Vukile Property Fund’s share price surged to nearly R25 last week, up 50% from early April lows and well ahead of its 2018 highs of R22. That comes on the back of the release of an upbeat set of results for the six months to September, which prompted management to upgrade its dividend growth guidance for the full year to March 2026 from 8% to at least 9%.
Vukile, with a market cap of R33bn, is the JSE’s third-largest South Africa-based property counter after Growthpoint Properties and Redefine Properties. It owns a R54bn shopping centre portfolio split about 66/34 between Iberia and South Africa. In 2018, Vukile was the JSE’s first real estate investment trust (Reit) to enter Spain, later followed by Portugal. At the time, Eastern Europe was the sector’s offshore destination of choice. Today it owns 21 shopping centres across the two countries. Its South African portfolio of 33 malls is skewed towards townships and urban commuter and rural areas.
Like many of its peers, Vukile has surprised on the upside in terms of earnings growth in recent weeks as lower interest rates, an end to load-shedding and a rebound in trading metrics start to flow to the bottom line.
Both the South African and Iberian portfolios delivered strong interim results, with net operating income up 10% and 8.7% respectively. Vacancies remain minimal, foot count and sales rose across regions and rental growth on renewals and new lettings clocked in at 2.5% in South Africa and 7.5% in Iberia.
Vukile has been on an aggressive acquisition trail in the past 18 months. Since May last year, management under CEO Laurence Rapp has spent more than R13bn to add eight malls to its portfolio — six in Iberia and two in South Africa. The latter includes the Mall of Mthatha in the Eastern Cape. More recently, it bought a 50% stake in Chatsworth Centre in KwaZulu-Natal.
Speaking at last week’s results briefing, Rapp said Vukile has a R7.65bn war chest to further bulk up acquisitions. In the next six months, he hopes to wrap up at least four more deals now under negotiation — including one South African township mall.
Not only do we have exposure to Europe’s two hottest economies … we also operate in South Africa’s most resilient retail sector
— Laurence Rapp
Management is looking to potentially enter other Western European markets. “We are doing our homework,” said Rapp. But, he added: “We don’t have to go elsewhere yet, given how many deal flow opportunities we still have in Iberia.”
He believes Vukile is in a sweet spot in terms of both its offshore and domestic focus. “Not only do we have exposure to Europe’s two hottest economies — Spain and Portugal — we also operate in South Africa’s most resilient retail sector: townships and rural areas,” he said.
Figures released this week by equity research firm Golden Section Capital show that Vukile, Growthpoint, Fairvest (B), Resilient Reit, Redefine, Emira Property Fund and Delta Property Fund are the best performers among the property sector’s 40-odd counters year to date, with all of them exceeding total returns of 40%.
Of course, the strong run in share prices means the Reit sector is no longer cheap. Golden Section Capital MD Garreth Elston notes: “The deep value that defined the post-Covid era is evaporating, replaced by a scramble for exposure.” He adds: “When capital starts chasing yield this aggressively, the risk of overpaying rises exponentially.”
Still, Elston reckons that while the easy money has likely been made, the market is not yet in overpriced territory. “Valuations are demanding but not irrational.”
In terms of how much upside Vukile still offers, Elston says the Reit remains the operator to beat in the retail space. “Unlike peers struggling with [negative] reversions, Vukile is posting real net operating income growth.” He adds that management’s track record of doing accretive deals should continue to support earnings growth.
He names Vukile, Nepi Rockcastle and Dipula Properties as the property counters that have the ability to continue growing distributions without relying on interest rate cuts. “That’s where investors’ focus should shift.”
Ian Anderson, head of listed property and portfolio manager at Merchant West Investments, agrees that Vukile remains fairly priced, despite being one of only a few Reits already trading ahead of NAV (about 4%), a premium he believes is entirely warranted.
He says the market is rewarding Vukile for its highly disciplined management team and strong capital allocation abilities. “Back in 2016/2017, when the Reit sector had access to so much capital it hardly knew what to do with it, several Reits just went and bought assets all over the place. Not Vukile.”
Anderson says the quality of Vukile’s portfolio is likely to translate into earnings growth of at least 10% a year over the next two to three years, which means investors can still expect double-digit returns of at least 15% a year given a forward dividend yield of about 6.5%. “So we are still very comfortable with a large exposure to Vukile.”
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