Solid foundation for future growth
VUKILE’S FOCUS ON properties in lower income and secondary areas may well give it a low rating on the excitement charts. However, the stock has proved to be one of the listed property sector’s most consistent performers. Distribution growth of 10,2% for the year to 31 March 2010 places it among only a handful of real estate funds still achieving double-digit growth in income payouts. The counter has delivered an equally impressive share price performance, with growth of more than 30% over the 12 months to end-March: that’s way ahead of the property loan stock index’s rise of 16% over the same time.
Management ascribes the company’s strong set of results to good control of bad debts, keeping a lid on vacancies and strong rental growth in some sectors. Cost control is also an ongoing priority. Says chairman Anton Botha: “The company will continue its rigorous pursuit of cost control, tenant retention, credit control and energy savings while enhancing the desirability of its property portfolio through renovation and expansion of its existing buildings and the acquisition of good quality properties.”
Management has already delivered on its acquisition promises, with a deal currently on the table to buy nine properties from Sanlam Life for R531m. This transaction, which is expected to be finalised by endJuly, will push the value of Vukile’s property portfolio to more than R5,4bn and significantly boost income streams.
The portfolio could be bulked up further over the next year or two as management has the option to acquire properties worth another R500m from Sanlam, as well as the ongoing right of first refusal over the remainder of Sanlam’s multi-billion rand property portfolio. Vukile has a long-standing relationship with Sanlam, as the latter contributed a significant share of Vukile’s start-up portfolio before the fund was listed on the JSE in June 2004.
It appears Vukile’s retail property portfolio – which contributes 55% of its rental income – has weathered the downturn exceptionally well. In fact, Vukile’s shop- ping centre portfolio has emerged unscathed from the retail sales slump on the back of South Africa’s first recession in 17 years. Its annual report shows retail vacancies have been contained below 4%, while rentals were still growing at a healthy 10% in the year to end-March.
Vukile’s flagship centres include the Phoenix Plaza (Durban), Randburg Square (old Sanlam Centre), Dobsonville Shopping Centre (Soweto), Daveyton Shopping Centre (East Rand) and the Hillfox Power Centre (Roodepoort).
Looking ahead, Botha expects trading conditions to remain stable in its current financial year without any real fireworks over the short term. “As the property market traditionally lags the broader economy by 12 to 18 months, we don’t expect to see a substantial improvement in trading conditions before 2011.