Vukile Property Fund CEO Laurence Rapp says his fund is on track to have more than 90% of its portfolio in top quality retail assets, and to receive a rerating.
Vukile reported 7% growth in distributions to 146.36c per share for the year to March, and is finalising a deal with Synergy Income Fund, which would see it inject office and industrial assets in exchange for retail assets.
Vukile has direct property assets valued at R15.6bn, and total assets of R16.7bn. The company became a level three broad-based black economic empowerment contributor during the year. Only Rebosis Property Fund and Delta Property Fund have higher empowerment ratings.
Vukile is nearly 70% composed of retail property assets held here and abroad, and if its asset swap deal with Synergy is completed, it will be almost 95% exposed to retail. In terms of the Synergy deal, Vukile will become a 25% shareholder in Synergy.
“We believe Vukile owns a very high quality portfolio of retail assets, and that this is set to improve even further. We feel that we will then be rerated and trade at a better yield,” Rapp said on Thursday when he presented financial results for the year to March.
Vacancies in the company’s portfolio decreased from 4.6% to 3.9% of gross lettable area.
Vukile’s lease expiry profile improved substantially, with about 33% of leases due to expire in 2020 and beyond, up from 18% at the start of the year. It retained its ratio of net recurring costs to property revenue at 15.8%, compared with 15.5% in the prior year.
Rapp said while Vukile was focused on retail assets in SA, it still had an offshore holding in Atlantic Leaf in the UK. Vukile invested R760m for a 26.1% active holding in Atlantic Leaf in August 2015.
Ma’alot Investments head Maurice Shapiro said Vukile had improved under the stewardship of Rapp, who has been CEO for the past five years. “In the next 18 months, Vukile will basically be 95% retail, and will have exposure to very good assets. I think that the market needs to appreciate that they are a well-run, very defensive, conservative, low-risk fund. They are trading on an attractive forward yield of around 9%, and have strong growth potential.”
Grindrod Asset Management chief investment officer Ian Anderson said Vukile’s strategy had made it a much improved investment in the past few years.
“They’ve made a tremendous amount of progress, and should make further strides this year, having agreed to sell four of their government-tenanted properties. The performance of the retail portfolio in financial year 2016 was actually quite good. They achieved aboveaverage growth in rentals on new leases, and 7% growth in trading densities across the portfolio, excluding East Rand Mall, where a refurbishment project impacted on trading densities during this reporting period, are all positive signs,” Anderson said. He said Vukile’s 7% growth in dividends would gain momentum in the future.
“Once the domestic economy starts to grow meaningfully again, I think Vukile’s distribution growth will accelerate quite appreciably. The company is also looking to expand offshore, and the proceeds of the sale of the government- tenanted properties will be used to expand their footprint outside SA, although they haven’t stated whether it will be a direct investment into property, or further investment into Atlantic Leaf.”
Rapp said that the Atlantic Leaf portfolio was valued at about £264m, and had an attractive lease expiry profile. “It has a long-term lease expiry profile of about 13 years, and is largely focused on industrial and office assets, where the underlying properties are single-tenanted triple-net leases with blue chip business that have recognised ratings.”
He said there were very few local investment prospects that Vukile was evaluating, as pricing did not match the cost of capital.
Once the local economy starts to grow … again, I think Vukile’s distribution growth will accelerate quite appreciably.
source" Business Day
