JSE-listed Vukile Property Fund says it achieved a good set of operating results for the financial year ended March 31, adding that it is in a strong financial position.

Vukile has reported a 6.2% increase in its cash dividend to 112.4c apiece for the period under review and 6% growth in its funds from operations (FFO) to 144.5c apiece.

These results meet Vukile’s guidance, and the company is forecasting growth again next year, notwithstanding the headwinds in its markets.

Nearly 60% of Vukile’s assets and approaching 50% of its earnings are euro-denominated, insulating its business from South Africa-specific risks and positioning it as a rand hedge.

Its net asset value (NAV), which increased by 14.3%, and its earnings are positively geared to a weakening rand, CEO Laurence Rapp says.

In Vukile’s domestic portfolio of high-quality shopping centres located mainly in townships and rural areas, like-for-like net operating income and retail valuations increased by 5.4% and 5.8%, respectively.

Vacancies reduced from 2.6% to 2%, while rental reversions turned positive, moving from -2.4% to 2.3%. 

Trading densities increased by 6.2% and rent-to-sales ratios remained at a low 6.1%.

Vukile holds 99.5% in its Madrid-listed subsidiary Castellana Properties Socimi. In the Spanish portfolio, normalised net operating income grew by 9%.

Vacancies closed at a negligible 1.3%, with positive rental reversions of 3.3%, further enhanced by inflation indexation of 7.7%.

The portfolio has a long weighted average lease expiry of 12.6 years.

Portfolio sales exceeded all industry benchmarks, as did footfalls – boosted by tactical promotional programmes. Castellana’s 25.7% investment in Lar Espana also continued to perform well.

“These operating metrics show that the expected challenges in consumer spending over the past 18 months didn’t materialise as anticipated. Only now are we seeing some impact of higher interest rates filtering through to consumer spending in South Africa.

“Vukile is well-positioned to navigate short- to medium-term cyclical downturns such as this and is protected against reduced spending, with defensive tenancies and strong security of contractual rental income, with 99% of income provided by the best retail covenants in Spain and South Africa,” Rapp states.

To mitigate the impact of loadshedding on the business over the next year, Vukile will invest R350-million in sustainable backup power in South Africa at an accretive yield.

To date, it has installed 20 solar plants with a total capacity of 14.9 MW, accounting for 9.6% of its energy consumption.

To bolster this, Vukile is now embarking on a “win-win” plan, Rapp explains. Through a combination of solar plants and battery storage, the company will be guaranteeing sustainable power to retailers in 17 of its shopping centres in South Africa between the hours of 09:00 and 16:00.

Rapp outlines that, by the end of the current financial year, Vukile would have increased capacity from about 15 MW to 25 MW, which would account for about 17% of the energy use in its portfolio. 

Rapp says this plan will contribute to a decrease in high energy costs and mitigate the negative environmental impact of using diesel generators, while also ensuring customers have a uniform shopping experience with uninterrupted power at all stores.

This year, Vukile spent R11.2-million on generator diesel, with R7.8-million of this used directly by tenants, of which 54% was recovered. The rest was for common area and emergency lighting. About 75% of Vukile’s tenants are able to trade during loadshedding and 88% of common areas have backup electricity.

Vukile says it has a strong balance sheet, with no refinancing risk in Europe over the next two years. Its corporate long-term credit rating was upgraded to AA(ZA) by GCR during the year.

Vukile avers that its strong operating platform, clear strategic direction and solid balance sheet, position it well to manage the global macroeconomic headwinds, dampened consumer confidence and specific South Africa-related challenges, such as loadshedding and sluggish economic growth.

Vukile expects 2024 full-year FFO growth of 3% to 5% and dividend-a-share growth of 7% to 9%, which equates to 120c to 123c, to be paid in an interim and final dividend.