The company has a gross asset value of €1.4 billion across a GLA of 550 000m². Lar España has a net LTV of 41% with about €200 million of cash on its balance sheet.

With this acquisition, Castellana is now the largest shareholder in Lar España. Castellana has increased its exposure to the retail property market by investing in the largest listed retail-focused REIT in Spain, which owns a portfolio of high-quality shopping centres and retail parks. The acquisition price takes advantage of the current dislocation between the listed real estate and direct property markets, enabling Castellana to acquire a stake in a portfolio of high-quality retail properties at a significant discount to NAV. The investment offers a high dividend yield with powerful capital appreciation potential over the medium to long term.

COVID-19 IN SPAIN

Spain has successfully vaccinated 93% of the population above 12 years of age against COVID-19, equating to 40 million people. This has resulted in very low hospitalisation rates and deaths. Spain removed all restrictions on indoor masking on 19 May 2022, with masks only required on public transport and in healthcare centres, senior living homes and pharmacies. Activity levels have returned to normal across the country.

ECONOMIC OVERVIEW

The outlook for the Eurozone has become more uncertain and dependent on events in Ukraine. Soaring energy prices and low-consumer confidence linked to the conflict in Ukraine imply short-term headwinds to domestic demand. However, the consensus view is that these effects will be temporary. Over the medium term, the market is expecting supply bottlenecks from the pandemic to fade and growth to converge towards historical average rates, despite a less supportive fiscal stance and an increase in interest rates by the European Central Bank to contain inflation. Overall, real gross domestic product (GDP) growth is projected to average 2.8% in 2022 and 2.3% in 2023 in the Eurozone.

Consumption is projected to remain stable in 2022, despite the increased uncertainty posed by the conflict in Ukraine and is expected to continue to drive economic growth. The pent-up demand accumulated during the pandemic, is expected to partially offset the impact of inflation on household consumption. Together with a rebound in tourism adding to domestic demand.

Despite higher inflation rates and the withdrawal of fiscal transfers, the labour market recovered in 2021 to pre-pandemic levels with record employment figures not seen since the beginning of the global financial crisis of 2008. Last year, Spain created jobs at the highest rate since 2005. Unemployment fell to a rate of around 13%.

Business investment is expected to increase over the medium term and account for an increasing share of real GDP, notwithstanding the conflict in Ukraine, as supply bottlenecks ease and funds from NextGenerationEU, the EU's recovery plan for Europe, are disbursed.

CASTELLANA GROWTH PLAN

Castellana's portfolio has been fully open and trading well during FY22. Sales and footfall have experienced a very positive trend during the past 12 months, even surpassing pre-pandemic levels in the final months of the financial year. This clearly conveys that Castellana's portfolio has recovered significantly versus 2019, beating the benchmark. This performance reinforces the dominance and resilience of the portfolio.

Business review

Castellana remains well capitalised and continues to operate from a position of strength due to the quality of its retail portfolio. Constant engagement with tenants, banks and other stakeholders allowed us to take forward-looking strategic decisions. The results of these decisions are reflected in the improvement of several metrics such as vacancy, arrears, debt restructuring, and footfall and sales. The business has demonstrated its robustness during the most challenging period in recent memory.

Tenant and industry engagement

After overcoming the sixth wave of the COVID-19 pandemic, dominated by the Omicron variant, during the final part of 2021 and early 2022, footfall and sales have continued to recover very positively in both our shopping centres and retail parks. These metrics closed the fiscal year at almost 2019 levels and, in some cases, surpassed them. The impact was significantly lower than in previous waves. Despite a large number of diagnosed cases, life was mostly back to normal.

In addition, the strength of our portfolio has been reinforced by the recently completed value-added projects. We already see improvements in most of the metrics and expect further improvements in the coming year. In terms of footfall, El Faro (11.7% FY22 versus FY20) and Baha Sur (6.9% FY22 versus FY20) are already performing better than FY20 and Los Arcos (93% of FY20) is recovering back to previous levels month by month. In terms of sales El Faro (99.9% of FY20), Baha Sur (100.9% of FY20) and Los Arcos (90.5% of FY20) are all showing significant improvement and a return to normality.

Regarding rental discounts, the first and the last months of FY22 were affected by the fifth and sixth waves of the pandemic respectively, impacting mainly the leisure and food and beverage sectors. Trying to assist these tenants, we agreed to occasional temporary rental discounts. In aggregate, the rental discounts were around €3 million. This initiative has allowed us to maintain full occupancy in the portfolio and has improved the collection rate each month. We closed the year with an occupancy of 98.4% and a collection rate of 98.7%. Looking to the future, we expect a recovery in the categories of retail most affected by the pandemic. Players in the food and beverage category have restarted their expansion plans. In the leisure category, cinemas are already opening at full capacity and improving their metrics monthly. The entry of new international operators into the Spanish market is well documented. They have ambitious expansion plans and, given our scale and quality of assets, are choosing our portfolio to achieve their goals. All this signals a confident and promising growth path ahead.

Debt provider engagement

Castellana continues to engage with its debt providers who fully support the business and are satisfied with Castellana's balance sheet strength and cash position. We are confident of Castellana's ability to remain comfortably within its LTV and net yield on debt covenant levels. In February 2022 Castellana completed the syndicated loan refinancing of our retail park portfolio including Habaneras Shopping Centre in Alicante. By concluding a €185 million, fixed-rate, seven-year agreement with Aareal Bank A.G. and Banco Santander This agreement is a clear sign of the confidence that credit institutions have in Castellana. It places the company's average debt maturity at five years.

Castellana Properties obtained a BBB- Investment Grade long-term rating with a stable outlook. Fitch, a premier international rating agency, positively assessed our stability, active management, quality of our portfolio, increased rents, and improved cash flow.

This rating confirms the quality of the management team and our position as one of the leading retail real estate SOCIMIs in the Spanish market.

Footfall, sales and collections performance (April 2021 to March 2022)

Footfall and sales

		2021			2022
	Oct 2021 %	Nov 2021 %	Dec 2021 %	Jan 2022 %	Feb 2022 %	Mar 2022 %
Change in footfall October 2021 to March 2022 (versus the corresponding month of 2019)	(1.0)	(2.0)	(7.4)	(8.5)	0.2	(5.1)

Castellana has seen a continuous improvement in footfall and sales during the year. A new wave of the pandemic caused by the Omicron variant impacted the portfolio during December 2021 and January 2022, but the recovery was rapid after restrictions were lifted.

		2021			2022
	Oct 2021 %	Nov 2021 %	Dec 2021 %	Jan 2022 %	Feb 2022 %	Mar 2022 %
Change in sales October 2021 to March 2022 (versus the corresponding month of 2019)	7.2	5.8	(2.6)	(3.6)	12.3	6.9

Retail parks and shopping centres are currently performing above pre-COVID-19 levels. The leisure, food and beverage and fashion and accessories categories continue recovering each month. The pets, DIY and sports categories achieved the strongest growth compared to FY20. The portfolio sales closed FY22 at 102.21% of FY20.

A high 94% of Castellana's rentable area is let to tenants that are national and international brands.

Collections

During the year, discount agreements and payment plans were agreed upon with Inditex, Yelmo and other tenants. As a result, many outstanding amounts have subsequently been received and normalised, increasing the collection rate for the year to 98.7%.

Collections April 2021 to March 2022	Apr 2021	May 2021	Jun 2021	Jul 2021	Aug 2021	Sep 2021	Oct 2021	Nov 2021	Dec 2021	Jan 2022	Feb 2022	Mar 2022
Total net invoiced amount (€m)*	5.1	5.7	5.0	5.8	5.4	5.5	5.8	5.9	5.9	6.3	6.3	5.9
Total collected (%)	99.1	99.1	98.7	98.9	98.8	99.0	99.0	99.4	98.8	98.8	97.2	95.2
Total outstanding (%)	0.9	0.9	1.3	1.1	1.2	1.0	1.0	0.6	1.2	1.2	2.8	4.8

* Not considering net turnover rent, €943 000 invoiced in FY22 and accounting date for invoicing.

Recent months are always higher as there has not been sufficient arrears management. The more time the collection team spends on recovering the amounts the lower the arrears rate.

VALUATION OF SPANISH PORTFOLIO

The Spanish portfolio was independently valued by Colliers at €1 001.0 million (R17.1 billion) at 31 March 2022 (31 March 2021: €987.2 million or R17.1 billion), representing a 4.5% like-for-like increase in value over the last financial year, (excluding the sale of the Konecta offices in June 2021 for €26.5 million).

During the Covid-19 pandemic, the portfolio declined in value by (2.6)% however the current valuation as at 31 March 2022 demonstrates the strength of the portfolio with a like-for-like increase of 0.2% versus the pre-Covid portfolio value as at 30 September 2019.

The fair value of the portfolio is estimated using a DCF approach, which capitalises the estimated rental income stream, net of projected operating costs, using a discount rate derived from market yields. The estimated rental stream considers current occupancy levels, estimates of future vacancy levels, the terms of contractual leases and expectations of rentals from future leases over the remaining economic life of the buildings.

Real estate market in Spain

In 2021, retail property investors continued to focus their capital on food retail, with record trading volumes triple those of 2019. Four large supermarket portfolio sales took place, the biggest being a portfolio of 27 Mercadona supermarkets purchased for more than €100 million.

We saw two major new openings in 2021: Open Sky, a 90 600m² GLA shopping centre in Madrid, and Vialia de Vigo, an asset that will house an intermodal train and bus station with a leisure area, a public square of more than 30 000m² and a 43 000m² GLA shopping centre with more than 120 stores.

There were no significant shopping centre transactions in 2021. However, the market was positively surprised by two large transactions in early 2022. Torrecardenas, a dominant 60 000m² GLA shopping centre and retail park in Almeria were sold for €172 million, and Ribera del Xuquer, a 40 000m² GLA shopping centre in Valencia, sold for €42 million.

The arrival of 2022 also brought a strong appetite for supermarket portfolios and supermarket-anchored retail parks. Some of the reasons this asset class is gaining more attention from investors include its resilience to adverse economic cycles and pandemics, good locations with the possibility of functioning as last-mile distribution warehouses, lower rents, lower competition, longer lease terms, and it is a lower-cost alternative for tenants.

Portfolio overview

Top 10 properties by value

Castellana is now 100% retail focused. Cumulatively, 97% of tenants are international and national tenants. These properties comprise 92% of the total portfolio value, 91.5% of the total portfolio rent and 84% of the total portfolio GLA.

Property	Location	GLA m²	Value €m	% of total portfolio	Valuation €/m²
El Faro*	Extremadura	40 318	168.5	16.8	4 179
Baha Sur	Andalucia	35 333	147.2	14.7	4 166
Los Arcos*	Andalucia	26 680	134.3	13.4	5 034
Granaita Retail Park	Andalucia	54 807	107.2	10.7	1 956
Vallsur	Castilla Leon	35 212	83.0	8.3	2 357
Habaneras	Com. Valenciana	25 021	86.5	8.6	3 457
Puerta Europa	Andalucia	29 783	71.7	7.2	2 407
Parque Oeste	Madrid	13 604	52.0	5.2	3 822
Parque Principado	Asturias	16 090	37.2	3.7	2 312
Marismas del Polvorn	Andalucia	18 220	28.1	2.8	1 542
Total top 10 properties		295 068	915.7	91.4	3 103
% of total portfolio		84	92

*Excluding development properties valuation.

SUMMARY OF PORTFOLIO CHANGES

GLA reconciliation	GLA m²
Balance as at 31 March 2021	367 015
GLA adjustment (Konecta disposal)	(16 744)
Balance as at 31 March 2022	350 271
Areas under development	–
Non-lettable area	–
GLA excluding areas under development	350 271

Vacancy reconciliation	GLA m²	%

Balance as at 31 March 2021	6 186	1.7
Vacancy movement	(544)
Balance as at 31 March 2022	5 642	1.6

PORTFOLIO PROFILES

Geographic profile

The geographic distribution of the Spanish portfolio is indicated in the table below. Some 90.4% of the gross income comes from Andalucia, Extremadura, Com. Valenciana and Castilla Leon.

Geographic portfolio	% of rental income	% of GLA
Andalucia	51	49
Extremadura	20	21
Com. Valenciana	10	8
Castilla Leon	10	10
Madrid	4	4
Asturias	3	4
Murcia	2	4

Sector profile

Based on value, 100% of the Spanish portfolio is in the retail sector.

Tenant profile

Large national and international tenants account for 94% of tenants by rent.

	% of rental income	% of GLA

Large national and international tenants	94	94
Local tenants (108 tenants)	6	6

Expiry profile

Castellana has a 13.2 years tenant expiry profile and 2.6 years to break with 58% of contractual rental expiring in 2031 and beyond.

The expiry profile as a percentage of contractual rent is shown below:

Total portfolio

	March 2022 %	March 2023 %	March 2024 %	March 2025 %	March 2026 %	March 2027 %	March 2028 %	March 2029 %	March 2030 %	March 2031 %	Beyond March 2031 %

% of contractual rent	1	7	5	7	5	4	5	5	3	4	54
Cumulative	1	8	13	20	25	29	34	39	42	46	100

	Vacant	March 2022 %	March 2023 %	March 2024 %	March 2025 %	March 2026 %	March 2027 %	March 2028 %	March 2029 %	March 2030 %	March 2031 %	Beyond March 2031 %
% of GLA	1.6	1	4	3	6	2	2	4	4	3	3	66
Cumulative	1.6	3	7	10	16	18	20	24	28	31	34	100

Break profile

The break profile (the date upon which the tenant has an option to terminate the lease prior to the expiry date) as a percentage of contractual rent is shown below.

Total portfolio

	March 2022 %	March 2023 %	March 2024 %	March 2025 %	March 2026 %	March 2027 %	March 2028 %	March 2029 %	March 2030 %	March 2031 %	Beyond March 2031 %
% of contractual rent	1	30	20	16	15	6	6	2	1	2	1
Cumulative	1	31	51	67	82	88	94	96	97	99	100

Vacancy profile

The portfolio's vacancy rate at 31 March 2022 was 1.6%.

Vacancies (% of GLA)	31 March 2022 %	31 March 2021 %
Shopping centres	2.3	2.2
Retail parks	0.8	1.3
Offices	–	–
Total	1.6	1.7

Rental profile

The Castellana portfolio's weighted average rental has increased up to €15.17/m².

	30 March 2022 €/m²	31 March 2021 €/m²	Escalation %

Shopping centres	19.43	18.58	4.6
Retail parks	10.07	9.56	5.3
Offices	–	9.89	(100.0)
Portfolio weighted average base rentals	15.17	14.22	6.7

COSTS

Service charges are the most significant expense and represent 76.32% of total property expenses. Service charges mainly include utilities, cleaning, marketing, security and management. Property tax is another significant expense representing 13.10% of the total property expenses.

LIKE-FOR-LIKE NET OPERATING INCOME GROWTH (WITH RENT CONCESSIONS)

Like-for-like growth (stable portfolio)	31 March 2022	31 March 2021	% change
Property revenue (€m)*	55.53	40.48	37.18
Net property expenses (€m)*	(4.86)	(3.66)	32.79
Net property income (m)	50.67	36.82	37.62
Net cost-to-income ratio (%)	8.75	9.04	(3.20)

*Calculated according to EPRA Cost Ratio excluding corporate expenses

THE VUKILE ACADEMY

The Vukile Academy (www.vukileacademy.co.za) is Vukile's flagship project for skills development, mentorship and transformation.

The academy's focus is to contribute highly skilled, motivated and passionate young black professionals to the South African property sector each year. It is a platform that facilitates access to quality tertiary education in the property sector and by creating access to job opportunities for young black property professionals, provides education, work experience and career development.

The Vukile Academy is proudly a Vukile Property Fund initiative that continues to give back to our communities and SA as a whole. We endeavour to uplift the lives of our people and create a better environment for all.

The academy focuses on the following areas:

THE VUKILE BURSARY FUND

The Vukile Bursary Fund, in partnership with the South African Property Owners Association (SAPOA), Women's Property Network (WPN), South African Institute of Black Property Practitioners (SAIBPP), as well as the University of Pretoria (UP) contributed c.R6.5 million towards tertiary education tuition for 66 students through bursaries for studies in property/real estate-related fields.

THE VUKILE INTERNSHIP AND MENTORSHIP PROGRAMME

Our internship programme welcomed nine young, passionate and driven candidates in February 2022. Vukile undertook a rigorous and transparent selection process to identify and award deserving candidates a position in the Vukile Internship and Mentorship Programme. We received well over 70 applications. Our programme is designed as an integration platform into the real professional world for graduates who, in the main, are selected from our bursary recipients. The industry-leading programme is designed by curriculum experts and professionals from the industry and tertiary institutions like the Gordan Institute of Business Science and the UP. It delivers over 10 modules, including a personal mastery programme, which forms a crucial element of the programme. The essence of the internship programme is to impart the Vukile Brand DNA to our candidates. They are each offered a fixed-term employment contract for one year. Each intern is allocated a mentor and receives 12 mentorship sessions and two life coaching block sessions during the year.

VUKILE RETAIL ACADEMY

In the past financial year we have launched an innovative and uniquely South African retail incubation programme, whose objective is to create greater diversification in tenant and category mix within our malls.

This is an incubation programme designed to help the next wave of second-tier retailers, particularly after observing the strong performance of this category of tenants over the past five years.

The retail academy provides favourable leasing terms, a growth plan within the portfolio, mentorship by a team of pre-eminent retailers and access to Vukile's development and project team to enable these retailers to thrive with reduced barriers to entry.

Nine candidates were selected for the programme, namely Fakizinto Concepts, Malea Garments, Delisabhem Resturant, The Scrummy Ice Cream, Tso's Caf, Zonwabo Cakes, Lielo Beauty, Ikhaya Homeware and Dcor and Imbewu Fruit and Veg. These retailers cover numerous categories such as fashion, shoes, food services, confectionery, restaurant, health and beauty, homeware and dcor and fruit and veg. Total GLA of 1 035m² has been allocated to this project. Malls identified to ensure that the project succeeds are Daveyton, Dobsonville, Hammanskraal, Hillfox and Randburg Square.

PROSPECTS FOR THE GROUP

Having successfully navigated the ongoing challenges of the COVID-19 pandemic and unrest in South Africa during the past financial year, we are delighted with the results produced and the extremely strong position of the business going forward. While there remains uncertainty about the global growth outlook fuelled by the war in Ukraine, ongoing supply chain dislocations, inflation fears and a rising interest rate cycle, our business model has been proven to be resilient, sustainable and well positioned to withstand potential volatility.

Retail sales and footfall have returned to pre-COVID-19 levels and we are very encouraged by the strong trading environment in both Spain and South Africa, where we are seeing good demand and competition from retailers to expand our portfolios. We continue to see benefits from our retail specialisation model and data-driven asset management capabilities.

The balance sheet remains strong, with a long expiry profile and significant support from our funders. Interest rate exposure in both Vukile and Castellana is well hedged and a rising interest rate environment should not have a material impact on earnings or outlook in the short to medium term.

Based on our current forecasts, an assumed ZAR/EUR exchange rate of R16.80 and maintaining a similar payout ratio to the current year, we expect to deliver growth in FFO per share and dividend per share of between 5% to 7% for the year ending 31 March 2023. This will equate to a full year dividend per share of between 111 and 113 cents (FY22: 105.8 cents), to be paid with an interim and a final dividend. The forecast also assumes no material adverse change in trading conditions or large corporate failures, contracted escalations and market-related renewals.

This forecast has not been reviewed or audited by the company's external auditors.

SUBSEQUENT EVENTS

i. Declaration of dividend

In line with IAS 10 - Events after the Reporting Period, the declaration of the dividend occurred after the end of the reporting period, resulting in a non-adjusting event that is not recognised in the financial statements.

The board approved a final dividend on 9 June 2022 of 65.29 cents for the year ended 31 March 2022 amounting to R640 million. The dividend represents a payout ratio of 77% of total group FFO.

ii. Sale of investment property

The following properties transferred after year-end and meet the definition of non-adjusting post-balance sheet events as per IAS 10 - Events after the Reporting Period:

On 18 May 2022, Mbombela Truworths was transferred at a selling price of R22.2 million.

BASIS OF PREPARATION

The summarised consolidated financial statements for the year ended 31 March 2022, and comparative information, have been prepared in accordance with, and containing the information required by, International Financial Reporting Standards (IFRS), the South African Institute of Chartered Accountants Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Reporting Announcements as issued by the Financial Reporting Standards Council, the JSE Listings Requirements, IAS 34, and relevant sections of the Companies Act, 71 of 2008, as amended (Companies Act).

All accounting policies applied by the group in the preparation of these condensed consolidated financial statements are consistent with those applied by the group in its consolidated financial statements for the year ended 31 March 2021, except where new standards have been introduced as disclosed in note 1.2.

These statements, which comprise the statement of financial position at 31 March 2022, the statement of comprehensive income, the statement of changes in equity and the statement of cash flows for the 12 months then ended, are extracted from audited information, but are themselves not audited. The annual financial statements were audited by PricewaterhouseCoopers Inc., who expressed an unqualified opinion thereon. The auditor's report does not necessarily cover all of the information included in this announcement. Shareholders are therefore advised that, in order to obtain a full understanding of the nature of the auditor's work, they should obtain a copy of the audit report together with the accompanying financial information, both of which are available on the company's website and at the registered office of the company.

The directors take full responsibility for the preparation of this report and that the financial information has been correctly extracted from the underlying financial statements. This report was compiled under the supervision of Laurence Cohen CA(SA) in his capacity as chief financial officer.

The directors are not aware of any matters or circumstances arising subsequent to 31 March 2022 that require any additional disclosure or adjustment to the financial statements and which are not disclosed in this announcement.

On behalf of the board

NG Payne	LG Rapp
Chairman	Chief executive officer

Houghton Estate

9 June 2022

VUKILE PROPERTY FUND LIMITED

(Incorporated in the Republic of South Africa)

(Registration number: 2002/027194/06)

JSE share code: VKE ISIN: ZAE000056370

Debt company code: VKEI

Namibian Stock Exchange (NSX) share code: VKN

(Granted REIT status with the JSE)

(Vukile or the group or the company)

JSE sponsor: Java Capital

NSX sponsor: IJG Group, Windhoek, Namibia

Executive directors: LG Rapp (chief executive), LR Cohen (chief financial officer), IU Mothibeli (managing director: South Africa)

Non-executive directors: NG Payne (chairman)*, SF Booysen*, RD Mokate*, H Ntene*, GS Moseneke, B Ngonyama*, AMSS Mokgabudi*

* Independent

Registered office: 4th Floor, 11 Ninth Street, Houghton Estate, 2198

Company secretary: J Neethling

Transfer secretaries: JSE Investor Services (Pty) Ltd, Braamfontein, Johannesburg

Investor relations: Instinctif Partners, The Firs, 3rd Floor, Corner Craddock Avenue and Biermann Road, Rosebank, Johannesburg, South Africa,
Tel: +27 11 447 3030

Media relations: Marketing Concepts, 8 Redhill Road, Morningside, Sandton, Johannesburg, South Africa,
Tel: +27 11 783 0700, Fax: +27 11 783 3702

Commentary

NATURE OF OPERATIONS

FINANCIAL PERFORMANCE

Executive summary

The following significant events and transactions took place during the year ended 31 March 2022:

DIVIDEND

CALCULATION OF FUNDS FROM OPERATIONS (FFO)

REVENUE AND NET INCOME FROM DIRECT PROPERTY PORTFOLIO

GROUP INVESTMENT AND OTHER INCOME

LISTED INVESTMENTS

GROUP CORPORATE EXPENDITURE

GROUP CASH FLOW

NET ASSET VALUE (PER SHARE)

SHARE TRADING AND LIQUIDITY

TREASURY MANAGEMENT

CREDIT RATING

GROUP BORROWINGS SUMMARY

SOURCES OF FUNDING

VUKILE GROUP LOAN AND SWAP EXPIRY PROFILE AT 31 March 2022

GROUP FINANCE COSTS

UNDRAWN FACILITIES

UNSECURED DEBT AND UNENCUMBERED ASSETS

MOVEMENT IN GROUP DEBT

GROUP FOREIGN EXCHANGE CURRENCY HEDGES

CROSS-CURRENCY INTEREST RATE SWAPS (CCIRS)

PORTFOLIO REVIEW – SOUTH AFRICA

OPERATING ENVIRONMENT

SUMMARY OF PORTFOLIO CHANGES

PORTFOLIO PROFILES

PORTFOLIO REVIEW – SPAIN

OPERATING ENVIRONMENT

TENANT ARREARS

PROJECTS

KONECTA DISPOSAL

INVESTMENT IN LAR ESPAÑA

COVID-19 IN SPAIN

ECONOMIC OVERVIEW

CASTELLANA GROWTH PLAN

VALUATION OF SPANISH PORTFOLIO

SUMMARY OF PORTFOLIO CHANGES

PORTFOLIO PROFILES

COSTS

LIKE-FOR-LIKE NET OPERATING INCOME GROWTH (WITH RENT CONCESSIONS)

THE VUKILE ACADEMY

THE VUKILE BURSARY FUND

THE VUKILE INTERNSHIP AND MENTORSHIP PROGRAMME

VUKILE RETAIL ACADEMY

PROSPECTS FOR THE GROUP

SUBSEQUENT EVENTS

i. Declaration of dividend

ii. Sale of investment property

BASIS OF PREPARATION

VUKILE PROPERTY FUND LIMITED

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