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Vukile reports on-target dividend growth, expansion

Nov 27 2017 17:12

Cape Town - Internally managed retail REIT (real estate investment trust) Vukile Property Fund reported a 7.4% growth in dividends per share for its half year to 30 September 2017.

This is in line with its market guidance and places Vukile on track to deliver its forecast growth in dividends of between 7% and 8% for the year ending March 2018.

Vukile has announced that early indications are for shareholders to expect an upward trajectory for its dividend growth of at least 8% for the following financial year to end March 2019.

Laurence Rapp, CEO of Vukile Property Fund, attributes this performance to the company’s recent restructure.

“We have established a solid, predictable, high-quality annuity income base both locally and in Spain as well as the UK,” said Rapp.

JSE-listed Vukile has total property assets and related property investments of R20.4bn. About R15.5bn (76%) of this is invested in Southern Africa and 91% of Vukile’s direct domestic assets are shopping centres.

It also has two strategic international investments being its Spanish REIT subsidiary Castellana Properties Socimi, accounting for 18% or R3.6bn of its assets, and associate business Atlantic Leaf in the UK, which equals 6% or R1.3bn.

Vukile’s credit rating is investment-grade and its gearing remains at 29% with 94% of its interest-bearing debt hedged with a three-year fixed rate maturity profile. The REIT has de-geared its local balance sheet to create capacity to pursue its offshore strategies.

Currency hedging

It has also introduced currency hedging that will see at least 75% of its offshore earnings hedged over a three-year period. Vukile reduced its cost of funding to 5.58% over the reporting period.

“Our retail portfolio has again performed admirably in exceedingly difficult conditions proving the resilience and defensive nature of our malls,” said Rapp.

Vukile’s retail portfolio is focused on shopping centres that mostly cater for non-discretionary spend.

The portfolio achieved a 6.1% increase in like-for-like net property revenue, improved vacancy levels down from 3.9% to 3.4%, positive retail rent reversions of 5.2% and contractual rental escalations of 7.3%. Its weighted average lease expiry is 3.7 years.

Around 80% of Vukile’s shopping centre tenants are national retailers. The portfolio achieved an impressive 84% tenant retention rate. Vukile’s retail portfolio has a rent-to-sales ratio of 5.9%.

Vukile’s portfolio is mostly small regional centres and community centres, which are showing 4% and 5.6% growth in trading densities, respectively.

Vukile also managed to bring down its operating costs slightly from 16.8% a year ago, to 16%.

“Our environmental initiatives, especially energy and water management and the use of solar power, have made a meaningful contribution to improving these costs. We are committed to achieving even more resource savings as we progress on our sustainability journey,” said Rapp.

Vukile is continuing to invest in the development, upgrade and expansion of its retail assets. During the half-year, the new 50 000m² Vukile co-owned Thavhani Mall opened in Thohoyandou, Limpopo, the upgrade of its Dobsonville Mall in Soweto launched and building began on the major redevelopment of its Maluti Crescent Shopping Centre in Phuthaditjhaba in the Free State.

However, in the current macroeconomic environment, Rapp confirmed that Vukile is focusing its investment offshore, primarily through Castellana in Spain and Atlantic Leaf in the UK.

Vukile invested a further R407m in Atlantic Leaf to facilitate portfolio acquisitions, thereby increasing its shareholding to 35% and triggering a minority offer.

“Given the irrevocables in place from key shareholders, it is likely that our investment will remain at around the 35% to 40% level after the offer closes,” said Rapp.

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