Vukile CEO Laurence Rapp
JSE-listed, consumer-focused retail real estate investment trust (Reit) Vukile Property Fund on June 5 said it had outperformed the upper end of its full-year market guidance, delivering a 10.5% increase in dividends per share (DPS) to 124.2c for the year to March 31and 6.7% growth in its funds from operations (FFO) to 154.2c a share.
Coming off the back of an “exceptionally strong year”, Vukile, in a media release, confirmed that it was on track to deliver further growth for shareholders for the year to end on March 31, 2025, with expected FFO per share growth of between 2% and 4% and DPS growth of between 4% and 6%.
Vukile’s portfolio of retail property assets valued at R40.2-billion is strategically diversified across South Africa and Spain through its 99.5% held Madrid-listed subsidiary Castellana Properties Socimi.
A significant 61% of Vukile's assets are in Spain, and 50% of its earnings are generated in euros.
Vukile said this forecast assumes aggregate growth in net operating income (NOI) across the direct property portfolios in South Africa and Spain of between 5% and 7%; a higher cost of funding from increases in base rates in South Africa and Spain and from the expiry of the €256-million fixed rate loan in Castellana, affecting the 2025 financial year numbers for a full year; a Lar España dividend accrual of 70c a share for the period from February 2024 to January 2025; and a rand/euro exchange rate of R20.05.
The company said this would equate to an FFO per share of between 157.3c and 160.4c and a full-year DPS of between 129.2c and 131.9c to be paid with an interim dividend and a final dividend.
“[I am] really… upbeat about the set of results that we are putting out,” expressed Vukile CEO Laurence Rapp during a results presentation on June 5. He pointed out that this year was Vukile’s twentieth anniversary since listing in 2004.
Primarily located in townships and rural areas, Vukile’s defensive domestic portfolio of high-quality shopping centres achieved like-for-like retail net operating income growth of 5.4%.
Retail property valuations increased by 5.8% on a like-for-like basis. The company said that demand for space in Vukile’s shopping centres remains “exceptionally strong,” adding that active leasing reduced already low retail portfolio vacancies to 1.9%.
The company also noted that rental growth continued its rebound with positive reversions of 2.9%, with 87% of leases signed producing stable or growing rentals. Tenant retention increased to 94% of gross lettable area.
The portfolio achieved trading density growth of 2.4%, led by township and rural shopping centres and those in the Gauteng, Western Cape and North West provinces.
“We continue driving our consumer focus model in the core portfolios in South Africa and Spain. You've seen the result that that's delivered, we'll hopefully continue delivering those results, and then we're continually looking for new opportunities,” said Rapp.
Additionally, environmental, social and governance priorities are imperative for Vukile.
In South Africa, Vukile said it had made significant strides in executing its environmental commitment through its solar power programme.
It began the financial year with an installed rooftop PV capacity of 14.9 MW and expanded that capacity to 21.6 MW, and a further 11 MW is under construction for completion in the 2025 financial year.
Meanwhile, the Castellana portfolio, which is 95% let to top-tier international and national retail tenants, achieved a 1.4% increase in portfolio value and an 11% normalised net operating income growth, with record footfalls and sales.
“Visitors were up 5.5% and tenant sales grew by 6.4%. With a mere 1.1% vacancy, the portfolio has the highest occupancy rate in its market. It achieved a very impressive 9.7% rental growth on leases signed,” Vukile noted in the release.
In Spain, Castellana received European Public Real Estate Association gold awards for its sustainability and financial indicator reporting for the second and third consecutive year, respectively.
It achieved 4 out of 5 stars on the Global Real Estate Sustainability Benchmark rating, and 100% of its properties are currently Building Research Establishment Environmental Assessment Methodology-certified and aligned with the European Union taxonomy for sustainable activities.
During the year, Castellana acquired a further 3% shareholding in Lar España, increasing its stake to 28.7% to take advantage of the significant discount to net tangible assets reflected in the share price.
“Lar España reported strong results, with performance measures surpassing industry standards. The significant appreciation in Lar España's share price confirms it is an exceptional and highly profitable investment for Castellana,” the company expressed.
At current levels, Vukile pointed out that the shares had gained over €40-million in value relative to the entry purchase price, which translated to a gain of some 30%, while the Lar España share price still reflected a considerable discount.
Vukile also noted that it was consistently exploring deals in line with its capital allocation and growth strategy.
Post year-end, Vukile exited its full stake in Fairvest, which it said had been an “excellent investment” for the company. It also successfully took transfer of a 50% share in Mall of Mthatha – formerly BT Ngebs City shopping centre – for R400-million, which Vukile will upgrade with its partners Flanagan & Gerard Property Group.
The company noted that it had also explored various domestic opportunities, adding that in most cases, however, the pricing had not made economic sense.
“[The] South African market is still challenging . . . you are seeing some pressure on the consumer, but where we feel that our business model is delivering, and this is sort of, you know, pertinent to both South Africa and Spain, is the consumer-led model that we doing,” said Rapp.
In Europe, Vukile said it was seeing attractively priced assets, signalling a unique window of opportunity to deploy capital into high-quality assets at attractive prices.
While withdrawing its non-binding indicative proposal to the board of Capital and Regional, it is still actively pursuing various prospects, including entering discussions to acquire direct retail assets in Spain and in neighbouring Portugal.
Vukile noted in the release that it had a strong balance sheet, and during the year, financial institution GCR reaffirmed Vukile’s corporate long-term credit rating of AA(ZA), with a stable outlook.
Only 4.4% of debt is due to expire in the 2025 financial year. Vukile secured R1.1-billion of funding through an innovative green loan and sustainability-linked loan post year-end. Its interest cover ratio is 2.3 times, and loan-to-value reduced to 40.7%.
Vukile said it had a powerful liquidity position with significant available cash balances of R2.4-billion and undrawn debt facilities of R2.9-billion.
“What you're hearing is a very bullish view from the team. I think we're delighted to present the market with very strong results and continued growth. I think the balance sheet is in very good strength, there are exciting deals on the table that we are looking at and evaluating, and I think we've got the team to continue delivering,” said Rapp.