Ten years after listing on the JSE, property group Vukile Property Fund has breached the R10-billion portfolio value mark and pushed its market capitalisation to R8.5-billion by the year ended March 2014, from the R1.3-billion recorded in 2004.

The property group’s assets have grown from R3.1-billion in 2004 to R10.3-billion by the 2014 financial year, excluding the R600-million of strategic investments in listed Real Estate Investment Trusts.

This represented a 33.6% year-on-year growth and a 92% increase on the R5.35-billion portfolio reported in 2011, with the company now boasting 79 properties with a gross lettable area of more than 1.14-million square metres, owing to several acquisitions and disposals.

The average per property value also increased 80% from R72.3-million in 2011 to R130-million.

Over the past three years, Vukile embarked on a major restructuring programme to shift its portfolio from higher-yielding, but riskier properties, to a high-quality, lower-risk portfolio as it “battened down the hatches” for what could be a more challenging year ahead, Vukile CEO Laurence Rapp said.

“Notwithstanding the dual headwinds of a stubbornly sluggish economy and rising interest rates, distribution growth for the listed property sector is forecast at between 7% and 8% for the next year,” he said at the company’s year-end financial results presentation, in Melrose Estate, on Monday.

However, Rapp was confident of Vukile delivering growth in distributions, in line with the top end of the projected sector growth, and had been particularly “pleased” with the progress made in strengthening and growing the portfolio during the year.

“Even while achieving this substantial undertaking [portfolio restructuring], Vukile delivered [normalised] distribution growth of 5% [to 126.49c a linked unit] for the year to March 2014,” he added, stating that the company was “defensively position[ed]” in a rising interest rate environment and remained conservatively geared and hedged.

Vukile, which currently held low-risk assets comprising 53% retail, 10% sovereign tenants and 3% hospitals, had established itself as an “acquirer of strategically aligned” earnings-enhancing assets as the listed property sector entered a period of consolidation following a surge of new listings, Rapp explained.

In April last year, Vukile successfully acquired a 50% stake in East Rand Mall, in Boksburg, for R1.1-billion and a sovereign tenant portfolio, comprising four properties for R1.04-billion from Encha Properties, in a “ground-breaking” black economic-empowerment deal that was finalised in August 2013.

Vukile had also bought the Letlhabile Mall, in the North West province, for R194.2-million, the Hammarsdale Junction shopping centre, in KwaZulu-Natal, for R197-million, and a 30% stake in Modjadji Plaza and Maake Plaza, both in Limpopo, for R61.5-million.

The group further obtained a 34% stake in the Synergy Income Fund from Liberty Group through the purchase of 52.3-million Synergy B linked units for R338-million.

“This boosted Vukile’s investment exposure to retail property serving the lower-income market and its exposure in the Western Cape region,” Rapp noted, adding that further opportunities with Synergy would be explored.

Vukile also entered into a strategic transaction with Fairvest Property, where it sold four properties, namely Durban Qualbert Centre, the Malamulele Plaza, Kimberly Kim Park and Giyani Spar Centre, to Fairvest in exchange for a 31.5% stake in Fairvest. The R235-million transaction was effective January 2014.

“The Fairvest portfolio is focused on lower-income retail, but invested in smaller properties than Vukile. We believe that this is a cost-effective and resource-efficient way to gain exposure to our preferred market segment with properties of this size.” Rapp explained.

Vukile had, during the year to March 2014, realised R287-million by selling its higher-risk, noncore properties, including the Randburg Triangle, Bloemfontein Bree Street Warehouse, Durban Embassy and land in Midrand.

Further, as the portfolio’s vacancy rate was hampered by the 100% and 98% vacancy of its Pretoria Midtown Building and 1 Kramer road in Bedfordview respectively, Vukile had signed a sales agreement for the Pretoria property and planned to auction the Bedfordview property in June.

The company reported a vacancy rate, as a percentage of gross rental, of 6.7% during the year under review, down from the 7.1% reported in the prior year.

Excluding these two assets, the vacancy rate was down to 5.9%.

Vukile further invested in various upgrades and improvements to its properties to ensure their “ongoing competitiveness and sustainability”, citing the R207-million complete revamp and upgrade of the Randburg Square shopping centre during the year.

“The company will continue to identify growth opportunities in both the direct and listed property sector that are strategically aligned to Vukile’s objectives and are value enhancing,” Rapp said, concluding that property is “a long-term game. For sustained success, a focus on long-term value creation is imperative”.