Archives for July 2022

Vukile Property Fund’s (JSE: VKE) international diversification, proven portfolio strength and proactive balance sheet management have contributed to GCR Ratings upgrading Vukile’s national scale long-term issuer rating to AA(za) and affirming its national scale short-term issuer rating at A1+(za), with a stable outlook.

GCR’s view reflects Vukile’s continued disciplined capital and liquidity management and its strong operational performance and cash flow growth as its core markets continue to recover from the pandemic.

Laurence Rapp, CEO of Vukile, comments, “The upgrade of our investment-grade ratings by GCR shows increased confidence in Vukile’s core credit quality and recognises our clear strategy and strong operating profile. We are extremely pleased with the new rating, which further highlights the strength of our business model and supports our ability to raise funding with attractive funding terms.”

Vukile is a specialist retail REIT with assets of R33bn in South Africa (46%) and Spain (54%) through its 89.6% held Madrid-listed subsidiary Castellana Properties Socimi. GCR notes Vukile’s AA(za) /A1+(za) issuer ratings are supported by its strong market position as a specialist retail REIT invested in dominant, non-metropolitan, convenience-focused retail centres in South Africa and Spain, which have weathered the pandemic well and recovered rapidly back to or above pre-Covid levels. The fundamentals of both businesses are strong and provide Vukile with highly diversified income streams across different macro economies provided by blue-chip retail tenants.

The new ratings are also based on Vukile’s property portfolios’ proven resilience and defensive positioning for structural shifts in the retail sector, and its asset management initiatives that are designed to unlock value and steady cash flow growth. Vukile’s stable cash flows are underpinned by its lease expiry profile, contractual rent escalations, low vacancy rates and diversification.
GCR notes the strategic benefits of Castellana’s recent acquisition of a c. 24% (FY22 21.7%) stake in Lar España Real Estate Socimi which further strengthens its geographic diversification in Spain, giving Vukile access to a high-quality complementary investment portfolio that provides it with dividend flows and strategic optionality.

The rating agency also points out Vukile’s leverage-neutral management of its gearing, capex and acquisition funding, noting a solid ICR of 3.4x, an LTV of around 43%, and a simplified capital structure. It says Vukile’s balance sheet is well positioned to mitigate against rising interest rates globally and notes demonstrated access to debt capital in multiple currencies across a wide range of funders, with good covenant headroom.

Rapp remarks, “Vukile’s significant access to capital from diverse sources is thanks to the strength of our balance sheet, our investment-grade credit rating, the quality and diversity of our properties and clients, our core management skillsets, a strong culture of good corporate governance and a deep commitment to sustainability in everything we do.”

IWG, the world’s largest workspace network, and Redefine Properties, one of South Africa’s largest diversified Real Estate Investment Trusts (REITs), have partnered to bring their 10th joint flexible working centre to another prime location as an ongoing response to the growing demand for co-working offices within mixed-use retail locations.

IWG has been in partnership with Redefine for five years, and their new Regus co-working space at Centurion Mall is conveniently located in the thriving Centurion district, at the corner of Old Johannesburg Road and Lenchen Avenue South. Surrounded by numerous primary and secondary schools, the centre is a family-favourite destination.

JLL, the property researcher, says co-working space in retail properties is predicted to grow at an annualised rate of 25% over the next few years. Flexible office space in retail locations will reach 3.4 million square feet by 2023, and nearly 55% of retail co-working spaces are located in suburban areas. According to IWG, being based at the heart of an extra-curricular hub encourages members to bond with each other. By using and exploring these facilities together, tenants strengthen their relationships.

Centurion Mall offers the community and commuters a highly accessible shopping hotspot. Spoilt for choice, shoppers have more than 90 stores serving their needs, including anchor stores like Pick n Pay Hyper, Checkers, Mr Price and Builders Warehouse. The anchor stores are complemented by a wide variety of speciality stores, services, banks, and food offerings, serviced by the Gautrain bus route, which drops commuters directly in front of the mall’s main entrance.

“Flexible working has changed consumer behaviour, and in line with the evolving needs of consumers, co-working space in shopping centres provides further convenience to consumers. We are exploring other opportunities with IWG for similar co-working space in our other shopping centres,” says Redefine’s National Asset Manager, Nashil Chotoki.

IWG brands Regus and Spaces have made a name for themselves as pioneers within mixed-use developments and shopping centres and will continue to explore the trend actively.

Joanne Bushell, MD of IWG South Africa, says IWG has a history of pioneering the hybrid model, and businesses recognise the benefits of hybrid working on their productivity and bottom line.

“In 2022 and beyond, many modern professionals will no longer be obligated to attend a central office daily, thanks to the mainstream adoption of hybrid working, which means they can base themselves from home or a co-working space – visiting an urban HQ from time to time,” Bushell says.

“A new trend in the flexible workspace realm is the conversion of retail spaces to chic co-working offices. The opportunities that these sites present for developers have been deemed as ‘significant’,” adds Bushell.

“It means all local amenities such as shops, schools, restaurants and workspaces can be reached easily, reducing travel times, which reduces carbon emissions, and work/life balance will improve, making people more productive and healthier,” says Bushell.

Part of IWG’s brand DNA is finding settings in desirable areas of a city that offer the right conditions for fostering a sense of community and blending seamlessly with tenants’ lifestyles. Additionally, by integrating co-working space with entertainment and retail, members can run their business, get their shopping done and find food options within walking distance.

“Our goal is to create an environment that promotes collaboration and creativity. We’ve found that giving our members direct access to adjacent amenities like retail, entertainment and food locations creates a strong community ‘feel’ as members move around the complex together,” concludes Bushell.

Vukile Property Fund (JSE: VKE) has expanded its significant investment in South African township, rural and commuter shopping centres with its agreement to acquire the landmark Pan Africa Shopping Centre in Alexandra Township in Johannesburg, Gauteng, as well as the asset’s second phase extension due for completion in 2024.

Vukile is a specialist retail REIT with assets of R33bn in South Africa (46%) and Spain (54%) through its 89.6% held Madrid-listed subsidiary Castellana Properties Socimi.

This R669m Pan Africa Shopping Centre acquisition complements Vukile’s high-quality, low-risk retail property portfolio and positioning as a leading retail REIT in South Africa. Following the fulfilment of conditions precedent, the strategically aligned acquisition will be funded out of proceeds from sales and existing resources and will not affect Vukile’s current loan-to-value of 43%.

Laurence Rapp, CEO of Vukile Property Fund, comments: “Vukile has been focused on recommencing growth in our core markets from a strong operational and financial position. In early 2022, we successfully restarted our growth in Spain, and now we are particularly pleased to resume the growth of our South African portfolio with this major investment in Pan Africa Shopping Centre. By acquiring this asset and its future extension, we are deepening our core investment strategy in South Africa and adding value for our stakeholders.”

The 16,000sqm Pan Africa Shopping Centre, superbly located in the heart of Alexandra’s iconic transport and retail hub, made history when it opened in 2009 to become South Africa’s first fully-integrated shopping mall and taxi facility. Refurbished in 2021/2, the centre is now well established and very well supported by its consumer market. It is anchored by Boxer with a high national retailer tenant component including Truworths, Pep, Mr Price, Ackermans, Jet, Clicks, Studio 88 and others. Based on its trading success, Pan Africa is set for a future 9,000sqm expansion, which has received overwhelming support, that will take it to over 25,000sqm.

The acquisition agreement splits the transaction into two indivisible parts – the existing shopping centre and its future expansion. Vukile will acquire the shopping centre for R414.6m from its sellers, the Pan Africa Development Company, which is held by Atterbury Property (50.887%), Talis Holdings (47.337%) and Summit Ridge Trading 5 (1.776%). Vukile will also appoint the sellers to develop the centre’s second phase expansion, which it will acquire for R254.3m on opening in April 2024.

Itumeleng Mothibeli, MD SA at Vukile, remarks, “Pan Africa Shopping Centre is an excellent asset for the Vukile portfolio, which is concentrated in the sweet spot in the SA retail market, with significant exposure to strongly performing township and rural shopping centres. As is typical of our assets, it has a high percentage of essential services tenants, which further fortifies the defensiveness of our portfolio.”