JSE-listed real estate investment trust (Reit) Vukile Property Fund has acquired a portfolio of nine newly built retail parks across Spain through its 98.3%-owned Spanish subsidiary Castellana Properties.
Castellana will acquire the nine properties from Redevco Iberian Ventures, a joint venture between Ares and Redevco, for R2.8-billion.
The deal will increase Vukile’s diversification, boost its international exposure to around 21% of total property assets and grow its Spanish portfolio to 11 properties.
Speaking at a media briefing on Monday, CEO Laurence Rapp said the transaction has given Vukile immediate scale in Spain.
“Vukile now offers the most focused exposure to Spanish property available in the South African Reit market. The acquisition represents a 6.2% pre-geared property yield and reaffirms Vukile’s prospects to deliver growth in dividends of between 7% and 8% in its current financial year ending March 31, 2018,” he said.
The nine properties have a total gross lettable area of 117 670 m2 and are geographically diversified across Spain. The portfolio comprises 73 stores of which 95% of gross revenue is derived from Spanish national and international retail tenants including Media Markt, Sprinter, Worten, Aki and Mercadona.
The portfolio has a weighted average lease term of 15.6 years to expiry and 4.9 years to the next break option.
Rapp pointed out that there were further growth opportunities in the properties’ rental levels and unharnessed potential in the portfolio that Vukile planned to unlock with its core strength in active asset management.
Current managers Redevco will continue to manage the portfolio for a six-month period overlapping with the introduction of an asset management team of Spanish retail property experts that Vukile has built in Spain.
“This will ensure a smooth handover and transition,” said Rapp.
To fund the acquisition, Castellana has procured debt funding of €94.8-million from Spanish lenders at an all-in cost of debt of 1.98%. Vukile has funded the remaining €103.3-million using the substantial war chest it has built up for its international expansion.
With its increased exposure to international property markets, Vukile has put in place a foreign exchange hedging policy to reduce adverse foreign exchange fluctuations.
It will hedge on average 75% of its earnings from its international investments over a three-year period.
After the transaction, Vukile’s consolidated group gearing level is expected to be at 31.7%.
Rapp pointed out that the Spanish economy provided one of the most attractive growth rates in the Eurozone region, with gross domestic product growth of 3.2% in 2016 and 2.2% forecast for 2017, compared with 1.5% for the Eurozone – an outperformance trend set to continue for the next decade.
“Spain’s retail market indicators are positive and trending in line with the Spanish economic recovery. Retail rental levels remain at pre-financial crisis levels with the constrained supply of retail product driving up demand,” he said.