Vukile Property Fund gains 7% distribution growth

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Vukile Property Fund CEO Laurence Rapp says the results reflect an excellent operational performance that keeps on improving despite an environment that keeps on getting tougher. Vukile Property Fund CEO Laurence Rapp says the results reflect an excellent operational performance that keeps on improving despite an environment that keeps on getting tougher.

Vukile Property Fund (JSE:VKE) on Thursday reported 7% growth in distributions to 146,35 cents per share for its full year to 31 March 2016.

During the period, the company increased its exposure to retail asset class and made its first offshore investment.

The JSE-listed REIT (Real Estate Investment Trust) has direct property assets valued at R15.6 billion and total assets of R16.7 billion. It became a Level 3 B-BBEE contributor during the year.

Vacancies in its portfolio which are mainly retail assets, improved from 4.6% to 3.9%.

“We’re pleased to report a positive set of results that are on target and show an impressive operational performance. We continue to build a high-quality portfolio of assets for lasting success,” CEO Laurence Rapp said.

Ian Anderson, the chief investment officer at Grindrod Asset Management says like most of the listed property companies that have reported results in the past 3 or 4 weeks, the numbers were in line with market expectations. Importantly, guidance for FY2017 suggests this level of growth (+ 7%) can be maintained despite the weaker operating environment in SA.

"Vukile’s retail portfolio appears to be performing extremely well with average escalations on expiry rentals of 12.3% and an average increase in trading densities of 7% (excluding East Rand Mall, where trading densities were negatively impacted by refurbishments). Across the portfolio, like-for-like net property income increased by 5.8%, in line with the bulk of its peer group. All in all, this was a commendable set of results given the tough economic backdrop and an increases in the cost of capital. Management’s repositioning of the portfolio over the past 4 years appears to be bearing fruit and should lead to stronger distribution growth when the domestic economy finally recovers," Anderson said.

The property group also launched its international investment aspirations by taking a stake in JSE AltX-listed Atlantic Leaf Properties in August 2015. it invested R760 million for a 26.1% active holding in Atlantic Leaf, which includes the strategic influence of a board seat. Atlantic Leaf holds an approximately £264 million real estate portfolio in the UK.

SA's listed property sector continues to see more counters embark on offshore investments, with Redefine Properties, Tower Property Fund and Hyprop being wooed by Eastern Europe’s real estate market.

The company boosted its retail portfolio during the year by acquiring four shopping centres for R1.2 billion and significant stakes in two regional mall developments for R600 million.

It acquired the trading shopping centres of Batho Plaza, Bedworth Centre, Nonesi Mall and an 80% stake of Moruleng Mall. Vukile also acquired a 33% holding in Thavhani Mall and 25% of Springs Mall, both currently under development by retail property developer Flanagan & Gerard Property Development & Investment.

This year, the company undertook R654 million in upgrades and redevelopments and disposed of five properties for a combined R270.9 million. It also has a signed offer for the sale of its Sovereign property portfolio, subject to conditions precedent.

The property group remains conservatively geared at 29.5% with 86.4% of its debt hedged against a rising interest rate cycle. Vukile continued to benefit from a strong ‘A’ corporate credit rating and ‘A+’ secured note rating, both with stable outlook as recently reaffirmed by Global Credit Ratings.

The REIT raised R 1.1 billion in equity in May 2015, refinanced R2 billion of debt during the year, and also raised R400 million in new equity post year-end in April 2016.

The proposed transaction between Vukile, Arrowhead Properties and Synergy Income Fund has the potential to further this goal significantly. Should the transaction go ahead as envisioned, Vukile’s retail assets will increase to 92% of its portfolio. It will also reduce gearing in Vukile’s portfolio further and provide it with a high-yield, high-growth opportunity to access office and industrial property with a strategy executed by the Arrowhead team.

“We anticipate a very difficult environment going forward. Besides the stagnant economy, political volatility in South Africa is impacting capital markets and the Rand with negative effects for the cost of capital for the property sector. Despite this, the Fund expects similar levels of growth in the coming year of around 7%,” says Rapp.


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