Real Estate Investor Magazine South Africa October 2018 | Page 44

LISTED
Making sense of REITs
A
South African REIT is a listed property investment vehicle that is similar to internationally
recognised REIT structures from around the world. Listed Company REITs or Trust REITs
are publicly traded on the JSE REIT board and qualify for the REIT tax dispensation.
Offshore property investment remains big
opportunity for REIT’s
International investment remains a compelling opportunity
for the sector. Over 50% of SA listed property is exposed to
offshore markets and this, believes Catalyst Fund Managers
Director and Portfolio Manager, Zayd Sulaiman, will
provide some cushion should the Rand depreciate even
further.
“
“
We need decent GDP growth to stimulate
demand for space and reduce vacancies. It is
taking longer than expected
Head of Research and Property at Anchor Stockbrokers,
Craig Smith, reports: “Currency (ZAR) depreciation
expectations should result in more demand for offshore property,
all things being equal. This could lead to further inward listings
on the JSE of offshore-focused platforms, especially those with
a proven track record.”
Micro issues within the SA REIT sector which derailed its
overall performance in the first half of the year are expected to
have less impact on the listed property sector’s rebased second-
half showing, which is likely to be driven by a combination of
domestic and international macro developments.
Bandile Zondo, Equity Research Analyst for Real Estate
at SBG Securities, says: “Global monetary policy shifts in
developed markets have sparked a broad sell-off in emerging
markets. Developed market central banks are rapidly pulling
back post-crisis stimulus leading to a broad acceleration in yields,
which has had a negative impact on sector returns.”
Sulaiman, points out that global political and economic events
- ranging from trade wars and EU stimulus tapering to Italy’s debt
worries and others - in a rising foreign interest rate environment,
don’t bode well for emerging markets in the short-term.
In addition, weak domestic macro variables persist. “After the
euphoria of the ANC elective conference in December, reality
has set in and it has become clear that any economic recovery will
take time. We need decent GDP growth to stimulate demand for
space and reduce vacancies. This is taking longer than expected,”
says Sulaiman.
42
OCTOBER/NOVEMBER 2018 SA Real Estate Investor Magazine
Vukile delivers 7.7%
full-year distribu-
tion growth
The impressive set of results
reflect the solid operational
performance
driving
Vukile’s core SA retail
property portfolio, which
produced good metrics in a
relentlessly tough operating
Laurence Rapp - CEO Vukile
environment.
It
also
showcases Vukile’s strong
balance sheet, and entrepreneurial deal-making resulting in its
landmark strategic international expansion in Spain.
 Laurence Rapp, CEO of Vukile Property Fund, notes this
has been a milestone year for Vukile, which now operates as a
high-quality low-risk retail REIT in SA and holds 21% of its
assets in Spain.
 Rapp comments: “Vukile provides investors with clarity of
vision, strategy, and structure, and we are well positioned with
a firm focus on our South African retail portfolio and Spanish
investment strategy. Vukile expects to deliver dividend growth
of between 7.5% and 8.5% next year.”
  Vukile closed its financial year with total assets of R23.3bn.
This comprised R17.3bn (74%) in Southern Africa, R4.8bn in
Spain (21%), and R1,2bn in the UK (5%). Its directly held
domestic market portfolio is valued at R14.5bn, with 91%
retail real estate assets that achieved like-for-like net income
growth of 6.5% and positive reversions of 5.1%.
  Vukile’s domestic retail portfolio is made up of 46
properties valued at R13.2bn, spanning 810,000sqm and with
a national tenant base of c.80%. Strong operating performance
further reduced its retail portfolio vacancies from 3.6% to
3.4%. The portfolio has a weighted average lease expiry
profile of 3.7 years. It achieved an 87% tenant retention rate,
contractual rental escalations ahead of inflation at 7.1%, and
rental reversions of 5.2%. The average rent-to-sales ratio is 6%,
which is an industry-leading number according to SAPOA
figures.
      Vukile announced its trailblazing Spanish deal in July
2017, acquiring eleven quality retail parks for EUR193m via
Castellana. Spain is the fifth largest economy in Europe by
GDP and the second most visited destination in the world,