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Vukile festive season trading update

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Vukile’s South African and Iberian retail property portfolios delivered impressive increases in performance in November and December 2024, signalling a successful Black Friday and holiday trading period.

SOUTH AFRICAN PORTFOLIO

The robust trade of our assets and the vibrant demand from both shoppers and retailers for our shopping centres, particularly in the township and rural markets, remains encouraging. These impressive trading figures bode well for income and valuation growth.

Turnover

Highlighting a positive trend in festive trading, the South African Portfolio achieved a strong 6.1% growth in trading density during the combined November and December 2024 period, compared to the same months in 2023. This continues the portfolio’s positive annualised trading density momentum, which was 2.4% in March 2024 and 4.2% in September 2024. To date, FY25 has continued to show improved and sustained growth as anticipated, driven by an improved macroeconomic environment, governmental reforms on electricity and pension funds, and continued positive sentiment following the formation of the government of national unity.

During the two-month period, Township shopping centres were the best performing portfolio segment with trading density growth of 9.6%. Rural and urban centres delivered trading density growth of 5.9% and 4.6%, respectively, further highlighting the strong festive shopping demand within the communities we serve.

Retail categories with the most significant turnover growth were Unisex Wear (+7.7%), Groceries (+7.2%), Fast Food (+6.3%) and Home Furnishing (+6.0%), which all recorded substantial, sustained growth. These increases demonstrate strategically sound category exposure particularly in the non-discretionary segments of the market.

Footfall

Shopper visits in November 2024 increased by 5% compared to November 2023, reflecting stronger Black Friday trade over the month. December 2024 footfall remained consistent with the same period last year.

IBERIAN PORTFOLIO (Castellana Properties)

 The trading activity within the portfolio during November and December 2024 underscores the robust growth outlook for Spain and Portugal, primarily fuelled by private consumption. The projections for 2025 remain pleasingly positive, buoyed by strong employment figures, healthy savings, and manageable inflation. These factors are likely to continue driving interest rate cuts, thereby enhancing consumer spending power.

Spain

Turnover

Sales rose by 4.9% in November 2024 compared to November 2023, with all retail segments experiencing growth. Notably, the Leisure sector jumped by 21.1%, Food & Beverage climbed by 12.2%, and Health & Beauty saw a 7.3% rise.

December sales rose by 4.8%, with Homeware leading at 9.4%, followed by Leisure at 7.8%, and Sports & Adventure at 5.6%.

Footfall

In Spain, shopper visits surged by 9.7% in November 2024 compared to the previous November, with a remarkable 17.0% increase during Black Friday Week. On Black Friday itself, Castellana’s Spanish shopping centres saw a 10.8% uptick in visits.

December 2024 footfall in the Spanish portfolio grew by 2.4% year-on-year, while the Christmas period (from 1 December 2024 to 6 January 2025) saw a 2.9% increase.

 Portugal

Turnover

November sales climbed by 8.5% year-on-year, with all categories showing improvement. Household & Furniture led with a 17.5% increase, Accessories rose by 12.9%, Electronics grew by 11%, and Fashion went up by 7.4%.

December sales increased by 2.8%. Leisure was the top performer with a 26.9% rise, followed by Household & Furniture at 15.1%, Accessories at 5.8%, and Fashion at 5.0%.

Footfall

In Portugal, footfall increased by 4.6% in November 2024 compared to the previous year and surged by 15.9% over Black Friday Week, with a noteworthy 21.2% rise on Black Friday. In December 2024, footfall in the Portuguese portfolio rose by 2.1% compared to December 2023.

TRANSACTIONS UPDATE:

EXCLUSIVE DISCUSSIONS TO ACQUIRE BONAIRE SHOPPING CENTRE

Castellana remains in exclusive discussions to acquire the largest shopping centre in Spain’s Valencia province, Bonaire Shopping Centre, from multinational retail REIT Unibail-Rodamco-Westfield. The transaction’s closing was extended due to the tragic 2024 floods in Spain. Unibail-Rodamco-Westfield is making good progress towards reinstating and reopening the centre, which is expected mid-February 2025.

DISPOSAL OF STAKE IN LAR ESPAÑA

On 27 December 2024, Castellana closed the sale of its 28.8% stake in Lar España, receiving proceeds of c. €200m after negotiating an improved cash offer of €8.30 per share, delivering a total profit of c. €108 million through a combination of dividends received (c. €38 million) and capital appreciation (c. €70 million) and an IRR of c. 45% per annum since January 2022 in ZAR terms.

Through the Lar España exit, Castellana has created an opportunity to recycle capital into other strategically aligned and financially accretive growth opportunities with attractive yields and with significantly lower operational and deal execution risk.

ALEGRO SINTRA ACQUISITION – 50/50 JV AGREEMENT WITH NHOOD/CEETRUS

Continuing its expansion into Portugal, on 19 December 2024 Castellana acquired 50% of Alegro Sintra shopping centre in Lisbon from Ceetrus, represented by their subsidiary Nhood, the real estate arm of ELO Group. This leading French retail conglomerate owns Auchan, Leroy Merlin, Decathlon, and Kiabi, among other brands. The 50% stake was priced at €46.5m.  The asset is valued at €180m, representing a first-year net initial yield of 8.00%.

Alegro Sintra is a dominant, highly successful shopping centre located in the north of Lisbon, a dense and growing residential node, with an annual footfall of 8.7 million visits and a total gross lettable area (GLA) of 58,000m2, including a top-performing Pingo Doce supermarket. The centre is well anchored by a complete fashion offering, including Inditex brands and Primark and a strong food court.

Castellana acquired 50% of the company that owns 42,255m2 of the shopping centre’s GLA, with the Pingo Doce supermarket being owner-occupied and excluded from the transaction. The shopping centre offers strong and growing income with opportunities to add value through strategic asset management initiatives together with our joint venture partners.

Through this joint venture Castellana is partnering with an institutional real estate business in Europe with strong synergies, both in terms of on-the-ground know-how and presence in Portugal, as well as access to further opportunities across Iberia and the rest of Europe.

Vukile continues its Iberian charge with Lar España disposal

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Vukile continues its Iberian charge while banking a significant profit of over R1.5 billion for shareholders with Lar España disposal

03 October 2024. Vukile Property Fund (JSE: VKE) confirmed its intention to accept an improved cash offer for its 28.8% stake in Lar España Real Estate following careful evaluation of its options. Vukile’s investment in Lar España, held through its 99.5%-owned Spanish subsidiary, Castellana Properties, has realised significant value for Vukile shareholders.

The consortium involving Hines European Real Estate Partners III and Grupo Lar Inversiones Inmobiliarias, Lar España’s asset manager, has increased the offer from EUR8.10 per Lar España share to EUR8.30 per share for all shareholders following its negotiations with Vukile.

The disposal will allow Vukile, via Castellana, to achieve an internal rate of return of approximately 45% p.a. since January 2022 in ZAR terms.  This represents an investment return of almost three-times in under three years from the initial Lar España investment.

Laurence Rapp, CEO of Vukile Property Fund, said: “Our ability to identify mispriced assets, both listed and unlisted, and interpret market nuances through our on-the-ground asset management expertise, defined by profound knowledge of the property industry and retail specialisation, inform our capital allocation strategy. Our synthesis of corporate finance and deal-making skills, together with property asset management, underpins dexterity in underwriting retail assets.”

When Vukile invested in Lar España, it was trading at approximately a 48% discount to net asset value (NAV). Vukile quickly identified this investment as a tremendous opportunity because of its asset and market alignment. The investment provided strategic optionality that, in all instances, provided significant potential for capital appreciation while receiving attractive dividends. During Vukile’s time as a significant Lar España shareholder, the share’s discount to NAV reduced materially.

While Lar España shares still trade at almost 19% discount to NAV based on the increased offer price, when viewed from the perspective of the yield on Lar España’s assets, Vukile believes the negotiated offer price presents an opportunity to redeploy capital into other strategically aligned and financially accretive opportunities with potentially better yields at significantly lower operational and deal execution risk.

While some in the market may have anticipated a counterbid, having considered all options, the complexity, cost and execution risk of doing so made this a less optimal solution. “This decision reflects Vukile’s disciplined approach to capital allocation and deal-making,” notes Rapp.

The company remains committed to its growth strategy in Spain and the Iberian Peninsula, where it has established a significant presence and pipeline of opportunities. From a standing start seven years ago, Vukile has grown Castellana to become the fifth biggest retail property owner in Spain. It is set to become the third largest by the end of 2024 and is well on its way to growing the largest retail property portfolio across the Iberian Peninsula.

Vukile’s acceptance of the Lar España offer comes after it launched the natural expansion of its Spanish growth into Portugal with the pre-funded acquisition of three shopping centres, which closed earlier this week. The transaction takes Vukile’s exposure to the Iberian Peninsula to 64% of its assets.

Following its recent capital raise for several well-progressed deals that Vukile is evaluating, and given it has a significant pipeline of opportunities with a number under active consideration in both Spain and Portugal, Vukile is confident that the proceeds from the offer will be redeployed in line with its expansion strategy in these key markets.

“By accepting the Lar España offer, Vukile is realising a substantial return for shareholders while maintaining its focus on strategic growth initiatives. Vukile is well-positioned to create further value for shareholders through disciplined investment and active asset management,” concludes Rapp.

 

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.

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.”

 

Vukile expands Iberian Peninsular exposure

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Vukile expands Iberian Peninsular exposure with EUR176 million shopping centre portfolio acquisition in Portugal.

Continuing Vukile Property Fund’s (JSE: VKE) Iberian expansion, its 99.5% held Spanish subsidiary, Castellana Properties, has agreed to acquire a high-quality, blue-chip-tenanted portfolio of three shopping centres in Portugal.

In a landmark transaction, Castellana will acquire the assets from a Harbert European Real Estate Fund subsidiary at an attractive initial yield of around 9%, which is expected to deliver a compelling cash-on-cash yield of some 10% in Euros.

Laurence Rapp, CEO of Vukile, comments, “We have clearly signalled our confidence in the Iberian Peninsula and the good opportunities it holds. We are thrilled to capitalise on this opportunity in Portugal, extending and complementing the strong platform that Castellana has already established in Spain.”

Rapp adds, “Building on our successes in Spain, Castellana’s robust and proven on-the-ground management capability make this expansion a natural progression. With a strong team, experienced in the Portuguese market, we are perfectly positioned for this next step.”

The Portuguese retail property portfolio includes two shopping centres in Lisbon and one in Porto, all with great retail fundamentals including dominant market positions, excellent locations, easy access, great visibility, attractive tenants and strong and loyal shopper bases.

Castellana is acquiring RioSul, a two-storey shopping centre in Seixal, southern Lisbon. Similarly, in the north of Lisbon, Castellana is acquiring Loures, also a two-storey shopping centre. Both feature an exceptional list of national tenants including Zara, Bershka, Pull&Bear, Stradivarius, Foot Locker and C&A, as well as various popular food offerings and a cinema multiplex. In both cases, the centres are tenanted by grocery anchor, Continente Hypermarket, which owns its own stores.

RioSul attracts an annual footfall of nearly 8 million consumers and achieves sales of around EUR98 million a year in a market where both the population and its spending power is growing. Loures is in a growth-node of Greater Lisbon and busy undergoing preparations to be integrated into a new metro station, set to open in 2026.

Castellana is also acquiring 8a Avinda, the only shopping centre in São João da Madeira, an industrial and manufacturing town south of Porto. Its strong tenant mix includes national brands Lefties, Bershka, Pull&Bear, Stradivarius, Cortefiel and C&A, together with a selection of well-loved food choices and a cinema multiplex. Similar to the Lisbon assets, the centre is shadow-anchored by Continente Hypermarket. 8a Avinda boasts an annual footfall of 6 million people, generating sales of around EUR58 million.

The assets will be held in a subsidiary, in which Castellana will have an 80% interest and RMB Investments & Advisory the remaining 20% interest.

Vukile is a leader in consumer-focused shopping centres. Its commitment to customers shines through in its convenient, community-focused, needs-based retail centres. It entered this transaction with an existing portfolio of 32 urban, commuter, township, and rural malls in South Africa and its Castellana portfolio of 15 shopping centres in Spain. With the three new shopping centres acquired in Portugal, post the transaction, 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 committed to its stated strategy in South Africa, Spain and now Portugal and continues to evaluate opportunities that are strategically aligned and financially accretive.

The transaction remains subject to the usual conditions precedent and is expected to close on 1 October 2024.

 

Vukile has issued R796m of senior unsecured corporate bonds

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Vukile Property Fund (JSE: VKE) has issued R796m of senior unsecured corporate bonds with three-, five- and six and a half-year maturities. Strong demand from the market was indicated with total interest of R2.7bn resulting in the issuance being over 3.4 times oversubscribed.

The three-year notes of R214m were placed at a margin of 119bps, at a level better than price guidance. The five-year notes of R462m were placed at a margin of 137bps and the six and a half -year notes of R120m were placed at a margin of 146bps, both favourably priced at the lower end of price guidance.

The overall average weighted issue margin of 134bps is significantly tighter than the DCM notes maturing in FY2025 that the proceeds of the issuance will be used to repay. By deploying the proceeds to repay existing DCM maturities, Vukile’s loan-to-value ratio is unchanged while interest costs are lowered.

“We are pleased with the strong demand and favourable pricing received. The substantial support for the auction demonstrates the market’s confidence in Vukile’s customer-centric approach in driving value creation for stakeholders and our strong balance sheet,” says Laurence Rapp, Chief Executive Officer of Vukile.

FirstRand Bank Limited, acting through its Rand Merchant Bank division, was appointed as sole lead arranger. “The keen investor interest, with over 19 institutions participating in the auction, demonstrates Vukile’s strong position as a meaningful and regular DCM issuer. Vukile’s positive financial results and a supportive market culminated in an excellent auction and issuance outcome,” says Farishta Mansingh of RMB.

Maurice Shapiro, Group Head of Treasury of Vukile, remarks, “The bonds’ competitive pricing showcases Vukile’s exceptional credit quality, robust balance sheet, and well-defined business strategy. We value the instrumental contribution of RMB as arranger and appreciate the ongoing support of our investors. Robust partnerships and proactive stakeholder engagement reflect our core values and further our success.”

In July 2024, Global Credit Rating Company Limited (“GCR”) released a credit rating announcement in which it placed Vukile’s national scale long term issuer rating of AA(za) on Positive Outlook due to continued focus on growing its high-quality, diversified retail portfolio.

Vukile is a specialist retail real estate investment trust (REIT) developed on the foundation of a well-defined, specialised growth strategy, with a focus on owning dominant retail assets across South Africa and Spain. Vukile adopts a proactive approach to asset management. It is focused on customer centricity as the driver of value creation and acts as centres of growth by creating value for all its stakeholders.

Vukile’s assets are valued at around R40 billion, with 40% in South Africa and 60% in Spain. The Spanish assets are held in the 99.5% Vukile-owned Madrid-listed subsidiary, Castellana Properties Socimi.

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