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Vukile takes significant strides to improve portfolio quality

Posted On Wednesday, 29 May 2013 10:05 Published by eProp Commercial Property News
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Going forward‚ we will be stripping out non-recurring income‚ less non-recurring expenditure‚ which will be distributed in a special distribution each year.

Michael Potts Vukile Property FundProperty loan stock company Vukile Property Fund (VKE) reported a 5.4% increase in its annual distribution per linked unit to 131.6c for the year ended March. Financial director Mike Potts said the effect of non-recurring income on the distribution growth “masks a much stronger underlying property performance”‚ and said Vukile had “taken significant strides in improving the quality of the portfolio”.
 
Potts said the fund’s portfolio had grown by 26% over the period‚ while the fund had also sold various noncore assets. Twenty properties comprising the R1.5bn Sanlam portfolio acquisition were transferred into Vukile’s portfolio during the period. “Going forward‚ we will be stripping out non-recurring income‚ less non-recurring expenditure‚ which will be distributed in a special distribution each year‚” Potts said.
 
Stanlib investment analyst Ndabe Mkhize said Vukile posted “a good set of results” with distribution growth per linked unit of 5.4%. “This figure would have been 8.1% if the non-recurring incomes were excluded‚” Mkhize said. The fund’s property fundamentals were “sound”‚ with Vukile having reduced its vacancies from 7.6% in September last year to 6.8% in March this year‚ although the vacancy rate “is still not as low as the 6.1% registered in March last year”‚ he said.
 
Mkhize said there was also “strong upward reversion on expiring rentals across all sectors”. “The growth prospects for Vukile are in line with those of the South African listed property market‚ growing between 6% and 8%. “That kind of growth‚ if sustainable‚ would be enough to make Vukile attractive given its forward income yield of approximately 7.9% whilst the South African property market is trading at yield of circa 6.5%‚” Mkhize said
 
Vukile was granted real estate investment trust (Reit) status effective April 1. Potts said the fund had “successfully achieved” a broadening of its shareholder base‚ while it had reduced its cost of funding over the period from 9.4% to 8.1%. In April -  post period end‚ the transfer of Vukile’s 50% acquisition of East Rand Mall for R1.1bn was completed.
 
With the acquisition of East Rand Mall taken into account‚ the fund’s portfolio value had grown about 44% since March last year‚ said CEO Laurence Rapp. Rapp said the acquisitions during and after the period had also significantly improved the quality of the portfolio‚ as was evidenced by a 25% increase in value per square metre since March last year.
 
Vukile said it expected the value of its portfolio to exceed its initial target level of R10bn once a number of property deals had been finalised. These included the initial acquisition of four government-tenanted buildings from Encha Properties valued at R1.04bn‚ the development of the Hammarsdale Shopping Centre for a capital outlay of R194m — which would open in June‚ “and other deals still in the pipeline”.
 
Rapp said the Encha deal‚ the consideration for which would be discharged through a combination of cash and an issue of linked units‚ would also boost Vukile’s black economic empowerment credentials. Following the transaction‚ Encha would hold a material ungeared stake in Vukile which would allow Vukile to claim a significant percentage of the ownership points in respect of the property sector charter after adjusting for mandated investments‚ Rapp said.
 
The fund has revised its portfolio target value from the initial R10bn to R15bn. Including East Rand Mall‚ the composition of the funds portfolio is 59% retail‚ 30% offices and 11% industrial based on gross income.
 
Source :BD
Last modified on Friday, 18 April 2014 09:33

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