Vukile: Coming of age
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.