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:

    • Excellent progress in achieving strategic objective of becoming a specialist retail focused fund in South Africa
    • Vukile - Synergy - Arrowhead (GemGrow) transaction approved by shareholders
    • Sale of Sovereign portfolio for R1.18 billion
    • Dividend of 67.64754 cents per share - 7.0% increase for six months ended 30 September 2016 in line with guidance
    • Gearing ratio of 23.9% with debt fully hedged
    • Successful refinance of R1.1 billion debt and R400 million equity raise during the reporting period
    • Platform in place for international expansion
  • Grow the portfolio

    Durban : The Workshop

    • The upgrade to the Workshop in Durban at a cost of R75 million has been completed in June 2016
    • Variety of new brands added to tenant mix i.e. Pepcor Group, Edgars Connect, Spec Savers, Ginger International, FNB, Le Coq Sportif and Bidvest
    • Dwell times improved with the upgrade of the foodcourt and adding brands such as KFC, McDonalds, Pie City and Maharaj Kitchen
    • Footfall in excess of 1.2 million customers per month
    • Strong tenant demand post the upgrade

    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)

    • Setsing Crescent in Phuthadjithaba, with a GLA of 22 250m², will be extended and upgraded at a cost of about R330 million with an expected net yield in excess of 9.0%
    • The centre is currently anchored by Super Spar, Game, BuildIt and Cashbuild while the balance of the tenants include most of the national fashion retailers as well as the major banks
    • The centre will be extended by about 12 000m² and new tenants will include Pick ‘n Pay and a Mr Price emporium, while some of the existing national tenants, like Woolworths, will relocate to bigger premises in the new extension
    • After the extension Setsing Crescent will not only be the biggest, but also the dominant shopping centre in the area
    • A new under cover taxi rank with easy access for customers to the shopping mall will be built
    • About 85% of the extension area has already been committed to by national tenants, confirming the confidence of retailers in Phuthaditjhaba
    • Flanagan & Gerard Property Development will act as development managers, project managers and leasing agents for the project
    • The projected completion date is July 2018

    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
     2016
    %


    Gearing ratio

    23.9

    29.5


    Loan to value ratio net of available cash

    19.0

    26.9


    % Interest bearing  term debt hedged

    100.0

    86.4


    Annualised cost of finance (I)

    8.7

    8.5


    (I) Based on average of interest bearing debt, at 30 September 2016 and at 31 March 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 string relationships with property managers Broll and JHI
    • Introduced Encha Property Service as a new property manager to the new Sovereign tenanted portfolio

    Fairvest

    • Current shareholding of 31% valued at R359 million
    • 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

    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:

    • Encha Empowerment Transformation transaction finalised in August 2013.
    • Appointment of Sedise Moseneke as an executive director.
    • Board representation aligned with property sector charter requirements.
    • Achieved Level 3 BEE rating