Vukile eyes chance to dominate Spanish market
US private equity funds have to return capital and sell retail assets, providing mall owner with a gap to grow in the European market
Mall-owner Vukile Property Fund, which operates in Southern Africa, the UK and Spain, sees an opportunity to dominate the Spanish market.
The landlord, which entered Spain two years ago, said in a presentation on Monday that US private equity funds needed to return capital and sell their retail assets, providing it with an opportunity to grow in that market.
Due to negative sentiment towards the retail sector there is less competition for assets, it said.
CEO Laurence Rapp and his team first invested in Spain in 2017 when Vukile's peers were chasing opportunities in eastern Europe. They are the only JSE-listed property company to have significant exposure to Europe’s fifth-largest economy and the second most visited country in the world. They initially invested in malls in coastal towns which had healthy tourism markets, buying retail centres in Cadiz, Alicante and Granada.
Vukile now holds 72.2% of Castellana Properties, a Madrid-listed company that owns €916.5m worth of commercial property and is the ninth largest real estate investment trust in that country. Its asset base tripled in value from €308m during the financial year to March 2019, through the acquisition of five shopping centres. The group aims to increase its Spanish asset base to €1.5bn in its 2020 financial year.
As much as 49% of Vukile's portfolio is overseas, with the remainder in SA. Vukile wants to offload its stakes in JSE-listed landlords Gemgrow Properties and Atlantic Leaf Properties. Gemgrow owns a range of properties in SA, many of which are worth R100m or less. Atlantic Leaf owns logistics assets in the UK.
Vukile said it supports Gemgrow’s plans to merge with its parent company, Arrowhead Properties, and that the deal will “make for an easier exit due to a relatively smaller percentage shareholding, greater scale and liquidity”.
A merger would reduce Vukile’s holding to 10%. It owns 7.5% of Gemgrow’s A shares and 28% of its B shares, giving it a 25.3% voting interest.
Vukile said Gemgrow is a noncore holding and it is “keen to find an exit”.
Meanwhile, it said while it has no concerns about Atlantic Leaf’s business and earnings outlook, it appears that the landlord will be “difficult to scale”.
Vukile will continue to work with Atlantic Leaf’s management “to find appropriate solutions and [a] potential exit for Vukile”.
The proceeds of a disposal will be used in Spain, it said.
Vukile said it had no immediate plans to sell its stake in Fairvest Property Holdings, but it will “continue to monitor total shareholder returns”.
The group also said the narrative of a “retail apocalypse” is “grossly exaggerated” and malls are not dying out amid a shift towards online shopping. But change is happening fast and the fund will spend most of the next year developing a strategy “to manage and thrive in a world of disruption”.
About 7.5% of sales in Spain were online in 2018 according to UK consulting group Kantar, up 1.5 percentage points on 2017.
Vukile also owns five malls in Namibia, worth about R1bn. These are not being held for sale as an offer it received for the portfolio in the past year recently fell through.