Property management company Vukile Property Fund achieved 7.7% growth in dividends to 168.82c a share for the full year ended March 31 on the back of a higher second-half distribution growth of 7.9%.

As its international investment grows, Vukile aims to hedge 75% of its dividend flow from offshore investments over a three-year period to provide investors with predictable, stable income streams.

The JSE-listed real estate investment trust’s (Reit’s) distributable income totalled R1.3-billion and its net asset value increased by 7.6% to 20.10c a share for the financial year under review.

The formidable results, Vukile CEO Laurence Rapp said on Wednesday, follows a milestone year for the company, which now operates as a high-quality low-risk retail Reit in South Africa, but with 21% of its assets in Spain.

The Spanish assets, Rapp highlighted, will remain an “almost exclusive key focus” for the company moving forward.

“We have an appetite to invest in South Africa with value-accretive transactions at the right price. Internationally, for the short to medium term, our activity will be fixed solely on the Spanish market to drive home the advantages of our investment’s scale and substance, on-the-ground operations, and best-of-breed Reit structure,” he said.

Vukile expects to deliver dividend growth of between 7.5% and 8.5% for the 2019 financial year, while remaining well positioned, with a firm focus on its South African retail portfolio and its Spanish investment strategy.

Vukile’s financial year was closed with total assets of R21.6-billion, which comprised R15.9-billion (74%) in Southern Africa, R4.5-billion in Spain (21%) and R1.2-billion in the UK (5%).

The company’s directly held domestic market portfolio is valued at R14.5-billion, with 91% retail real estate assets achieving a like-for-like net income growth of 6.5% and positive reversions of 5.1%.

A strong operating performance in the period under review further reduced its retail portfolio vacancies from 3.6% to 3.4%. The portfolio has a weighted average lease expiry profile of 3.7 years.

Vukile achieved an 87% tenant retention rate, contractual rental escalations ahead of inflation at 7.1%, and rental reversions of 5.2%, while the average rent-to-sales ratio is 6%.

“We are thrilled to have achieved this in a difficult operating environment. While we are buoyed by the improving political and economic climate in South Africa, and the resultant uptick in consumer confidence, we are yet to see a tangible improvement in the trading environment. Moreover, we believe this is unlikely to come about in the next 12 months,” Rapp noted.

PROJECTS IN PROCESS

Meanwhile, Vukile has started redeveloping Maluti Crescent in Phuthaditjhaba, in the Free State, with capital expenditure of R367-million and a projected yield of 8.3%.

Completion is scheduled for April 2019, with the centre aiming to be the area’s biggest modern enclosed mall.

Vukile’s Pinecrest Shopping Centre in Pinetown, KwaZulu-Natal, which has a capital cost of R167-million with a 7.9% projected yield, is being expanded from 40 100 m2 to 45 200 m2 with a new mall, upgraded food court and fresh retail mix.

In Spain, Vukile made progress with its 98.7%-owned Spanish Reit subsidiary, Castellana Properties.

Here, the company acquired 11 retail parks in 2017 for €193-million through Castellana. The company then, later that year, acquired an additional two retail parks for about €70-million, which brought its Spanish asset base to about €300-million.

Vukile has since then also aligned Castellana’s debt facilities more closely with its own debt strategy and managed to restructure €146-million of debt.

“Essentially, Vukile’s DNA is being spliced into Castellana, to replicate a world-class Reit structure that is unique in its market with a tight retail focus, yield-driven strategy, good governance and internalised management,” Rapp explained on Wednesday.

2018 FOCUS

In early May, Vukile acquired its first shopping centre in Spain – the Habaneras Shopping Centre, in Torrevieja – for €80.6-million at a net initial yield of 6.1%.

This acquisition increased the average value of Castellana’s properties to €23.5-million, and enhanced the perceived quality of the portfolio, while further adding to the economies of scale in Castellana, said Castellana Properties CEO Alfonso Brunet.

“Our Spanish property exposure is now nearing €400-million of quality assets in areas with good growth. Castellana is experiencing strong deal flow in Spain and is established as a very credible and trustworthy buyer in the Spanish market,” Rapp added.

Additionally, Castellana is expected to list on the MAB submarket of the Madrid Stock Exchange before August. The introductory listing follows Spanish tax regulation and is not a capital raising strategy, Rapp averred.

Anticipating another challenging year, which falls largely in line with the operating conditions of the past year, Rapp enthused that Vukile is “confidently positioned for future growth with a stable, defensive South African retail portfolio, a growing Spanish market position, a solid balance sheet, as well as sharply focused strategies for both the geographies and sectors in which we invest”.

Further, he concluded that Vukile will intensify its focus on capital allocation and strategic consistency, while continuing its specialised investment in the defensive retail sector in South Africa with expansions, upgrades and data-driven asset management that adds value to its properties.