Vukile Property Fund’s Spanish portfolio, which accounts for 52% of the group’s total assets, will be a buffer against the economic weaknesses in SA, an analyst says
Ahmed Motara, a senior fund manager at Stanlib said Vukile’s decision to invest in Spain in 2017 was continuing to reward the company.
With 43% of net property income for Vukile’s direct property portfolio generated from Spain, Vukile had diversified its income streams in a defensive manner, Motara said. He said the Spanish economy had exited its lockdown sooner than SA had.
“Covid-19 has had a material impact on Spain, but many malls have now opened since late May and the expectation is that Spain will open the country to tourists from July,” he said.
Spain was the second most visited country in the world in 2019 after France.
Spain’s GDP is forecast to contract 9.7% in 2020, Castellana CEO Alfonso Brunet said, followed by a strong rebound in 2021.
Rental collections remained robust in Spain, even through the worst of the crisis, and are anticipated to reach near 99% in June 2020, he said.
Vukile owns 82.5% in Madrid junior board listed Castellan Properties Socimi.
Vukile’s assets in Spain, which are largely made up of shopping centres, are worth R19.8bn while SA’s portfolio is R16.6bn and accounts for 44% of its assets. It has shares worth R1.5bn in a UK fund.
Vukile, a diversified real estate investment trust (Reit), said in a presentation on Tuesday that distributable earnings per share rose 3.2% to 187.25c in its reporting period, having said last year that it expected growth to be 3%-5%. This means Vukile’s distributable earnings have grown for 16 years in a row.
However, the decision to pay a dividend has for now been deferred, as Vukile prudently awaits feedback from the JSE on potential amendments and possible rulings related to the Reit sector,” Motara said.
Reits by definition are supposed to pay a minimum 75% of their distributable earnings out as dividends. In this sense they are ideal for pensioners who rely more on income growth than on capital growth. But the SA Reit Association has requested that the JSE amend these rules so that Reits — many of which cannot afford to pay dividends amid SA’s recession and the pandemic — do not have to.
Both SA and Spain showed a relatively strong operating performance for the period ending March 2020, with low vacancies and positive reversions, according to Motara.
“Company disclosure remains among the best in the sector with significant detail provided on operational and financial metrics. While some investors were anticipating a dividend to be paid, it is good to know that the income has been generated as expected and is available to pay a dividend,” he said.
CEO Laurence Rapp said Vukile’s Spanish assets had delivered an exceptional performance and its SA assets had delivered a strong performance in the year to March.
Castellana achieved dividend growth of 9.6% and contained vacancies at 1.8%. It maintained a rent collection rate of 99%.
Like-for-like trading density in the SA portfolio grew 3.4% and 5.1% when including asset upgrades. Trading density refers to sales turnover per rentable square metre.
Retail vacancies were contained at 2.9% with 84% retail tenant retention and positive rental reversions of 1.1% on average.
Retail like-for-like net income growth of 6.0% was achieved.
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