Vukile Property Fund has increased its guidance for the full financial year after another strong interim performance that saw the half-year dividend lifted by 10% to 52.1 cents.
In South Africa’s low economic growth environment, it has become exceedingly rare for listed groups to increase their earnings guidance, let along one in the real estate investment trust sector, which has also faced severe headwinds from structural changes in the retail and office property markets, the high interest rate environment, and slow Covid recoveries in some instances.
Vukile’s funds from operations (FFO) from the consumer-focused real estate investment trust of 85c per share was up 5.2%. Guidance for the full year increased to FFO growth of 4% to 6%, compared with a previous forecast of 3% to 5% growth. The dividend per share guidance was for 8% to 10% growth, versus 7% to 9% previously.
“Vukile has sustained strong operational results and positive trading metrics in both our South African and Spanish portfolios and balance sheet strength is supported by robust credit metrics. We have proven to be a resoundingly strong, sustainable business through some truly torrid times,” CEO Laurence Rapp said yesterday.
The company has consistently outperformed the South African Listed Property Index (SAPY) over a 10-, five-, three- and one-year period.
“We are confident that we will deliver on our increased guidance,” he said.
Vukile has a R39 billion defensive portfolio of retail property assets diversified across South Africa and Spain, through its 99.5% held Madrid-listed subsidiary Castellana Properties Socimi.
Around 60% of Vukile’s assets are in Spain. Almost 50% of its earnings are in Europe. The group strategy is to own dominant assets in their catchment areas with a focus on operational focus on the consumer as the source of value creation. In South Africa the retail assets are mainly in township and rural areas.
“Our South African assets are delivering excellent results, and our Spanish portfolio is maintaining its market-leading position.”
Vukile’s defensive domestic portfolio like-for-like net operating income (NOI) growth of 5.1%, and property valuations increased by 3.9%. Vacancies remained at a low 2%, and excluding office space within retail properties, the figure decreased to 1.3%.
The increased guidance will equate to a full-year dividend per share of between 121.4 and 123.6c (FY23: 112.4c).
Castellana grew normalised NOI 13% while vacancies were negligible at 1%. Some 95% of its retail space was let to international/national tenants.
There were no debt maturities in Castellana until the 2026 financial year. All 2024 debt maturities had been repaid, refinanced or renegotiated. Cash and undrawn debt facilities stood at a healthy R3.1bn.
“The business is well positioned … which will provide impetus for further growth once the global economic position improves,” Rapp said.
Spain was outperforming the eurozone, and employment was at the highest levels since 2008.
Rapp said there was good potential for “brilliant deals” despite the constrained capital markets and that real estate was out of favour globally.