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Archives for September 2024

Growthpoint to sell its stake in Capital & Regional to NewRiver

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Growthpoint simplifies its business as it agrees to sell its stake in Capital & Regional to NewRiver.

25 September 2024 : Growthpoint Properties (JSE: GRT) has conditionally agreed to dispose of its entire 69% shareholding in Capital & Regional (C&R), which is dual-listed on the London Stock Exchange and the Johannesburg Stock Exchange and invests primarily in UK community-focused shopping centres. The proposed disposal reflects Growthpoint’s strategy to simplify its business and optimise its international investments.

Growthpoint’s disposal decision forms part of a broader transaction in progress whereby NewRiver REIT, which also invests in UK shopping centres, has announced its offer to buy all the issued and to-be-issued C&R shares for a total of GBP147 million (or 62.5 pence per C&R share), of which Growthpoint would receive GBP101.4 million.

In the proposed cash and share transaction, each C&R share would be exchanged for 31.25 pence in cash and 0.41946 new NewRiver shares. For Growthpoint, this would amount to approximately GBP50.7 million in cash and 67.4 million new NewRiver shares, representing an approximately 14% interest in NewRiver, post the completion of the transaction.

Commenting on the proposed disposal, Norbert Sasse, Group CEO of Growthpoint Properties, says, “We still believe C&R is an attractive platform with a high-quality portfolio of assets and strong prospects. However, it has become non-core to our group-wide strategic focus, representing 4.6% of total assets by book value and 3.6% of total distributable income. Given our aim of simplifying the business and optimising our international portfolio, we have clearly stated that we were evaluating all options to maximise the value of our investment in C&R.”

After receiving unsolicited expressions of interest in C&R, Growthpoint contemplated disposal, and NewRiver’s offer represents a favourable 21% premium to both its closing share price the day before its preliminary expression of interest was received on 23 May 2024 and the three-month volume-weighted average price to the same date.

Like all C&R shareholders, under the conditions of the offer, Growthpoint will be entitled to the interim dividend declared by C&R for the six-month period to 30 June 2024 of 2.85pps, expected to be paid on 27 September 2024. On completion of the transaction, it will also be entitled to a further dividend, equivalent to 1.3 pence per C&R share, paid either by NewRiver or C&R, depending on the effective date of the transaction.

Growthpoint will use the cash proceeds to strengthen its current balance sheet and position it to pursue investment opportunities in line with its communicated strategy. It may consider selling down its NewRiver shares in due course in line with its drive to simplify its business and optimise its international investments.

The transaction remains subject to the usual conditions, including the approval of C&R shareholders representing 75% of its shares, with Growthpoint’s approval alone taking this number to nearly 69%.

On completion of the transaction, C&R will be delisted, and 40.6% of Growthpoint’s property assets by book value will be located offshore.

Strong update as Vukile powers ahead

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Strong update as Vukile powers ahead supported by positive market momentum

Vukile Property Fund (JSE: VKE), the leading specialist retail real estate investment trust (REIT), is in a strong position and well-placed to take advantage of the tailwinds gaining momentum in its markets, the company said in its pre-close operational update for the first half of its 2025 financial year, which ends on 30 September 2024.

Laurence Rapp, CEO of Vukile, commented, “The period has been defined by exceptional operational performance from the Spanish portfolio, strong and further improving metrics from the South African portfolio, excellent capital market support with oversubscribed capital raises in both equity and debt markets, and securing our first investments in Portugal.”

Off the back of robust performance in the prior financial year with growth in funds from operations (FFO) of 6.7% and 10.5% in dividends per share (DPS), Vukile confirmed it is comfortably on track to achieve at least its guidance for the financial year to March 2025 of growth in FFO per share of 2% to 4% and DPS of 4% to 6%.

The consumer-focused retail REIT’s defensive, dominant South African portfolio delivered strong performance and growth, with trade increasing, particularly in the township (+5.3%) and rural (+3.5%) segments. Trading density growth of 3.3% in Vukile’s South African portfolio exceeded the 2.4% it recorded for the 2024 financial year. Fashion, particularly women’s wear, and pharmacies, bottle stores, health and beauty, sports facilities and gyms, all experienced noteworthy trading density growth. Trading density also climbed in the grocery category.

Like-for-like vacancies remain at a low and stable level of 1.9%. Mall of Mthatha, which transferred into the portfolio in April 2024, is undergoing a major, approximately R200 million upgrade due for completion in February 2025 and currently has a 13% vacancy factor, which is set to decrease materially in the short term. The incorporation of this asset increased the total portfolio vacancy figure slightly from 1.9% to 2.6%.

“We are greatly encouraged by the economic, social and political green shoots and the heightened sense of positivity in South Africa,” said Rapp.

The Spanish portfolio’s shopper numbers increased by 3.7% in the first eight months of 2024 compared to the numbers for January to August 2023. Similarly, sales were up 4.6%. Categories with the highest sales growth include homeware, health and beauty, and food and beverage, followed by solid performances from fashion, leisure and entertainment, and groceries. Its portfolio occupancies of 98.4 are better than the Spanish average for the sector of 94.7%. Rental increases are at spectacular levels of 31.45% on average, 42.43% on new leases and 9.83% on renewals.

Asset management interventions by the skilled on-the-ground team in Spain continued to enhance the extraordinary strength and performance of this portfolio, with the first phase of its value-add project at Valsur Shopping Centre, which introduced a new food and beverage area, boosting footfalls by 16% to all-time record highs.

Rapp points out, “This year’s projected Spanish GDP growth has been increased to 2.5%, following better-than-expected first-quarter data, demonstrating economic strength that specifically supports retail property performance.”

Vukile expanded its Iberian Peninsula footprint, entering Portugal in a milestone transaction concluded at projected cash-on-cash yields of more than 10%, due to close in October 2024. After this acquisition, around 64% of Vukile’s assets will be in the Iberian Peninsula, and nearly 56% of its property net operating income will be in Euros. As in Spain, the assets in Portugal will benefit from Vukile’s signature hands-on, in-country presence delivered by Castellana.

“We are actively exploring growth opportunities in South Africa as well as in the Iberian Peninsula, with its strong consumer confidence and exceptional tourism growth,” confirmed Rapp.

Vukile’s strong balance sheet, proactive approach to funding, and dealmaking dexterity stand it in good stead to deliver on its growth strategy. The capital it raised earlier in September 2024 ensures it is investment ready.

“Decreasing interest rates, increased consumer confidence and spending, and positive momentum in the equity market are positive drivers for Vukile’s business. We are well-positioned to take advantage of the economic tailwinds,” concludes Rapp.

Redefine comments on transformative potential of CID’s

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In Johannesburg, City Improvement Districts (CIDs) are playing a crucial role in urban development and management. These districts, driven by collaboration between property owners and tenants, are addressing critical urban challenges and enhancing the quality of our business environments.

As a stakeholder in South Africa’s property sector and a key player in several CIDs, I’ve observed first-hand the significant impact of these initiatives on our urban landscape.

Understanding CIDs

A CID is a defined area where property owners collaborate to provide supplementary services beyond those offered by local municipalities. In areas where municipal services struggle to meet the growing demands of our dynamic cities, CIDs step in to elevate the urban experience. CIDs provide a range of crucial additional services, including enhanced security measures, cleaning operations, and various urban management initiatives such as traffic management, landscaping, pothole and traffic light repairs that improve the overall business environment.

The funding model for CIDs involves property owners paying levies to support additional services. At Redefine Properties, we’ve been at the forefront of this urban evolution, taking an active role in shaping the governance and strategic direction of CIDs where our properties are located. In most instances where Redefine participates in CIDs, a member of our team is assigned as an active director on the CIDs’ board to ensure that the funds collected are well spent and that the necessary governance checks and balances are in place. Redefine ensures that we have clean audits on all CIDs that we participate in each year.

This collaborative approach between property owners allows CIDs to become powerful tools for this level of revitalisation. They not only maintain but actively improve the quality of our shared urban spaces, contributing significantly to the attractiveness and competitiveness of key business areas in Johannesburg.

The economic impact of CIDs

But why should this matter to you, whether you’re a Redefine tenant, business owner, property investor, or simply someone who cares about the future of our cities? The answer lies in the ripple effect of urban redevelopment. A well-managed CID doesn’t just improve the aesthetic appeal of an area; it becomes a catalyst for economic growth within and around the demarcated CID area.

Businesses thrive in environments where customers feel safe and comfortable. Property values stabilise and increase where there are successful CIDs in place. Employment opportunities multiply as the area attracts new investments. In essence, CIDs are not just about maintaining streets; they’re about nurturing the very ecosystem that allows our urban economies to grow.

Sandton Central: A success story

Take, for instance, Sandton Central, Johannesburg’s financial capital, which has maintained its status as a world-class urban centre thanks in large part to the tireless efforts of its CIDs which have been in place since 2003.

Driven by the commercial property owners, including Redefine, the Sandton Central Management District was founded to ensure the creation of an exceptional experience in this key node of Johannesburg. It was established for the employee, visitor, tourist, shopper, property owner and resident of Sandton Central and thus focuses on how this area can better serve these stakeholders. Their team of public safety ambassadors, dedicated JPMD cars with paramedic staff, and on the ground cleaning staff work around the clock, ensuring that Sandton remains a beacon of urban excellence.

As a significant property owner in Sandton, Redefine has played a key role in this CIDs preservation and further transformation. Recently, Redefine as well as other property owners and tenants within the precinct partnered with the City of Johannesburg’s road agency, Eskom and the Sandton Central Management District to power traffic lights at major intersections using generators from its buildings during loadshedding. This initiative has led to all but four intersections being powered by private owners in the event of load shedding or an electrical fault. This hands-on approach has allowed us to pioneer innovative solutions to urban challenges, contributing to Sandton’s success story.

Legal challenges and the need for reform

However, the road to urban revitalisation is not without its obstacles. In 2015, a Supreme Court of Appeal judgement in the Randburg Management District case sent shockwaves through the CID community. By questioning the legality of CID levies under the Gauteng City Improvement Districts Act, this ruling effectively rendered CID funding voluntary. This decision has significant practical implications: without a secure legal basis, CIDs face uncertainty in their operations and long-term planning, potentially undermining their ability to provide consistent, high-quality services.

This legal uncertainty has increased the difficulty of starting new CIDs and the ongoing sustainability of existing CIDs, but I believe it also presents an opportunity for meaningful reform. As industry leaders, we have a responsibility to advocate for a robust provincial and/or municipality legal framework that will secure the long-term sustainability of CIDs. Why? Because this isn’t just about protecting our investments; it’s about safeguarding the future of our cities.

The CID imperative

 CIDs have proven their worth in transforming urban spaces and driving economic growth, as evidenced by success stories like Sandton Central. However, their future hinges on establishing a recognised legal framework at the municipal level in Gauteng and potentially nationwide.

At Redefine, we’re actively working to strengthen and expand the CID model. We’re advocating for clear legislation, engaging with stakeholders, and investing in innovative urban management solutions. Our commitment stems from our belief in CIDs’ potential to drive urban revitalisation.

We invite all stakeholders – other property owners, our tenants, and city officials – to join us in recognising the value of well-managed CIDs and strengthening this crucial tool for urban development. Your active participation, from governance to advocacy, is essential.

Written by Scott Thorburn, National asset manager – Office at Redefine Properties

 

Hyprop exceptional performance from SA and EE portfolios

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Tuesday, 17 September 2024. Hyprop, the owner of dominant retail centres in South Africa (SA) and Eastern Europe (EE), reported distributable income for the year to 30 June 2024 that was better than its March guidance. Management is confident that it’s set for future growth as it delivers on a number of strategic priorities and anticipates an easing of the recent tough trading environment in the year ahead.

“Discernible green shoots in the global and domestic economies, combined with Hyprop’s sustainable business model, excellent property portfolios, strong balance sheet, prudent capital management, and continuous investment in keeping the portfolio relevant, in our human capital and environmental initiatives, should position us to deliver further growth and value for all our stakeholders over the long term,” CEO Morné Wilken says.

“The Group’s outlook is positive, despite the difficult global economic environment and unique challenges in each of the regions in which we operate. We are optimistic that the peak of inflation and interest rates is near, but the Group’s financial performance will still be negatively impacted in the short term by high interest costs and the timing of the implementation of the sale of the sub-Saharan Africa portfolio.”

Hyprop’s distributable income was 370.4c a share for the year to 30 June 2024, a reduction of 8.6% from 405.2c reported for the year to 30 June 2023. In March 2024, management warned shareholders there would be a 15-20% decrease, owing to higher interest costs for longer, an increase in issued shares due to the dividend reinvestment plan, further foreign exchange losses on its Nigerian properties and the acquisition of Table Bay Mall. The reasons for a better outcome included a strong operational performance from the SA and EE portfolios as well as improved cash management, lower hedging costs and reduced margins on refinanced borrowings, the impact of withholding the interim dividend and timing delays in capital projects, which all offset the higher interest costs.

A final dividend of 280c a share (2023: 299.3c a share) was declared in-line with the dividend policy being 75% of the distributable income from the SA and EE portfolios.

In the year under review, Hyprop acquired Table Bay Mall for R1.68 billion, and the centre is trading well as it is being integrated into the portfolio. Since year-end, the Group has signed binding legal agreements to dispose of its sub-Saharan Africa (SSA) portfolio (centres in Nigeria and Ghana) to Lango Real Estate Limited, in exchange for Lango shares. This will free Hyprop’s management to focus on the core portfolios in SA and EE.

Over the past five years, a number of steps have been taken to reinforce Hyprop’s balance sheet. The loan to value (LTV) ratio was maintained at 36.4% in June 2024, despite the debt-funded acquisition of Table Bay Mall and impairment of the SSA portfolio in line with the sale transaction. At end-June 2024, Hyprop was in a strong liquidity position, with R803 million of cash and R2 billion of available bank facilities. At present, 80% of the interest rate exposure is hedged.

SA portfolio
Despite a challenging domestic economic environment, the Group’s nine centres (four in the Western Cape and five in Gauteng), achieved higher tenant turnover, foot count and trading density. The overall rent reversion rate improved to positive 5.8% compared to negative 7% a year ago.

Canal Walk opened 20 new stores in the past year. Somerset Mall launched a new Checkers FreshX and upgraded Pick n Pay Hypermarket, while a key project to improve the food journey supporting Ster-Kinekor was completed. Somerset Mall is in the midst of a two-year expansion project which will add 5 400m² of GLA. Rosebank Mall is benefiting from an improved tenant mix, reporting a 10.9% increase in tenants’ turnover and 8.5% growth in foot count. Woodlands opened three new drive-thrus for Steers, Burger King and Chicken Licken, The Fun Company and W Cellar (as part of the Woolworths extension project).

At Hyde Park Corner, the renovation of the north office block and The Forum is progressing well. Workshop 17 and The Forum will open in October 2024 and Workshop 17’s offices are expected to have a positive impact on the centre’s trading.

The independent valuation of the South Africa property portfolio was R25.4 billion in June 2024 (2023: R23.03 billion). The revaluation includes the costs of acquiring Table Bay Mall and shows the result of higher net operating income.

EE portfolio
The EE properties delivered excellent results, as they benefited from wage escalations in Europe as well as lower inflation and electricity prices across the region. European team continued to optimise the tenant mix and invest in projects and upgrades to maintain the centres’ dominant market positions. Across the portfolio, trading density rose by 8.9% year-on-year and retail vacancies at period end were 0.1%, an improvement from 0.3% a year earlier.

The Mall in Bulgaria completed a new staircase link from the centre into the new food court, which should improve the performance of the food tenants. Despite new legislation in Croatia that limits trading hours, City Center one East grew tenant turnover by 10.9% and trading density by 11%. City Center one West’s tenants’ turnover increased by 11.4% and trading density by 12.2%. Skopje City Mall enjoyed its most successful year since opening, with tenant’s turnover up by 7.5% and trading density by 8% compared with 2023. This year, a project will be completed to centralise all the ATMs and upgrade the Cineplexx complex.

The valuation of the EE portfolio increased from €574.7 million (R11.8 billion) in June 2023 to €610 million (R11.9 billion) in June 2024.

SSA portfolio
Weak economic conditions in West Africa, particularly in Nigeria, affected the trading performance of the centres, as did the marked depreciation of local currencies against the dollar.
Ikeja City Mall in Nigeria has welcomed four new tenants, which reduces its vacancy rate to below 1% at present from 2.1% at end-June 2024. In Ghana, replacement tenants were secured for the space vacated by Game in December 2022: ten-year leases have been signed by Melcom and Decathlon in all three of the centres.
The transaction to dispose of the portfolio to Lango is expected to be completed before 31 December 2024.

Other significant developments
Hyprop spent R81 million on energy projects in the year, including the installation of solar PV at Woodlands, Rosebank Mall and Clearwater Mall, but excluding Table Bay Mall. This year, work will begin on installing new solar PV at The Glen and CapeGate. Various projects to conserve water are underway, and the installation of potable water storage at several centres is about to commence. The Group has also spent R21.7 million on various initiatives to minimise waste and increase recycling.
Outlook
“More positive sentiment is evident in businesses, consumers and retailers in South Africa as a result of the formation of the Government of National Unity and more stable electricity supply. Globally, interest rate cuts are anticipated from the US Federal Reserve, which should encourage the South African Reserve Bank to cut rates also, giving much-needed relief to consumers, in turn having a positive impact on our operations” says Wilken.

Hyprop anticipates that it will achieve a 4-7% increase in distributable income a share for the year to 30 June 2025 compared with 2024. This increase is conditional on, among other factors, contractual rental escalations and market-related lease renewals, no further deterioration in South African electricity supply or the economy, and no other regional or global disruptions.

Vukile’s Spanish subsidiary completes €254 million refinance

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Vukile Property Fund (JSE: VKE), the leading specialist retail real estate investment trust (REIT), has confirmed that its 99.5% held Spanish subsidiary, Castellana Properties, has signed a €254 million financing agreement with Aareal Bank A.G.. The five-year agreement is supported by Banco Santander and BBVA, further diversifying Castellana’s sources of funding.

The milestone funding agreement has successfully refinanced the loan associated with the El Faro, Bahía Sur, Los Arcos, and Vallsur assets, and will continue financing active asset management and repositioning projects across various assets, thereby increasing the portfolio value.

As part of the transaction, €50 million of the previous debt has been repaid, reducing Castellana’s leverage and improving its Net Loan to Value (Net LTV) from 39%, as reported in their last financial results, to 34%. This transaction also extends Castellana’s average debt maturity from 2.7 years to 5.1 years compared to the figures in their most recent financial results. Additionally, the loan has been fixed for three years, improving Castellana’s interest rate hedge ratio to over 90%.

Laurence Rapp, CEO of Vukile, comments, “We are pleased to report that Castellana has further strengthened its financial capacity as it continues to grow, add value and reinforce the dominance of its portfolio.”

Vukile is a leader in convenient, community-focused, needs-based retail centres. It owns 32 urban, commuter, township, and rural malls in South Africa, its Castellana portfolio of 15 shopping centres in Spain, and three shopping centres in Portugal that Vukile recently agreed to acquire in a milestone transaction expected to close on 1 October 2024. After this acquisition, 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 dedicated to its strategy in South Africa and the Iberian Peninsula. “Robust financial capacity enables us to pursue suitable opportunities that are strategically aligned and financially accretive.”

 

Spear REIT successful equity capital raise of R 457 million

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Cape Town, 17 September 2024: Spear, a Real Estate Investment Trust (REIT) focused on investing in real estate within the Western Cape region, has announced the successful completion of an equity capital raise of R 457,75 million via a vendor consideration placement. This announcement follows the recent unconditional status of the acquisition of the Emira Western Cape portfolio, adding further impetus to its Western Cape-only-focused growth strategy.

The vendor consideration placement will allow the issuance of 50,302,197 new shares to public shareholders at an issue price of R9.10 per share. This equity placement was completed at a 1% discount to Spear’s 30-day VWAP, (volume-weighted average price), being R9.19 per share before 13 September 2024. The listing and issuance of the new shares are expected to commence at 09:00 on Monday, 23 September, 2024.

Spear REIT CEO Quintin Rossi affirmed, “Spear has remained laser-focused on building a high-quality, regionally centred real estate portfolio that consistently generates sustainable cashflows and profitability. The proceeds of Spear’s vendor consideration placement will be put to work to generate a mission-statement-aligned return for all stakeholders after the implementation of the new portfolio acquisition along with seeking out attractive portfolio growth opportunities within the region.” The Western Cape has stood out as the most desirable real estate investment and development market in South Africa as Provincial and Municipal investment fundamentals outpace the balance of South Africa, resulting in improved economic activity, boding well for real estate valuations and rates of return.

Spear is on the cusp of implementing its R 1,146 billion acquisition of a 13-asset Western Cape-only portfolio from the Emira Property Fund, which will see its assets under ownership increase to R 5,3 billion on the implementation date. The acquired assets constitute a diversified portfolio of 93 500m2 comprising high-quality industrial, medical retail and commercial offices in attractive and well-established Cape Town nodes. Following the new portfolio acquisition, management will continue to seek incremental investment and development opportunities, while also exploring diversified portfolio options within the Western Cape, that are in line with its investment strategy.

The proceeds of the vendor consideration placement will be utilised to settle short-term debt obligations and replenish the revolving credit facility emanating from the Category 1 transaction once implemented.

Spear’s loan-to-value following the vendor consideration placement and the implementation of the new portfolio acquisition by the end of October 2024 will be between 33% and 34%. Beyond the transfer date of the new portfolio acquisition Spear’s strong balance sheet will provide sufficient headroom for transactional opportunities for management to act as and when the need arises.

Spear’s regionally focused operating strategy and the fact that it is a fully internally managed REIT allow for focused asset management opportunities to be unlocked across its current portfolio assets and its acquisition and development pipeline.

Management remains optimistic that its growth strategy through acquisitions and developments, including a clear and implementable renewable energy and water continuity strategy, will enable Spear to grow its portfolio value in an income-accretive manner within the Western Cape towards becoming a meaningful mid-cap SA REIT.

Spear recently held its pre-close presentation for HY2025 which showed its consistent Western Cape performance, a contraction in vacancies thanks to strong leasing momentum, and positive rental reversion rates on a portfolio level.

Spear will announce its HY2025 operational and financial results for the six months ending August 2024 on 24 October 2024 at 11:00 via an in-person presentation in Cape Town and a live stream via the company’s YouTube channel.

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