Rapp’s reign in Spain makes profits grow

The SA listed property sector had a dismal start to 2018 with a -18% total return year to date (to June 13).

But not every property punter has lost money. Investors who betted on retailfocused Vukile Property Fund are in the pound seats. The share price is up 12% from its February lows of R19.65, and the company continues to deliver income growth.

Last month, Vukile declared dividend growth of 7.7% for the year ending March, comfortably ahead of the 6% dividend growth expected for the listed property sector this year.

More impressive is that management, under CEO Laurence Rapp, expects to maintain the momentum with dividend growth of 7.5%-8.5% forecast for the 2019 financial year. That’s not easy in this

economic climate, where there’s been a marked deterioration in vacancies, rental growth, lease renewal rates and trading densities.

Vukile’s local R13.2bn portfolio of 46 shopping centres has performed strongly for the 12 months ending March. At a time when most other SA mall owners are reporting a rise in vacancies, Vukile reduced its retail vacancies from 3.6% to 3.4%. Trading densities are also holding up well.

Vukile’s small regional and community centres delivered 3.6% growth, while its rural retail portfolio notched up 7%, well ahead of the -2.3% average growth reported by the IPD trading density index for the SA retail market in the fourth quarter last year (year-on-year).

Speaking at the company’s results presentation last month, Rapp said these numbers underscore the defensive nature of Vukile’s retail portfolio. “It also vindicates our decision to reduce our office and industrial exposure and focus more on retail. There’s no doubt retail is still the place to be in SA,” Rapp said.

Perhaps more intriguing is Vukile’s recent entry into the Spanish retail property market — the only listed SA real estate player to do so to date. While most of his peers have ventured into Central and Eastern Europe, Rapp chose Spain.

“We didn’t want to expand into another emerging economy. We were looking for a developed country with strong economic growth prospects and an active and deep resale market. Spain ticked all the boxes,” said Rapp.

Vukile entered Spain in July last year, acquiring 11 retail parks. It added two more properties through local subsidiary Castellana Properties and last month bought its biggest asset to date, the 24,158m2 Habaneras Shopping Centre in Torrevieja. The à80m acquisition has brought the value of Vukile’s Spanish exposure to nearly à400m. Rapp said though there is a “wall of money” chasing property deals in Spain, especially from Asia, Vukile’s competitive advantage is that it has established a strong local investment team.

Rapp said though Vukile

Joan Muller

entered Spain less than a year ago, it has made swift progress.

Vukile offers a compelling investment case for income chasers looking for consistent and predictable growth. This year it extended its 14-year record of unbroken dividend growth with an average total return of 22%/year since listing in 2004.