JSE-listed real estate investment trust (Reit) Vukile Property Fund grew its distributions for the year ended March 31 by 7% to 146.35c a share.

Locally, most of Vukile’s activity was inward focused, improving vacancies across its portfolio from 4.6% to 3.9% of gross lettable area.
 
In addition, rental reversions were positive across the entire portfolio, at 9.1%, and strong for retail, at 12.3%.

Its lease expiry profile improved substantially with around 33% of leases now due to expire in 2020 and beyond, up from 18% at the start of the year.

Vukile contained its ratio of net recurring costs to property revenue at 15.8%, compared with 15.5% in the prior year, despite government administered expenses for utilities, rates and taxes increasing faster than inflation.

The Reit had direct property assets valued at R15.6-billion and total assets of R16.7-billion. Retail centres now comprised 70% of its portfolio.
 
“We’re pleased to report a positive set of results that are on target and show an impressive operational performance. We continue to build a high-quality portfolio of assets for lasting success,” CEO Laurence Rapp said at a presentation of the company’s results on Thursday.

He added, however, that the Reit expected a very difficult environment going forward.

“Besides the stagnant economy, political volatility in South Africa is impacting on capital markets and the rand is negatively affecting the cost of capital for the property sector.

“Despite this, Vukile has all the building blocks in place to manage a prolonged difficult trading environment,” Rapp said, adding that the company expected to achieve similar growth of 7% in distributions for the 2017 financial year.

INTERNATIONAL INVESTMENTS
Rapp, meanwhile, noted that there were compelling opportunities internationally and stated that Vukile had launched its international investment aspirations by acquiring a 26.1% stake in AltX-listed Atlantic Leaf Properties for R760-million in August last year.

He pointed out that Atlantic Leaf held a £264-million defensive real estate portfolio in the UK.
 
 “It has a long lease expiry profile of about 13 years and is largely focused on industrial and office assets where the underlying properties are single-tenanted triple-net leases with blue-chip businesses that have recognised ratings. 

“This adds to the defensive nature of the Vukile portfolio,” Rapp said.

He added that Vukile was devoting a lot of energy to exploring opportunities in various European markets and other jurisdictions to take advantage of better property fundamentals, as it was facing a sluggish domestic market.

ACQUISITIONS
The Reit had, however, during the 2016 financial year, boosted its retail portfolio through the acquisition of four shopping centres for R1.2-billion and significant stakes in two regional mall developments for R600-million.
 
It acquired the trading shopping centres of Batho Plaza, Bedworth Centre, Nonesi Mall and an 80% stake of Moruleng Mall.

Vukile also acquired a 33% holding in Thavhani Mall and 25% of Springs Mall, both currently under development by retail property developer Flanagan & Gerard Property Development & Investment.
 
It disposed of five properties for a combined R270.9-million. It also had a signed offer for the sale of its Sovereign property portfolio, subject to conditions precedent.
  
Looking ahead, the Reit would continue to invest in its core retail sector.

“Our goal is to craft our direct South African assets into a specialist retail property fund.”