Venture into Spain pays off

Vukile has bucked the general sector trend and continues to deliver inflationbeating dividend growth

This year has turned out to be a horrible one for many property investors. Not only have real estate punters suffered losses on the capital growth front — the SA Jse-listed property index has tumbled about 30% in the year to date — but there has also been bad news in the form of lower-than-expected dividend growth.

Most local counters have struggled to maintain the usual inflation-beating growth in income payouts as tough trading conditions in SA continue to erode earnings from office, industrial and shopping centre portfolios. Quite a few have in fact declared a drop in dividend payouts in recent results periods. These include Accelerate Property Fund, Rebosis Property Fund (B shares), Delta Property Fund, Texton Property Fund, Arrowhead Properties, Liberty Two Degrees and SA Corporate Real Estate.

But it’s not doom and gloom for all Sa-based property funds. There have been a few notable exceptions, such as logistics company Equites Property Fund, Cape-focused Spear Reit, Storage and blue-chip mall owner Hyprop Investments, which have all delivered dividend growth of between 7% and 12% this year.

Vukile Property Fund is the latest addition to this category. Last week management, under CEO Laurence Rapp, declared dividend growth of a decent 7.5% for the six months to endseptember. Vukile’s solid performance was supported by its well-timed entry into Spain about 18 months ago. At the time the rand was still trading at below R14/€, compared with R16.27/€ today. Vukile was the first SA property player to enter the Iberian Peninsula, and is still the only one there.

Last year the company bought 11 retail parks in Spain, and it recently bulked up its Spanish portfolio with the acquisition of five shopping centres.

The initial acquisitions were mostly smaller strip-type centres (similar to value centres in SA) typically anchored by electronics or grocery retailers. The more recent acquisitions are larger shopping centres that dominate their catchment areas.

Vukile’s retail portfolio in Spain, held through Castellana Properties (listed on the junior board of the Madrid Stock Exchange) is now worth about €900m (R14.2bn) and makes up a hefty 46% of total assets of R32.3bn. Vukile also owns a stake in UK industrial property play Atlantic Leaf Properties (4% of assets).

Its R14.8bn directly held SA portfolio consists of more than 40 shopping centres, including East Rand Mall (50%), Phoenix Plaza near Durban, Gugulethu Square in Cape Town, Dobsonville Mall in Soweto and Daveyton Shopping

VUKILE PORTFOLO SPLIT

Centre on the East Rand.

Vukile owns a stake in fellow Jse-listed Fairvest, which owns a portfolio of shopping centres that cater mainly for lower-income shoppers in rural areas and townships.

Rapp, a former investment banker, has been instrumental in growing the company’s asset base, which has ballooned more than sixfold since he took the reins as CEO in August 2011.

Some analysts were initially sceptical when Vukile entered Spain, saying that the jury was still out about the scalability of the venture and the strength of the local management team.

However, 18 months on it seems that

Vukile’s Spanish foray is starting to pay off.

The company’s team on the ground in Spain has swelled to 21. And had it not been for its exposure to the Spanish retail market, dividend growth for the six months to September would have been closer to 5% instead of 7.5%.

Sanlam Private Wealth equity analyst Richard Colburn says Vukile’s move into Spain has made sense from a capitalallocation and revenue-diversification perspective given the weakening local operating environment and limited growth opportunities in SA. “What is impressive is the asset management initiatives undertaken by the team in Spain, including new lettings at increased rentals and cost management, which have already created additional value in the portfolio.”

He says the general risk for SA property companies that go offshore in search of growth opportunities is that