Vukile acquires Spanish portfolio for R2.8bn

Reit’s offshore exposure has been boosted to 21%

VUKILE, the JSE-listed property company, has boosted its offshore exposure to 21 percent through the acquisition of a R2.8 billion retail portfolio in Spain.

Laurence Rapp, the chief executive of Vukile, said yesterday that the deal gave traction to Vukile’s stated holistic investment strategy in the developed markets of Western Europe and set Vukile apart from other South African real estate investment trusts(Reits), many of which had focused their international expansion into emerging eastern European markets.

The announcement increases the number of properties owned by Vukile in Spain to 11. It follows Vukile in May this year signalling its international expansion intentions when it confirmed it was actively exploring opportunities in Spain.

Rapp confirmed yesterday Vukile would “for the time being” focus only two markets outside South Africa, Spain and the UK.

“We would rather build a bigger, better business in one country than have eight countries in our stable. We think there are good opportunities to continue growing in Spain and we will continue to look to do so.

“With this acquisition, Vukile has secured a significant growth platform in one of the most compelling investment stories in the Eurozone today.

“We are very happy with the fundamentals of the deal and the investment value it signifies for Vukile. It creates a solid, significant base for accretive acquisitions in the region,” he said.

Rapp confirmed Vukile had now spent the R1.5bn war chest it had available for its international expansion.

But Rapp said Vukile had raised about R400m in its recent dividend dividend reinvestment programme and had the capacity to always go to the market if and when it needed to.

Rapp said Vukile’s gearing level had increased from 23 percent to 31.7 percent post this transaction and its market guidance was that it did not want to increase its gearing above 35 percent on a long term sustainable basis.

Vukile in December purchased 86.89 percent of the shares in Castellana, an unlisted Spanish Reit for R193m that owns two call centre properties.

Vukile’s UK exposure is being driven through its strategic 29.56 percent shareholding in Atlantic Leaf.

To fund the Spanish acquisition, Castellana has secured debt funding of €94.8m from Spanish lenders at an all-in cost of debt of 1.98 percent, with Vukile funding the remaining €103.3m via Castellana using the war chest it built up for its international expansion.

The nine Spanish properties acquired by Vukile have a total gross lettable area of 117 670m², are geographically diversified across Spain and have a vacancy rate of 2.7 percent.

Rapp added that the portfolio comprised 73 stores, of which 95 percent of gross revenue was derived from leading Spanish national and international retail tenants, and a weighted average lease term of 15.6 years to expiry and 4.9 years to the next break option.

Rapp said Vukile was now in a different league because five years ago the company did not have scale and its portfolio was not great, comprising a diversified portfolio of B-grade and C-grade properties.

“We have transitioned Vukile over the past five years into a focused high quality retail Reit. People are a bit nervous about retail at the moment, but it’s still the best performing asset class and it still has the most predictable income streams,” he said.

Rapp added that Vukile’s forecast 7 percent to 8 percent dividend growth this year was contingent on doing this transaction. “We have now done the deal and are very upbeat about where the business is,” he said.

Shares in Vukile rose 2.35 percent yesterday on the JSE to close at R18.73.