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Vukile Property Fund eyes property pipeline

After the property counter raises R1.1bn.

The JSE-listed property sector’s capital raising spree continues, this time in the form of Vukile Property Fund which has tapped into the market to raise R1.1 billion to fund its growth ambitions.

Vukile, with a market capitalisation of R11.5 billion, initially earmarked raising R750 million, but it announced an oversubscribed capital raise on Wednesday.

The property counter issued 58.8 million shares at an issue price of R19. The capital raise was oversubscribed even when the option to purchase shares by investors closed after Vukile raised R1.1 billon.

Vukile CEO Laurence Rapp says the proceeds of the capital raise will be used to bed down some of its acquisitions and to make its imminent pipeline of retail assets possible.

One of the acquisitions on its books is Nonesi Mall, the 28 000 square metre shopping centre in Queenstown in the Eastern Cape, which it acquired for R360 million in 2014. Vukile also transferred the 31 653 square metre Moruleng Mall in the North West, while the 15 000 square metre Batho Plaza in Soshanguve is set to transfer next week.

The proceeds will also be used to acquire the asset management company of Synergy Income Fund, after Vukile made a bid for the it. It now owns a controlling 62% stake in Synergy, which has become a listed subsidiary of Vukile.

After Vukile settles its recent acquisitions, it stands to boost the value of its collective properties from about R10.3 billion to approximately R14.5 billion – with retail assets set to make up 65% of its portfolio.

“There is also a pipeline of opportunities that we are working on that are consistent with our strategy of looking at good quality, low risk retail assets and buying on accretive yields.

“We raised some of the money pre-emptively [from the capital raise] in terms of trying to look at those opportunities and hopefully in a few weeks’ time we can disclose what those opportunities are,” Rapp told Moneyweb.

Of the total capital raised, up to R250 million will be placed with the Encha Property Group, Vukile’s Black Economic Empowerment (BEE) partner.

In 2013 Vukile announced the BEE transaction which would see the real estate investment trust (REIT) acquire a portfolio of four investment-grade and government-tenanted properties from Encha for R1.3 billion.

Encha effectively owns a 6.7% stake in Vukile. For the purposes of the Property Sector Charter, Encha’s stake would be boosted to about 25% after adjusting for mandated investments.

The BEE deal was hailed as significant at the time for the property sector, which is still viewed as being slow on transformation.

More funds raise capital

Over the last year, the listed property sector has seen many companies embark on capital raising exercises – predominantly offshore funds. Among the offshore funds – or global REITs as they are commonly known –Rockcastle Global Real Estate, Stenprop Limited and Delta International have raised funds locally.

These counters have individually raised more than R450 million recently to fund acquisitions in markets such as Poland, central Berlin, Morocco and Mozambique.

Local companies have also had a slice of the action. In March, Rebosis Property Fund raised capital to acquire a 62% stake in UK-mall owner New Frontier Properties.

Head of listed property funds at Stanlib Keillen Ndlovu says about R8.8 billion has been raised so far this year in terms of new listings, dividend re-investments and private placements. This figure excludes Vukile’s capital raise. In 2014 the sector saw a record R40 billion raised, Ndlovu says. See comparison of years below.

Year Amount raised
2011 R16 billion
2012 R11 billion
2013 R18 billion
2014 R40 billion
2015 R8.8 billion so far (excluding Vukile)
Total R93.8 billion

Source: Stanlib Research April 2015

“Despite the strong returns and valuations that appear to be full, the appetite for local listed property remains good. Investors are taking a longer-term mindset and listed property has firmly established itself as a separate asset class,” he adds.

The sector is still poised to see more capital raising exercises, says Meago Asset Managers Jay Padayachi.

Padayachi adds: “I think that there will be more funds raising equity as many of the share prices are at all-time highs with a lot of investor appetite coming from general equity investors who see property as still fair value.”

Vukile shares were down 4.5% to close at R19.10 on Wednesday.

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