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Vukile’s operating profit takes a pandemic hit of R832m

But the group declares a full-year dividend based on a 79% pay-out ratio, saying it is ‘very pleased with the operational performance of the business’ and how it has ‘navigated the Covid-19 crisis’ thus far.
Gugulethu Square Shopping Centre in Cape Town is one of Vukile's township-based malls. Image: Supplied

JSE-listed Vukile Property Fund has seen its operating profit for the full-year ending March 31, 2021 sliding by just over R830 million due to the pandemic-induced financial fallout last year.

The real estate investment trust (Reit) that has a significant retail-focused presence in South Africa and Spain, reported in its latest results Sens statement on Wednesday that operating profit (before finance costs) decreased to R1 796 million, compared to R2 628 million for its prior financial year.

While Vukile’s gross property revenue for the reporting period decreased by only around R300 million (from R3.4 billion in FY2020 to R3.1 billion), Covid-19 lockdowns and restrictions to trade saw the fund having to offer rental relief to hard-hit tenants totalling R467 million.

Listen to Suren Naidoo’s interview with SA Reit Association CEO Joanne Solomon (or read the transcript here): 

This took a big bite out of its profits for the year.

“Revenue and operating profit reduced relative to the prior period, largely due to Covid-19 rent concessions granted to tenants, both in Southern Africa and Spain,” the group points out in its Sens.

Despite the hit, Vukile says that it is “very pleased” with the group’s overall operating performance and how it has “navigated the Covid-19 crisis” thus far.

“Vukile remains in very good shape operationally and financially, and with a clear strategic focus, the group is well positioned for long-term growth,” it notes.

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“The macro-economic benefits of diversification will continue to be advantageous for our South African investors. The clearly focused retail specialisation strategy, in Southern Africa and Spain, is providing benefits in each of these markets, as seen by the strong operational results delivered in the worst of the Covid-19 crisis,” it adds.

Not all retail property counters are weathering the Covid-19 storm as well as Vukile, which is also benefitting from the better performance of rural and township malls that make up most of its South Africa portfolio.

JSE-listed peers, such as Canal Walk and Rosebank Mall-owner Hyprop, are seeing a slower recovery in the performance of urban mega malls.

Vukile says that it believes it has “the right platform and approach to restore profitability to pre-pandemic levels over the next few years”.

The group declared a cash dividend of 101.04 cents per share for its 2021 financial year, which it plans to payout in July.

This is compared to a full-year dividend of 129.02 cents per share for its prior financial year, ending March 2020.

However, Vukile’s latest full-year dividend is based on a payout ratio of 79%.

While the group has not provided guidance for its 2022 financial year due to ongoing Covid-19 uncertainty, it has flagged that it will reduce its payout ratio.

The market responded positively to Vukile’s financial results, with the stock surging almost 8% and closing at R11.38 a share on Wednesday.

“Vukile’s results dispelled newsflow concerns some bears may have expected,” Evan Robins, portfolio manager at Old Mutual Investment Group told Moneyweb in an upbeat reaction to the fund’s performance.

“Operations were solid given this environment, and I think most importantly, the balance sheet surprised positively, and this included the valuation of the Spanish business. Vukile is playing the long game as is not trying to maximise dividends for a short-term benefit,” he said.

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A VERY good set of results from Vukile considering Covid and the other property shares. Has the property index turned the corner?
I feel that there is money to be made in the property sector.

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