JSE-listed Vukile Property Fund has managed to contain its retail vacancies at 3% in the six months ended September 30, while sustaining a rent collection rate of 95%.
The company, in its latest results statement, says the footfall at its properties was at 86% for the six months under review, compared with the footfall reported for the six months ended September 30, 2019.
Vukile reports a like-for-like trading density growth of 1.3% for the six months under review, as well as a retail retention rate of 92%, with reversions contained at -2%.
During the reporting period, the company granted rental relief of R133-million to its Southern African tenants, while its Spanish tenants were granted relief of about €15-million.
The company’s Spanish portfolio had a vacancy rate of 1.5%, and a collection rate of 90%, at the end of the six months under review.
Additionally, the properties in Spain reported sales at 95% of those reported for the prior corresponding six months, while footfall was at 84% of the prior period.
CEO Laurence Rapp explains that this indicates a trend whereby fewer people are visiting retail centres but are also spending more money when they do visit retail centres.
“Less feet, but better spend per head indicates a more focused shopping experience from customers.”
Vukile, through its Spanish subsidiary Castellana, has a portfolio of retail properties valued at almost R20-billion, while it has R16-billion worth of assets through investments in Fairvest and Arrowhead.
As a result of the company’s Covid-19 rent concessions, its operating profit reduced accordingly. Vukile reported an operating profit before finance costs of R731-million, compared with an operating profit of R1.3-billion reported for the prior comparable six months.
The company’s attributable loss for the period amounted to R206-million, resulting in a basic loss a share of 21.52c.
This compares with earnings a share of 87c for the prior comparable six months.
The board elected not to declare an interim dividend for the six months ended September 30.
Moreover, the company’s net asset value per share at the end of September equated to 1 724c, down from 1 834c apiece at the end of March.
Vukile expects to report improved financials for the second half of the year.
In the meantime, the company says its balance sheet remains solid and the business is cash generative, with healthy interest cover ratios and the ability to comfortably meet debt servicing requirements.
“We remain confident that the strength of our business and the portfolios in both Southern Africa and Spain will continue to be evident and set up a solid foundation from which to re-establish the profitability achieved in prior years,” says Rapp.
MARKET VIEW
The Covid-19 crisis has had a negative impact on the global property market and on retail real estate companies in particular.
Vukile says its specialist retail focus has contributed towards the negative market sentiment towards Vukile, which has been further exacerbated by its exposure to Spain, which was one of the first countries to be affected by the pandemic and resultant lockdown of the economy.
While the Spanish economy has been hard hit this year, current forecasts anticipate a strong rebound in 2021.
Rapp points out that Spain is a key European economy, underpinned by strong fundamentals providing Vukile shareholders with diversification into a country with a healthy structural retail real estate environment.
In particular, Vukile subsidiary Castellana’s geographically diversified portfolio and high-quality tenant profile, made up of 93% international and national tenants, should provide a solid recovery platform.
Rapp explains that, in South Africa, the economy will not only have to deal with the impact of the pandemic, but also the effects of the credit downgrades in March and November and ongoing macroeconomic challenges, led by a growing fiscal deficit that needs to be urgently and decisively dealt with by government.
He adds that the Covid-19 crisis has also shone the spotlight on the future of retail as a real estate asset class.
“As predicted, it is very clear that the retail landscape will change over time and while we will continue to experience a rise in online shopping, quality retail centres will have a critical role in any economy, as part of an ongoing evolution to a world of omnichannel retailing.
“The changes in retail must be embraced and both Vukile and Castellana are very well positioned to capitalise on an era of greater specialisation, which is needed to thrive in a changing retail environment.”