Vukile acquires R2.8bn Spanish retail portfolio

Johannesburg - Vukile Property Fund has acquired a portfolio of nine newly-built retail parks across Spain via its new 98.3% Spanish REIT subsidiary Castellana Properties SOCIMI SA.

The R2.8bn off-market transaction is driven by Vukile’s deal-making dexterity. It increases Vukile’s diversification, boosts its international exposure to around 21% of total property assets, and grows its Spanish portfolio to 11 properties.

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 31 March 2018.

Laurence Rapp, CEO of Vukile, says the deal gives traction to Vukile’s stated holistic investment strategy in the developed markets of Western Europe. In his view, it sets Vukile apart from other SA REITs, many of which have focused their international expansion into emerging Eastern European markets.

READ: Vukile delivers 7.1% distribution growth

Rapp describes the Spanish property market as being transparent and offering depth. In his view, the Spanish economy currently provides one of the most attractive growth rates in the eurozone region with GDP 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. Declining unemployment is spurring robust economic growth and increasing consumer spend.

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.

From its retail focus to its quality income streams, Vukile’s new Spanish portfolio shows strong synergies with its SA real estate investment strategies.

With its increased exposure to international property markets, Vukile has put in place a foreign exchange hedging policy to minimise 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%, continuing its conservative approach to financial management and balance sheet structure.