Laurence Rapp, CEO of Vukile Property Fund. Picture: BUSINESS DAY
Laurence Rapp, CEO of Vukile Property Fund. Picture: BUSINESS DAY

Vukile Property Fund’s CEO, Laurence Rapp, says the group’s defensive shopping centres are enabling it to outperform peers who own higher-end malls.

In spite of a weak South African economy, the group managed to grow its dividends per share 7.4% during the six months to September, results showed on Monday.

"This strong performance is in line with our market guidance and places us firmly on track to deliver forecast growth in dividends of between 7% and 8% for the year ending March 2018," said Rapp.

Vukile’s Spanish expansion also began to gain momentum during the reporting period. Euro-denominated returns from these assets should help Vukile to achieve dividend growth of at least 8% for the financial year to March 2019.

Vukile is an internally managed retail real estate investment trust (Reit) with total property assets and related property investments of R20.4bn. About R15.5bn, or 76%, is invested in Southern Africa, with shopping centres accounting for 91% of Vukile’s direct domestic assets.

Its international investments are its Spanish Reit subsidiary, Castellana Properties, which accounts for 18%, or R3.6bn (about €218m), of its assets, and associate business Atlantic Leaf in the UK, which accounts for 6%, or R1.3bn.

Vukile’s credit rating is investment grade and its gearing remains conservative at 29%, with 94% of its interest-bearing debt hedged with a three-year fixed-rate maturity profile.

The Reit has degeared its local balance sheet to create capacity to pursue its offshore strategies. It has also introduced currency hedging, which will result in at least 75% of its offshore earnings hedged over a three-year period.

"Our retail portfolio has again performed admirably … proving the resilience and defensive nature of our malls," said Rapp.

The portfolio achieved impressive operating metrics with a 6.1% rise in like-for-like net property revenue, improved vacancy levels down from 3.9% to 3.4%, positive retail rent reversions of 5.2% and inflation-beating contractual rental escalations of 7.3%, said Rapp.

Vukile’s rural shopping centres were the star performing assets during the period.

Asset management director Ina Lopion said the average trading density growth at its rural malls was 5.9%. The portfolio average trading density like-for-like growth was 3.4%.

Jay Padayatchi, executive director at Meago Asset Management, said Vukile’s retail centres, which focused on lower living standards measure and nondiscretionary spend items was defensive.

The group’s hedging strategies also gave certainty to its earnings abroad.

"This is one of the better set of results that has been released during this results season," said Padayatchi. "We are also happy that their offshore expansion into the UK and Spain is gaining momentum and offers growth and diversification."

Garreth Elston, a fund manager at Golden Section Capital, said Vukile’s results were pleasing and highlighted the defensive nature of the fund’s assets.

"Considering the very tough trading environment, Vukile delivered a solid set of results."

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