More upside left

2010-12-02 00:00

VUKILE’S REMARKABLE share price run of 50% from its December 2009 low raises the question whether it’s time for profit taking. Not necessarily. The stock still looks reasonably priced, given it’s currently trading at a yield of 7,8% against the sector’s 7,5%. More so if compared to the likes of Hyprop, Resilient and Growthpoint, which are trading at yields of between 6,4% and 7,1%.

Admittedly, many of Vukile’s retail centres – such as Randburg Square (ex Sanlam Centre), Dobsonville Shopping Centre (Soweto) and Hillfox (Roodepoort) are located in secondary areas and don’t offer the same glam value as, for example, Hyprop’s Canal Walk (Cape Town) or Hyde Park (Johannesburg).

But centres that cater to lower-income shoppers have generally weathered the recession better than their higher-income counterparts, and this means the discount Vukile is still trading at no longer seems justified.

Vukile recently announced a solid performance for the six months to end-September in what’s arguably been a tough trading environment for commercial property owners. Distributions are up 7,5% for the interim period, while net rental income and net profit increased by 9,25% and 13,2% respectively. That despite the portfolio’s overall vacancy rising from 4,1% to 5,3% over the same period.

Property analysts like Vukile’s active asset management approach. The focus remains firmly on selling underperforming buildings and finding new opportunities to boost income streams. Since April this year two shopping centres – The Hillcrest (near Durban) and Pongola Shopping Centre (northern KwaZulu-Natal) – have been sold, while management simultaneously bulked the portfolio up with nine new acquisitions, which were bought from Sanlam Life for R537,8m, bringing Vukile’s portfolio to 82 properties with a total value of R5,78bn.

Management also plans to exercise its option to acquire another R500m portfolio of properties from Sanlam Life by year-end.

Although little growth in rentals is expected over the next few months, Vukile CEO Gerhard van Zyl expects the company will again be able to deliver “reasonable” growth in distributions for the year ending 31 March 2011. However, Van Zyl is known for under-promising and over-delivering.