Laurence Rapp. Picture: ARNOLD PRONTO
Laurence Rapp. Picture: ARNOLD PRONTO

Vukile Property Fund has become the only South African-based real estate company with significant exposure to the Spanish economy after a landmark deal worth nearly R3bn.

The group has acquired a portfolio of nine newly built retail parks across Spain via its 98.3% holding in Castellana Properties Socimi.

The €193m off-market transaction increases Vukile’s diversification, boosts its international exposure to about 21% of total property assets and grows its Spanish portfolio to 11 properties.

"The transaction has given Vukile immediate scale in Spain. Vukile now offers the most focused exposure to Spanish property available in the South African real estate investment trust [Reit] market," said Vukile CEO Laurence Rapp.

Spain’s economy has been growing strongly relative to its European peers over the past few years. GDP growth has exceeded 3% a year over the past three years. An increase in disposable income is driving the economic recovery.


The acquisition represents a 6.2% pregeared property yield and reaffirms Vukile’s prospects to deliver growth in dividends of 7%-8% in the year to March 2018. Rapp said the deal "gives traction to Vukile’s stated holistic investment strategy in the developed markets of western Europe. It sets Vukile apart from other South African Reits, many of which have focused their international expansion into emerging eastern European markets."

The nine properties, which have a 117,670m² total gross lettable area, are geographically diversified across Spain.

The portfolio has a 2.7% vacancy rate.

It comprised 73 stores, of which 95% of gross revenue was derived from Spanish national and international retail tenants, including Media Markt, Sprinter, Worten, Aki and Mercadona, Rapp said.

Ian Anderson, chief investment officer at Bridge Fund Managers, said Vukile had created a strong offshore platform.

"Together with their recent transactions that have created a specialist, retail-focused portfolio, this transaction should go a long way to keeping shareholders happy and creating a solid platform for the future. The company trades on a one-year forward yield in excess of 9%, which we believe doesn’t fully reflect the improved portfolio and prospects," Anderson said.

Garreth Elston of Golden Section Capital said Vukile had purchased a solid portfolio of Spanish assets in diversified and economically stable areas.

"The bulk of the portfolio are the dominant retail parks within their locations, and these are the type of assets that Vukile should have sourced. This portfolio goes a long way towards the company achieving its aim of international diversification," he said. But South African property funds could end up overpaying in Spain.

"The deal also underscores the rapidly increasing prices in Spanish real estate. For example six of the properties in this deal were bought by Redevco Iberian Ventures in late April [2016] for €95m, and the same properties sold to Vukile just over 14 months later for €113.5m, a 19.5% increase. Therefore, while Spanish fundamentals are looking solid, South African companies need to ensure they do not overpay for assets," Elston said.

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