Vukile Property Fund thrives amid positive market momentum

Vukile Property Fund (JSE: VKE), a leading specialist retail real estate investment trust (REIT), is well-prepared to capitalize on favorable market conditions, according to its pre-close operational update for the first half of the 2025 financial year ending September 30, 2024.

CEO Laurence Rapp highlighted the period’s strong performance, citing exceptional results from the Spanish portfolio, improving metrics in South Africa, robust capital market support, and the company’s first investments in Portugal. Following a successful prior financial year, where funds from operations (FFO) grew by 6.7% and dividends per share (DPS) by 10.5%, Vukile is on track to meet its guidance for the financial year ending March 2025, aiming for FFO per share growth of 2% to 4% and DPS growth of 4% to 6%.

The company’s consumer-focused retail portfolio in South Africa has shown resilience, particularly in township and rural areas, which experienced trade increases of 5.3% and 3.5%, respectively. Overall trading density grew by 3.3%, surpassing last year’s 2.4%. Key sectors driving this growth included fashion—especially women’s wear—pharmacies, and health and beauty stores, with grocery trading density also on the rise.

Vukile maintains low and stable like-for-like vacancies at 1.9%. The recent addition of Mall of Mthatha, which is undergoing a R200 million upgrade set for completion in February 2025, has temporarily increased the total portfolio vacancy to 2.6%. Rapp expressed optimism about South Africa’s economic, social, and political improvements, contributing to a heightened sense of positivity.

In Spain, shopper numbers rose by 3.7% and sales increased by 4.6% in the first eight months of 2024 compared to the same period in 2023. Growth was particularly strong in homeware, health and beauty, and food and beverage, while overall portfolio occupancy stands at an impressive 98.4%, outpacing the Spanish average of 94.7%. Rental increases are robust, averaging 31.45%, with new leases seeing rises of 42.43%.

Vukile's asset management team in Spain continues to drive performance, evidenced by a value-add project at Valsur Shopping Centre that boosted foot traffic by 16%. Rapp noted an increase in Spain's projected GDP growth to 2.5%, reinforcing the strength of the retail property market.

Vukile is also expanding its footprint into Portugal, with a landmark acquisition set to close in October 2024, projected to yield cash-on-cash returns of over 10%. Post-acquisition, approximately 64% of Vukile's assets will be in the Iberian Peninsula, with nearly 56% of net operating income generated in Euros. The company's hands-on management approach, delivered through its subsidiary Castellana, will support these assets.

Rapp confirmed that Vukile is actively exploring growth opportunities in both South Africa and the Iberian Peninsula, driven by strong consumer confidence and tourism growth. The company’s solid balance sheet and proactive funding strategies position it favorably for its growth ambitions. Recent capital raises have further prepared Vukile for investment opportunities.

“Decreasing interest rates, rising consumer confidence, and positive equity market momentum are key drivers for our business,” Rapp concluded, expressing confidence in Vukile’s ability to leverage these economic tailwinds for continued success.