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Vukile expands Iberian Peninsular exposure

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Vukile expands Iberian Peninsular exposure with EUR176 million shopping centre portfolio acquisition in Portugal.

Continuing Vukile Property Fund’s (JSE: VKE) Iberian expansion, its 99.5% held Spanish subsidiary, Castellana Properties, has agreed to acquire a high-quality, blue-chip-tenanted portfolio of three shopping centres in Portugal.

In a landmark transaction, Castellana will acquire the assets from a Harbert European Real Estate Fund subsidiary at an attractive initial yield of around 9%, which is expected to deliver a compelling cash-on-cash yield of some 10% in Euros.

Laurence Rapp, CEO of Vukile, comments, “We have clearly signalled our confidence in the Iberian Peninsula and the good opportunities it holds. We are thrilled to capitalise on this opportunity in Portugal, extending and complementing the strong platform that Castellana has already established in Spain.”

Rapp adds, “Building on our successes in Spain, Castellana’s robust and proven on-the-ground management capability make this expansion a natural progression. With a strong team, experienced in the Portuguese market, we are perfectly positioned for this next step.”

The Portuguese retail property portfolio includes two shopping centres in Lisbon and one in Porto, all with great retail fundamentals including dominant market positions, excellent locations, easy access, great visibility, attractive tenants and strong and loyal shopper bases.

Castellana is acquiring RioSul, a two-storey shopping centre in Seixal, southern Lisbon. Similarly, in the north of Lisbon, Castellana is acquiring Loures, also a two-storey shopping centre. Both feature an exceptional list of national tenants including Zara, Bershka, Pull&Bear, Stradivarius, Foot Locker and C&A, as well as various popular food offerings and a cinema multiplex. In both cases, the centres are tenanted by grocery anchor, Continente Hypermarket, which owns its own stores.

RioSul attracts an annual footfall of nearly 8 million consumers and achieves sales of around EUR98 million a year in a market where both the population and its spending power is growing. Loures is in a growth-node of Greater Lisbon and busy undergoing preparations to be integrated into a new metro station, set to open in 2026.

Castellana is also acquiring 8a Avinda, the only shopping centre in São João da Madeira, an industrial and manufacturing town south of Porto. Its strong tenant mix includes national brands Lefties, Bershka, Pull&Bear, Stradivarius, Cortefiel and C&A, together with a selection of well-loved food choices and a cinema multiplex. Similar to the Lisbon assets, the centre is shadow-anchored by Continente Hypermarket. 8a Avinda boasts an annual footfall of 6 million people, generating sales of around EUR58 million.

The assets will be held in a subsidiary, in which Castellana will have an 80% interest and RMB Investments & Advisory the remaining 20% interest.

Vukile is a leader in consumer-focused shopping centres. Its commitment to customers shines through in its convenient, community-focused, needs-based retail centres. It entered this transaction with an existing portfolio of 32 urban, commuter, township, and rural malls in South Africa and its Castellana portfolio of 15 shopping centres in Spain. With the three new shopping centres acquired in Portugal, post the transaction, around 64% of Vukile’s assets will be located in the Iberian Peninsula, and almost 56% of its property net operating income will be in Euros.

Rapp confirms that Vukile remains committed to its stated strategy in South Africa, Spain and now Portugal and continues to evaluate opportunities that are strategically aligned and financially accretive.

The transaction remains subject to the usual conditions precedent and is expected to close on 1 October 2024.

 

Redefine second place at EY 2024 Integrated Reporting Awards

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Redefine Properties celebrates second place in Integrated Reporting at the 2024 EY Awards

Johannesburg, 06 September 2024 – Redefine Properties is proud to announce its recognition in the prestigious EY Excellence in Integrated Reporting Awards, securing second place for 2024. This accolade marks the eleventh consecutive year that Redefine has ranked among the top 10, underscoring the company’s consistent leadership in transparent and impactful reporting.

Redefine’s integrated report serves as a vital platform to share the company’s strategic advancements and future priorities as it continues its transformation journey. An integrated approach to strategic decision-making remains the bedrock of sustainable value creation for all stakeholders over the short, medium, and long term. This year’s report goes beyond financials, offering a comprehensive view of Redefine’s environmental, social, and governance (ESG) strategies, their real-world impact, and the company’s future objectives.

The EY Excellence in Integrated Reporting Awards evaluate the integrated reports of the top 100 JSE-listed companies, based on market capitalisation as of 31 December 2023. These awards aim to set a benchmark for excellence in integrated reporting within South Africa’s listed sector. They recognise companies that effectively communicate their value creation processes to investors and stakeholders, highlighting the board’s careful consideration of material issues in achieving strategic goals.

This ongoing recognition within the industry highlights Redefine’s commitment to maintaining the highest standards in integrated reporting and transparent disclosure across critical areas such as corporate governance, environmental conservation, and community engagement.

Commenting on this achievement, Redefine CEO Andrew König said, “Securing a top position in these awards year after year strengthens our resolve to further embed sustainability principles into our strategy. It also reinforces our commitment to presenting information that enables stakeholders to assess our ability to create and sustain value over the medium to long term.”

Redefine positioned for growth as sector confidence improves

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Redefine positioned for growth as operational performance, sector confidence improves

Johannesburg, 27 August 2024 – Redefine Properties CEO Andrew König emphasised the company’s focus on mindful optimism during its Capital Markets Day 2024 in Sandton, Johannesburg, on Tuesday. He described how the business is positioned for growth as shifts in the operating environment, despite the persistence of economic and socio-political stresses, contribute to improved levels of confidence in the property sector, citing anecdotal evidence to support the company’s posturing.

Redefine’s property asset platform, currently valued at R100.4 billion, comprises key real estate assets in the retail, commercial, logistics, and industrial sectors in South Africa and Poland. Over the last five years, Redefine has transformed its property asset platform by reducing exposure to multiple risk universes through non-core asset disposals and reallocating capital to growth sectors and geographies like Central and Eastern Europe, where there is the prospect of emerging market growth at a lower risk premium.

König clarified on Tuesday that Redefine’s strategy of sectoral and geographic diversification is aimed at delivering stable returns by mitigating the cyclicality of sectors and reducing economic risks and vulnerabilities in the domestic environment, such as resource and infrastructure crises that impede growth in South Africa.

“Even though the SA environment remains challenging, we are committed to the continent’s most diversified economy, which continues to demonstrate resilience in the face of adversity. How we adapt to overcome obstacles and seize opportunities will ultimately distinguish us as the country’s best Real Estate Investment Trust.”

König said Redefine had adopted an ‘opt-for-the-upside’ approach, meaning that the company embraces opportunities within the real estate sectors it operates in, even when faced with obstacles, rather than choosing to divest. Now, Redefine is expanding its approach to all its stakeholders by inviting them to “join the upside” as the tide turns in its favour.

Encouraging improvements in operational performance

Redefine’s South African portfolio has benefited from an active asset management strategy to transform it to a defensive portfolio of high-quality assets that is well diversified, according to COO Leon Kok. He also stated that most of its operating metrics have stabilized and is well positioned to deliver organic growth.

“Take, for instance, the Western Cape’s office sector, which was engulfed in a perfect storm of oversupply, tepid economic growth, and the rise of remote work. Today, office space is in high demand and facing a stock shortage, with the city recording a 20% increase in market rentals over the past few months. This shift is driven by the growing popularity of business process outsourcing, the semigration trend, and the return of businesses to physical office settings,” Kok said.

Nationally, the number of vacancies in the office sector has decreased for eight quarters running. The most recent data from the SA Property Owners Association for the second quarter of 2024 showed a decrease to 14.2%, which is 2.5% below the high point for office vacancies and falls in line with Redefine’s vacancy rate for FY24.

National asset manager for office, Scott Thorburn, stated that the demand for quality A- and P-grade assets, which comprise the majority of Redefine’s office portfolio, has bolstered the occupancy rate to 87.8% for FY24. According to Thorburn, the rise in market rentals observed in stronger nodes in Johannesburg and Cape Town will help ensure sustainable and robust returns as the office sector recovers.

Redefine is also witnessing positive rental reversions in the retail space, indicating that the industry has turned the corner and is about to enter a growth phase. According to Redefine’s National asset manager for retail, Nashil Chotoki, the retail portfolio’s sales and overall turnover have already surpassed pre-pandemic levels. The company expects this growth to continue, driven by its expanding exposure to clothing and necessities, as well as by a potential drop in national interest rates, which would increase consumers’ disposable income.

Positive post-election developments helps business confidence

Along with the sector’s encouraging operational performance, König said that reduced political uncertainty following the formation of the Government of National Unity, a strengthening currency, and advancements made since the launch of Operation Vulindlela in 2020 to address long-standing constraints related to electricity supply and the availability of digital spectrum have all contributed to improved confidence levels in the real estate market.

“The emphasis now needs to shift to addressing the country’s inefficient freight logistics system, the deteriorating performance of local government, and ageing water infrastructure that is impacting supply networks. The new resource challenge is limited water supply, and this is a difficult matter to manage.”

With further major water outages expected due to scheduled maintenance and ongoing infrastructure issues, Redefine is planning to get ahead by executing a water resilience strategy focused not only on reducing water consumption but also on developing additional storage capacity. This strategy aims to provide up to a five-day buffer in certain buildings, increasing their water security in case of a major outage.

Electricity supply, on the other hand, has improved significantly, which König said is itself confidence-boosting and translates into significant savings for a business like Redefine, which was previously burning through hundreds of thousands of litres of diesel to supplement energy supply, with those costs having to be shared with tenants.

Strong focus on efficiency, cost reduction supports organic growth

Despite domestic headwinds and administered costs growing faster than rental income, CFO Ntobeko Nyawo said Redefine maintained positive operating leverage across key segments. Nyawo described the Group’s 75.3% net operating profit margin as a remarkable achievement given the circumstances and an excellent demonstration of the emphasis on cost containment and efficiency.

“Energy costs continue to drive up operating expenses, but the deployment of solar PV as part of our priority to maximise efficient natural resource consumption is generating cost savings. This, along with other cost-saving initiatives, such as disciplined cost containment while growing revenue, is yielding stable operating leverage,” he explained.

Redefine has made significant strides in sourcing efficient capital, as evidenced by the R15.6 billion in green funding it has raised since 2022. This has transformed the Group’s funding profile, with 35.3% of Group debt now linked to green finance. This promotes the long-term decarbonisation of buildings, which Nyawo said have become more desirable and drive higher value due to reduced operating costs and the systemic risk linked to climate change.

“The business has remained cash-generative, with collections across the Group remaining healthy in both the South African and Polish portfolios due to this efficiency drive and focus.”

Nyawo said Redefine’s balance sheet is stable and will continue to be managed conservatively to sustain growth as market dynamics evolve. The expectation that interest rates are shifting to a cutting cycle is significant, and a 25 to 50 basis point cut will lower finance costs and support share price growth, enabling the company to consider capital retention opportunities through the dividend reinvestment programme.

The Group is pleased to announce that it has maintained its earnings guidance of Distributable Income Per Share at 48 cents to 52 cents for FY24.

Looking ahead, Redefine is engaging with tenant stakeholders to broaden and expand the scope of sustainability initiatives, aiming to reduce scope 3 emissions and deepen its ESG impact. Additionally, technology capabilities are being strengthened to improve the tenant experience.

 

Vukile has issued R796m of senior unsecured corporate bonds

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Vukile Property Fund (JSE: VKE) has issued R796m of senior unsecured corporate bonds with three-, five- and six and a half-year maturities. Strong demand from the market was indicated with total interest of R2.7bn resulting in the issuance being over 3.4 times oversubscribed.

The three-year notes of R214m were placed at a margin of 119bps, at a level better than price guidance. The five-year notes of R462m were placed at a margin of 137bps and the six and a half -year notes of R120m were placed at a margin of 146bps, both favourably priced at the lower end of price guidance.

The overall average weighted issue margin of 134bps is significantly tighter than the DCM notes maturing in FY2025 that the proceeds of the issuance will be used to repay. By deploying the proceeds to repay existing DCM maturities, Vukile’s loan-to-value ratio is unchanged while interest costs are lowered.

“We are pleased with the strong demand and favourable pricing received. The substantial support for the auction demonstrates the market’s confidence in Vukile’s customer-centric approach in driving value creation for stakeholders and our strong balance sheet,” says Laurence Rapp, Chief Executive Officer of Vukile.

FirstRand Bank Limited, acting through its Rand Merchant Bank division, was appointed as sole lead arranger. “The keen investor interest, with over 19 institutions participating in the auction, demonstrates Vukile’s strong position as a meaningful and regular DCM issuer. Vukile’s positive financial results and a supportive market culminated in an excellent auction and issuance outcome,” says Farishta Mansingh of RMB.

Maurice Shapiro, Group Head of Treasury of Vukile, remarks, “The bonds’ competitive pricing showcases Vukile’s exceptional credit quality, robust balance sheet, and well-defined business strategy. We value the instrumental contribution of RMB as arranger and appreciate the ongoing support of our investors. Robust partnerships and proactive stakeholder engagement reflect our core values and further our success.”

In July 2024, Global Credit Rating Company Limited (“GCR”) released a credit rating announcement in which it placed Vukile’s national scale long term issuer rating of AA(za) on Positive Outlook due to continued focus on growing its high-quality, diversified retail portfolio.

Vukile is a specialist retail real estate investment trust (REIT) developed on the foundation of a well-defined, specialised growth strategy, with a focus on owning dominant retail assets across South Africa and Spain. Vukile adopts a proactive approach to asset management. It is focused on customer centricity as the driver of value creation and acts as centres of growth by creating value for all its stakeholders.

Vukile’s assets are valued at around R40 billion, with 40% in South Africa and 60% in Spain. The Spanish assets are held in the 99.5% Vukile-owned Madrid-listed subsidiary, Castellana Properties Socimi.

Emira takes 25% stake in Polish company DL Invest Group

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Emira takes 25% strategic stake in Polish logistics-focused property company DL Invest Group

Emira Property Fund (JSE: EMI) has announced a strategic investment in the Luxembourg-headquartered Polish property developer and investor DL Invest Group, marking a significant milestone in the SA REIT’s international investment strategy. With a €55.5 million investment, Emira has acquired an effective 25% initial stake in DL Invest Group, which has a gross asset value (GAV) of approximately €730m and a net asset value (NAV) prior to Emira’s investment of approximately €278m. Emira’s equity interest has a face value of €101.5 million.  Emira has also secured the option to acquire a further interest for €45.5 million. If exercised, this second tranche will result in Emira holding 45.0% of the issued shares of DL Invest Group.

This initial strategic move will immediately increase Emira’s international investments to 32% of its portfolio — with 19% in the US and 13% in Poland — while 68% remains in South Africa, further strengthening its investment diversification.

Geoff Jennett, CEO of Emira Property Fund, notes the company has timed its market entry with the right deal. “We’ve taken the time to find the right partner, and for us, this is the right way to enter this economy at the right time. This method of capitalising on opportunities in the growing Polish economy aligns with Emira’s co-investment model, which the market is familiar with, where we mitigate risk as a minority partner with solid protections paired with an established local specialist seeking similar outcomes, resulting in informed investment decisions and improved returns.”

DL Invest, a wholly owned subsidiary of the DL Invest Group, controlled by Mr Dominik Leszczynski, has been active in the Polish commercial real estate market for 17 years, since 2007. It boasts a robust portfolio of circa 50 properties, including large logistics facilities (75%), small retail parks (15%), and mixed-use office/retail spaces (10%), with a strong multinational tenant base. Its significant and attractive portfolio of assets is internally managed by approximately 232 employees who make up the founder-led private company. It is a long-term property investor and a dynamic young business entering its next phase.

The capital injection provided by Emira will fuel DL Invest Group’s ambitious logistics warehouse development pipeline and propel it towards becoming a €1 billion business.

For Emira, the investment has an attractive return profile, with a minimum Internal Rate of Return (IRR) on a 5 year basis of approximately 20.9% in Euros, yielding at least 7.2% in cash per year, escalated annually by the Harmonised Index of Consumer Prices for the European Area (HICP) of between 2% and 4%, with the balance on redemption. Emira will fund the investment from its current balance sheet using available debt facilities and proceeds from recently announced disposals.

Ensuring active participation in strategic decisions, Emira will have a director’s seat and an observer’s seat on the DL Invest Group board. Emira listed property experience complements DL Invest Group’s on-the-ground expertise in Poland real estate, creating strong synergies and a promising partnership. Emira has committed to a minimum five to six-year initial investment period but, if both parties agree, the partnership can continue beyond this timeframe.

“For Emira, taking a stake in DL Invest Group provides security of sector, country, company, and returns – we’re not only excited about the diversification for Emira but we are also very excited about co-operating with DL Invest Group to maximise what we can achieve by playing to our strengths together,” says Jennett.