CORPORATE OVERVIEW

OUR STRATEGY

Vukile has developed a strategy aimed at creating and sustaining value over the short, medium and long term through operating a diversified fund which is overweight in the retail sector. Our strategy is underpinned by the achievement of the following critical success factors (CSFs).

Delivering on our stated strategy

During the year under review, Vukile made significant progress in achieving and delivering on its critical success factors as reflected in the table below.

  • Optimise short-term and long-term returns

    Notable achievements:

    • SUCCESSFUL TRANSFORMATION into a focused RETAIL REIT
      • Conclusion of Gemgrow transaction
      • Sale of Sovereign portfolio
    • 7.1% GROWTH in annual dividends
    • Normalised like-for-like net PROPERTY INCOME GROWTH of 7.5%
    • Continued strong RETAIL TRADING metrics
    • Strong balance sheet with a GEARING RATIO of 23%
    • Corporate rating of “A” with a POSITIVE OUTLOOK and “AA+” on senior secured bonds
    • Well positioned for further INTERNATIONAL EXPANSIONS
  • Grow the portfolio

    East Rand Mall, Boksburg

    • East Rand Mall together with the adjacent East Point are the dominant shopping destination in the East Rand. Demand for more space from existing fashion retailers highlighted the need for a redevelopment
    • Introduction of 30 new brands into the centre and the scope included
      • additional GLA of 6 540m² and accommodation of H&M, upgrade of food court, undercover parking deck, PV plant and backup generators, shopfronts, floors & ceilings

    Durban : The Workshop

    • Vukile acquired Durban Workshop in 2012. Prior to its acquisition, it was identified as a property to be upgraded as there was potential to improve the tenant mix and the rental income
    • It had not been upgraded since its completion in 1987
    • Future city plans to benefit the centre:
      • Go Durban, R500m library upgrade
    • Tenant mix strengthened by including 13 new tenants:
      • Pep Stores, Dunns, Ackermans, McDonald’s and KFC

    Springs Mall, Springs

    • New regional mall in the heart of Springs in Eastern Gauteng
    • Completed as scheduled in March 2017
    • Caters to 69 000 high-LSM households
    • Pre-funded and earnings accretive from day one
    • Strong demand from national retailers
    • Partnership between Flanagan & Gerard, Vukile and local partners

    Thavhani Mall, Thohoyandou

    • New regional mall in the heart of Thohoyandou, Limpopo
    • Caters to a high-growth node with over 87 000 households
    • Pre-funded and earnings accretive from day one
    • Strong demand from national retailers
    • Partnership between Flanagan & Gerard, Vukile and local partners

    Dobsonville Shopping Centre, Soweto

    • Redevelopment to cater to centre with strong trading density of R37,245/m² per annum
    • New mall, food court and improved tenant mix is being added to the centre
    • Tenants in the expansion include: Clicks, Foschini, Pick n Pay, PQ Clothing and PEP Home
    • New & Improved Tenants in Existing Mall – Expansion of Mr. Price & Truworths, Exact, Identity, Sport Scene, Side Step

    Durban : Phoenix Plaza

    • Phoenix Plaza, with a GLA of 24 363m² and a monthly foot count of more than 800 000, is being upgraded at a cost of R24.5 million
    • Anchored by Shoprite, the centre is dominant in its primary catchment area and offers a large variety of national retailers as well as smaller specialist tenants catering to the specific needs of the community
    • The signage pylons, entrances, external facades of the centre and the parking garage, the mall floors and ceilings and the toilet blocks will be upgraded
    • Two new toilet blocks will be added
    • The upgrade is programmed for completion in August 2017

    Bellville : Barons VW Building

    • The Barons VW building is strategically situated at the Durban Road intersection with the N1 highway in Bellville
    • A 10-year lease has been concluded with Barloworld Auto for the development of a Ford dealership and workshop in the currently vacant area and the area to be vacated by Toys-R-Us
    • The first phase, which comprises the workshop and services area, was completed by June 2016. The second phase, comprising the new and second hand car show rooms and offices, will commence in January 2017 for completion by September 2017
    • The total capex is R35.4 million and a yield of 15.1%, net of costs, is anticipated

    Setsing Crescent ( Synergy Portfolio)

    • Redevelopment to cater to nationals with exceptional trading densities of greater than R40,000/m² per annum who wish to expand their footprints
    • Centre will be the largest in the town
    • Pick n Pay will be introduced as a second food anchor
    • The trade area consists of 82 000 households
    • Flanagan & Gerard to handle development management

    Conversion : Randburg Square

    • The conversion of the B grade office building into 180 quality affordable apartments was completed on 31 October 2016
    • The Apartments comprise a mix of Studios, 1 bed 1 bath and 2 bed 1 bath units
    • The total capex for the conversion amounted to R78 million at a yield of 9.8% when let
    • Currently 61% occupied and 100% occupancy expected early 2017
    • Tenants are mid-income consumers mainly between 28 and 34 years
    • The building’s entire façade was upgraded nearly 40 years after it was built
    • The project was designed with utility efficiency in mind and will be monitored by Smart pre paid metering technology
  • Minimise cost of funding and refinance risk
     

    September
    2016
    %

    March
     2017
    %


    Gearing ratio

    23.9

    23


    DMTN loan to value

     

    21.9


    Corporate loan to value

     

    29.2


    % Interest bearing  term debt hedged

    100.0

    95


    Annualised cost of finance (I)

    8.7

    7.9


    (I)Based on average interest bearing debt at 31 March 2017 and at 30 September 2016, excluding development debt

  • Improve customer tenant focus

    Notable achievements:

    • Ongoing research in respect of lower LSM retail.
    • Continual engagement with major retailers and large office and industrial tenants.
    • On-going interaction and communication with shareholders and debt funders.
    • Strong relationships forged with property managers ensuring their alignment with Vukile’s strategy.
    • Significantly expanded leasing broker network as a result of broker incentive programmes.
  • BUILDING SUSTAINABLE RELATIONSHIPS IN ASSOCIATE COMPANIES

    Notable achievements:

    • Maintained strong relationships with property managers and stakeholders
    • Introduced the investment in Castellana (Spanish) into the Vukile indirect portfolio

    Fairvest

    • Strategically aligned to Vukile’s lower income retail focus but targeting smaller commuter centres
    • Strong hands-on management team that delivers on its promises
    • Continue to hold the stake but will be prepared to dilute to get more liquidity into share
    • Current investment is 3,1% of total portfolio value at 463 million

    Key stats

    • 34 retail properties valued at R1.36 billion
    • Vacancies of 4.4%
    • National tenants comprise 79% of the portfolio
    • Gearing as at 30 June 2015 of 19% of which 73% is fixed
    • As per managements market commentary aiming to grow F16 distributions by between 9% and 10%

    Atlantic leaf

    • Investment of R756 million into Atlantic Leaf for a 26% stake
      • Funded through raising £18 million of offshore funding (100% hedged at 3%)
      • Existing cash resources
    • Strategy is to invest in high-quality real estate assets which deliver suitable returns through both income and capital growth
      • Focus on acquiring and managing quality properties with significant potential for yield enhancement and capital growth
      • Proactively seeking properties which are capable of providing immediate value unlock
      • No specific sector focus but have identified attractive opportunities in industrial, commercial and retail  sectors
      • Expect to utilise gearing up to 50% - 55% LTV to enhance returns
    • F2016 distribution of 7 pence per share, forecast for F2017 of8.5 pence per share, growth of 21%
    • Seeing good deal flow having established an ability to close deals
    • Vukile considering co-investing on certain assets with Atlantic Leaf
    • Vukile keen to expand into offshore markets
    • Positive risk adjusted returns
    • Positive gearing as funding costs are below acquisition yields
    • Improving economic fundamentals
    • Whilst yields have compressed for prime property there are still opportunities in secondary markets
    • Rental growth potential off a low base
    • Long lease profile compensates for lower growth and providing stability
    • Look at real returns relative to inflation and not nominal growth rates
    • Atlantic Leaf provided an ideal entry point for our internationalisation strategy
    • Focus on acquiring and managing quality properties with significant potential for yield enhancement and capital growth
    • Proactively seeking properties which are capable of providing immediate value unlock
    • Core market is UK but will look at other developed markets opportunistically. E.g. Western Europe, Scandinavia, Australia
    • No specific sector focus but have identified attractive opportunities in industrial, commercial and retail sectors
    • Expect to utilise gearing up to 50%-55% LTV to enhance returns
    • Aim to be fully invested in property but will look to invest surplus cash in listed real estate securities where appropriate
  • Invest in our people

    Notable achievements:

    • Maintained strong workforce having more than 340 years’ experience in the property industry.
    • Stable and consistent workforce with staff turnover below 3.5%.
  • Transformation

    Notable achievements:

    • Appointment of Sedise Moseneke as an executive director.
    • Board representation aligned with property sector charter requirements.
    • Achieved Level 3 BEE rating