Vuk­ile: Com­ing of age

Finweek English Edition - - IN THE NEWS -

Vuk­ile Prop­ert y Fund is com­ing of age. The JSEl i sted REIT has nearly tripled its as­set base in the four years since CEO Lau­rence Rapp took the reins, has an 11-year un­bro­ken record of dis­tri­bu­tion growth, im­proved op­er­a­tional met­rics and sig­nif­i­cantly out­per­formed growth and trans­for­ma­tion tar­gets. For Vuk­ile it au­gurs well for rerat­ing.

At the end of March, Vuk­ile had an as­set base of R13.6bn, a fig­ure that will grow within the next month to around R14.7bn when ac­quired as­sets are trans­ferred. In­tense fo­cus on ac­tive as­set man­age­ment, sell­ing of poor­erper­form­ing as­sets and buy­ing of bet­terqual­ity as­sets have re­sulted in its av­er­age as­set size now sit­ting at around R143m against R67m in 2011.

Con­ser­va­tively geared and hedged, gear­ing is at 26% net of cash, while 88% of term debt is hedged. Avoid­ing what Rapp calls “short-ter­mism” some­times preva­lent i n t he sec­tor, ex­tend­ing hedg­ing cost to R4.2m i mpact­ing dis­tri­bu­tion growth, Vuk­ile is re­port­ing 8.1% rather than a higher 8.7%. “We are go­ing to do what is right for the longer-term health of the busi­ness even if it comes at a cost in the short term,” ex­plains Rapp.

Pos­i­tive re­ver­sions across all three sec­tors of re­tail, of­fice, and industrial are re­ported and new leases in re­tail came in 5% ahead of bud­get. Sixty-seven per­cent of pre­vi­ous El­ler­ines space has been relet, bring­ing the com­pany more fash­ion ten­ants and oth­ers such as Just Gym and Viva Gym, the lat­ter a UK brand.

The com­pany now owns 65% of Syn­ergy In­come Fund hav­ing fi­nalised the lengthy ac­qui­si­tion of that port­fo­lio worth R2.4bn. The deal also brought with it Syn­ergy’s man­age­ment com­pany, Cap­i­tal Land As­set Man­age­ment. All told, this deal should add about R13.3m to earn­ings in the 2016 fi­nan­cial year.

Plans to re-en­er­gise Syn­ergy in­clude keep­ing it listed. And Syn­ergy’s A and B unit struc­ture, where Vuk­ile aims to de­rive the gear­ing ben­e­fit of those B units, is one good rea­son. Rapp says Sedise Moseneke will serve as in­terim CEO of Syn­ergy with Rob Haw­ton step­ping on board as fi­nan­cial direc­tor.

Vuk­ile de­liv­ered on its com­mit­ment to trans­for­ma­tion, achiev­ing a level 4 rat­ing. The En­cha Prop­erty Group deal was a sig­nif­i­cant part of that suc­cess with in­no­va­tive tech­nol­ogy em­bed­ded in the deal that has led to that shareholding in­creas­ing. To­day En­cha owns about 8.1% of Vuk­ile, a shareholding of ap­prox­i­mately 28% as weighted against the sec­tor codes.

The pre­dom­i­nantly re­tail prop­erty REIT’s as­sets are set to grow a fur­ther R1bn by July. This will push re­tail as­sets up from 64% to around 70%. Re­tail as­sets were less than 50% when Rapp took over. “Im­por­tantly, we have raised the money ahead of th­ese ac­qui­si­tions on a yield ac­cre­tive ba­sis,” he says. As­sets: R13.6bn (at 31 March) Mar­ket cap: R11.9bn No. of prop­er­ties: 93 Dis­tri­bu­tion growth: 8.1% Prop­erty rev­enue growth: 13.6% Dis­tributable in­come growth: 11.6% Net as­set value per share growth: 14.6% Pro­jected dis­tri­bu­tion growth for FY2016: 7%-8%: Post-bal­ance sheet the com­pany raised R1.1bn of eq­uity amid strong de­mand for shares and ref inanced R580m of debt in the bond mar­ket with a Do­mes­tic Medium-Term Notes place­ment, its se­cured notes car­ry­ing an up­graded AA+ rat­ing from Global Credit Rat­ings.

Ex­plor­ing an­gles of growth has Rapp ac­tively look­ing be­yond the fund’s tra­di­tional sec­tors to other as­set classes and to in­ter­na­tional de­vel­oped mar­kets out­side of Africa. A joint ven­ture is key to Vuk­ile’s off­shore plans, he says.

Aside from in­vest­ing R406m to add value to its ex­ist­ing port­fo­lio through up­grades and re­de­vel­op­ments, Vuk­ile en­ters the res­i­den­tial space with an R81m con­ver­sion of the Rand­burg Square of­fice tower into 180 apart­ments. Of­fer­ing stu­dio to two-bed apart­ments at an av­er­age rental of R5 000-R6 000 per month, the an­tic­i­pated yield is 9.1%.

Vuk­ile is i n good shape. It has demon­strated st rong del i ver y on ob­jec­tives, is con­ser­va­tively geared, hedg­ing is high and it has a bal­ance sheet with ca­pac­ity. It is also on the right radar screens, putting it in a bet­ter deal­mak­ing po­si­tion than it might have been four years ago. Vuk­ile is determined to build its cor­po­rate im­age, which is why its brand­ing is pop­ping up around Gau­train sta­tions and city hubs.

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