Vukile Property Fund’s 15-year unbroken track record of distribution growth has been bolstered by its bullish offshore investment drive in Spain. The fund outperformed other sector peers, posting a 7.5% increase in dividends per share on Thursday for its half-year to September 30, 2018.
Vukile CEO Laurence Rapp, said he was delighted with the results in context of the tough local real estate investment trust (Reit) market and anaemic economic growth locally. He is, however, bullish about Vukile’s offshore venture into the Spanish market. While still new, he said that the investments in Spain are delivering dividends and resulted in the fund upping distributions to 7.5%.
“Had we not ventured into Spain, we would have only had distribution growth of around 5%. This would have still been decent in the current market, but our diversification drive offshore in the growing Spanish market has given Vukile a real boost,” said Rapp.
Vukile has forecast 7.5% growth for its full year in 2019, which is in stark contrast to other well-established SA Reits, many of which have lowered dividend growth expectations for next year.
Rapp said that while Vukile was running a tight ship in terms of its local business, its offshore expansion into Spain would be a key contributor to the fund’s upbeat guidance of 7.5% growth next year.
“Vukile now holds 50% of its total R32.3 billion property assets offshore – 46% in Spain through Castellana Properties SOCIMI SA and 4% in the UK through Atlantic Leaf. The remaining 50% is in Southern Africa.
“Strong asset management is driving both our Southern African retail portfolio and Spanish investment strategy. Vukile is comfortably on track to deliver dividend growth for the full 2019 financial year in line with the half-year. We are well positioned for long-term growth and sustainability,” he added.
Rapp said that relative to South Africa, the Spanish outlook is more upbeat. “Spain is anticipating 2.7% GDP growth next year. Its unemployment rate is set to fall from around 15.3% this year to 13% next year, which will give consumer confidence a further boost,” he said.
Speaking at Vukile’s results briefing, Alfonso Brunet, Managing Director of Castellana Properties, said Spain was the fifth-largest economy in Europe by GDP and the third-largest tourist destination in the world.
“Spanish GDP growth remains ahead of Western Europe. Its employment rate continues to rise, and its e-commerce remains flat at 5% of total retail sales,” he added.
Vukile’s Spanish property investments increased from €308m to around €900m during the period, following the acquisition of five dominant shopping centres. Four of the centres were acquired from Paris-based global shopping centre giant, Unibail-Rodamco-Westfield.
Rapp said: “Castellana Properties SOCIMI SA – Vukile’s Spanish subsidiary – listed as a Reit on the junior market of the Spanish Stock Exchange in Madrid in July. Our Spanish business has now grown to a full-scale, 21-strong team and Castellana is the ninth-largest Reit in Spain.”
He added: “The solid base of our Spanish investment will be a strong driver of Vukile’s growth overall with its good deal flow and value-adding asset management opportunities. The latest Spanish acquisitions have only contributed to our income base for two months of the current financial period, and further benefits are expected to flow through in the second half of the year.”
Vukile’s directly held domestic portfolio is valued at R14.5 billion, 91% of which are retail assets. Its retail vacancies during the period came in at 3.4%.
Rapp said: “Vukile’s core South African retail property portfolio had a solid operational performance in a relentlessly difficult domestic operating environment. There are no immediate signs of improvement, but there could be some green shoots after the elections next year.”
Commenting on the results, Kundayi Munzara, a director and portfolio manager at Sesfikile Capital, said that Vukile’s guidance of 7.5% for the full year would likely see it remain one of the top performers in SA’s listed property space. However, he raised concern about Vukile’s high loan-to-value ratio of 38% and the higher gearing in its Spanish assets.
“The company’s operational performance is perhaps a result of key strategic decisions that were made a few years ago… Although still early, its offshore expansion to Spain has started to bear fruit. Importantly, the company is making strides in building a Spanish team with people who have worked in other well-regarded companies, such as Axxiare and Unibail-Rodamco-Westfield,” added Munzara.