Real estate investment trust (Reit) Vukile Property Fund CEO Laurence Rapp on June 9 said the company had sold its remaining industrial assets, had secured an agreement to sell its remaining offices and was now a highly focused retail landlord.
For the financial year ended March 31, the company declared a 101.04c-a-share dividend and reduced its debt by R3.1-billion, as a result of the sale of its stake in UK Reit Atlantic Leaf and the disposal of industrial assets.
It also reduced its loan-to-value ratio to 42.8% from 46.1% in the prior financial year.
Vukile had refinanced debt maturing during the 2022 financial year, with 76% of debt maturing in the 2022 financial year already repaid or extended.
The Reit also has undrawn debt facilities of R3.5-billion, meaning the company is "comfortably solvent and liquid", said Rapp.
Vukile, which has assets of R33.6-billion evenly distributed in Spain and South Africa, has also converted 90% of its foreign-denominated debt into rand debt.
Vukile’s interest cover ratio is 3.3 times and it has a well-diversified funding base. Its revised funding mix positions it firmly as a rand hedge, he adds.
“Our entire financial year was during the pandemic, and the superb results have vindicated our strategy. We focused on simplifying the corporate structure of the company over the past year and we provided R467-million of rental relief to help tenants sustain their businesses.
“We have strong relationships with our tenants and the rental relief has placed Vukile in an enviable position compared to peers who did not offer relief to tenants.
"Vukile closed the year with low portfolio vacancy rates of 3.2% in South Africa and 1.7% in Spain, demonstrating the effectiveness of this approach. The company also met all obligations to its suppliers and funders. Its commitment to ethical business and the sustainability of its partners has reinforced and improved key relationships in South Africa and Spain,” Rapp said.
“Vukile performed admirably, ensuring operational excellence, balance sheet strength, a simplified corporate structure and protecting the people who make our business exceptional. We are emerging from the pandemic in a robust financial position with a strong operating platform,” he noted.
The company achieved rental collection rates of more than 95% in Spain and more than 98% in South Africa, which it attributes to the rental relief and shoppers returning as lockdown restrictions are eased.
“As lockdowns lightened, customers flocked back to our malls. Sales rebounded faster than footfall, continuing the trend of bigger shopping basket sizes with less frequent visits and more focused shopping.
"People showed they enjoy the experiential nature of physical retail, which puts us in a strong position for the future,” reported Rapp.
By end-March 2021, overall portfolio footfalls in South Africa were at 99% of pre-pandemic levels. Like-for-like trading densities grew 1.7%, and rental collection improved to 98%.
Vukile achieved a 90% retail tenant retention rate, with rental reversions contained at -3.3%.
Rural and township centres, the bulk of its portfolio, outperformed all others. Vukile improved key operating metrics to deliver sustained performance.
Similarly, shoppers in Spain returned to Castellana’s centres as soon as restrictions were lifted.
Larger basket sizes drove good sales performance, notwithstanding lower, albeit significantly recovered, footfall levels. Sales in March 2021 reached 98% of those achieved in March 2020 and 80% of March 2019.
Retail parks, which comprise 42% of the portfolio, enjoyed sales above pre-pandemic levels.
“Castellana’s proactive approach to tenant relationships ensured a cooperative response to the pandemic, which boosted income security through a longer weighted average lease term of 13.4 years.
Highlighting the strength and dominance of its portfolio, Castellana signed more than 110 new leases, with an exceptionally strong combined positive 7.5% rental reversion,” Rapp said.
The strategic introduction of highly competitive and growing second-tier tenants in South Africa is expected to contribute to Vukile’s portfolio operations and performance for years to come.
Redevelopment projects undertaken in Spain are all more than 90% let and include some of the biggest brands in the world.
Vukile is excited about the changing retail landscape. As a specialist retail property investor and manager in South Africa and Spain, Vukile’s core competency in active asset management and its growing capability in data-driven customer centricity positions it well for the structural shifts in retail that have accelerated over the past year.
“The data-driven shopping transformation is unstoppable. Omnichannel, the amalgamation of offline and online shopping, is perhaps the most tangible trend driving the future of shopping.
"The digital age puts the customer in charge of pulling what they want into their worlds, rather than retailers and producers pushing products and services to them.
“The future will be online and offline, and will be singularly customer-driven. Vukile has geared up to understand consumers better and become a bridge between our customers and retailers. We create more value for our tenants by providing great customer experiences,” Rapp said.
Vukile is growing its internal retail, marketing, tech, analytics and innovation capacity, is embracing digital transformation and employing greater use of technology.
It has invested R22-million in its in-mall WiFi network, which is now available in 16 malls and has nearly four-million registered users.
Vukile has started reaping the rewards of its investment in geolocation data service Fetch, and has set up an internal team to analyse data from Fetch and its WiFi customer base to devise new strategies that add value to its tenant partners, he highlighted.
Meanwhile, Vukile has intensified its commitment to environmental, social and governance (ESG) issues during the year. It commissioned an external ESG gap analysis and identified 21 material ESG areas as the basis for updating its sustainability policy in the year ahead.
“It has been a strong, albeit very different, year for Vukile. We are usually outwardly focused on growth and deals, but, this year, our focus shifted inward. We set out to ensure Vukile remains on a solid footing with reinforced sustainability, and we have comfortably achieved our goals,” said Rapp.
The company installed more solar plants at its shopping centres and generates 7.5% of its electricity through renewable energy, which will increase to 8% by the end of the 2022 financial year.
“During this financial year, we will look at the ESG information and determine the right technical reporting frameworks and ensure the correct benchmarks are in place.
"We will then set five-year ESG targets for 2023 onwards and implement against those targets,” he said.
“We are cautiously optimistic about the clear trend of economic recovery unfolding in a post-Covid-19 world despite some residual uncertainty remaining.
"We are confident in our business’s strategic, operational and financial strength, both in South Africa and Spain,” concluded Rapp.