 Carver frame packs a premium look, all thanks to the angular bezels. The cloud storage is free and the crystal clear display is more than enough reason for you to buy this digital frame.
Commentary
NATURE OF OPERATIONS
Vukile is a high-quality, low-risk retail-focused Real Estate Investment Trust (REIT), domiciled and operating in southern Africa, with growing international exposure in Spain. The results reflect a strong operational focus with a core competence in active property asset management.
FINANCIAL PERFORMANCE
EXECUTIVE SUMMARY
Vukile remains focused on generating sustainable and predictable dividend growth over the long term. Key decisions and strategy are aligned to this long-term approach, and the group avoids transactions which do not complement the long-term strategy of the group.
Over the six-month period to 30 September 2019, we have continued to build on momentum gained with organic and acquisitive growth in the southern African and Spanish portfolios, offering investors a retail-focused investment property portfolio in southern Africa and Spain. Asset management interventions continue to add value and drive growth in both the Spanish and southern African portfolios.
At a high level, the following significant events and transactions took place during the six months to 30 September 2019:
- Vukile raised equity capital of R700 million in April 2019 via an accelerated bookbuild;
- Vukile acquired an additional 10.38% holding in Castellana over the period,);
- Vukile's senior secured long-term credit rating was upgraded to AAA(ZA)(EL), the corporate long-term credit rating was upgraded to AA-(ZA) and the corporate short-term rating was upgraded to A1+(ZA), with a stable outlook;
- Subsequent to period-end, Vukile concluded the acquisition of Mdantsane Shopping Centre for R516.5 million (November 2019);
- In South Africa, the asset management team achieved practical completion of Maluti Crescent phase 2 and Pine Crest developments in July and August respectively.
Group total assets amount to R37.6 billion at 30 September 2019 (31 March 2019: R35.1 billion). Direct property investments account for R32.9 billion at 30 September 2019 (31 March 2019: R30.5 billion). Listed property investments amounted to R2.3 billion at 30 September 2019.
DIVIDEND GROWTH AND DISTRIBUTABLE PROFIT FOR THE PERIOD
The directors of Vukile are pleased to report that dividends for the six months ended 30 September 2019 increased by 3.5% to 80.83610 cents per share (September 2018: 78.10251 cents per share), in line with guidance.
KEY FINANCIAL MEASURES
A summary of key financial measures is provided below:
(1) Based on operating profit plus dividends from listed investments (EBITDA) divided by finance costs, after deducting all finance income (net interest cost) over the respective period.
(2) Based on directors’ valuations of the group’s portfolio and the market value of listed investments at 30 September 2019, less cash (excluding cash held on deposit from tenants).
SHARE PRICE AND LIQUIDITY
Vukile’s share price decreased by 5% from R20.00 per share at 31 March 2019, to R19.00 at 30 September 2019. The negative share price movement is largely in line with the decline in the SAPI Index, which reduced by 4.1% over the same period.
Over the six months ended 30 September 2019, 311.5 million Vukile shares were traded, which equates to approximately 26.0 million shares per month. The market capitalisation of Vukile at 30 September 2019 was R18.2 billion (31 March 2019: R18.4 billion). The shares traded represent R6.2 billion or 34.3% of market capitalisation at 30 September 2019 (31 March 2019: 38%), demonstrating the liquidity of Vukile’s shares in the market.
GROUP PROPERTY INCOME AND PROFIT BEFORE TAX
The high-level geographical split of revenue and net property income at 30 September 2019 is as follows:
(1) Excludes straight-line rental income and utility recoveries
The contribution to each geographical segment is shown in the table above. Group net property income increased by 48.0% from R833.8 million to R1 234.0 million. Portfolio specific measures and movements are discussed more fully in the relevant southern African and Spanish portfolio commentary hereafter.
GROUP CASH FLOW
The major items reflected in the composition of cash generated and utilised during the period under review are set out below:
Cash flow from property investments (including net finance costs) comfortably covered the dividend paid for the period under review. The net proceeds from additional debt raised, combined with proceeds from shares issued, were utilised to acquire additional shares in Castellana, in addition to the acquisition of investment property, primarily in Spain.
GROUP CORPORATE EXPENDITURE
The primary factors giving rise to the increases in corporate costs are as follows:
- Southern Africa:
- Salary and related costs increased by R12.0 million due to additional amortisation of awards to qualifying employees on the group share scheme, following the outperformance of criteria set in the scheme, and additional members being included in the scheme for the period under review. There were also additional senior executives on the payroll, prior to the retirement of two longstanding directors
- Additional costs relating to the Vukile Academy of R2.4 million.
- Spain:
- Of the total variance of R25 million, R20 million relates to increased salary costs, as the Castellana staff complement increased from 12 to 26 (a 116% increase). The balance of the increase relates primarily to increased travel costs, legal fees and office operational costs. The Castellana team is now operating at full capacity.
Annualised corporate expenditure equates to 0.74% of total assets, being 0.46% attributable to southern Africa and 0.29% attributable to Spain.
NET ASSET VALUE ( PER SHARE)
The net asset value (NAV) of the group decreased over the reporting period by 1.3% from R20.26 per share to R20.00 per share at 30 September 2019, as set out in the table below.
The NAV of R20.00 per share represents a 5.3% premium to Vukile’s share price of R19.00 per share at 30 September 2019.
GROUP INVESTMENT AND OTHER INCOME
Further commentary on investment income is provided under “Listed investments”. The CCIRS ratio to total international investments (on a consolidated basis) has reduced to 30.2% (September 2018: 34.5%). Vukile has chosen to limit the utilisation of CCIRS to 45% of the total value of international investments. At 30 September 2019 the CCIRS nominal value was €182.5 million.
CALCULATION OF DISTRIBUTABLE EARNINGS
LISTED INVESTMENTS
Vukile views its investments in Arrowhead (formerly Gemgrow) and Atlantic Leaf as non-core to the group's strategy going forward. Given the right opportunity, the group will consider exiting these investments in order to deploy the sale proceeds into the core portfolio in South Africa and Spain.
Fairvest – 26.6% shareholding
Fairvest Properties Limited (Fairvest) is a JSE listed REIT with a retail-focused portfolio, located mostly in rural and non-metropolitan areas, including convenience and community centres.
Fairvest’s management has forecast a distribution growth of 4% to 6% to 30 June 2020. Dividends calculated on a full 12-month period therefore reflect a yield of 11.1%, based on the value of Fairvest’s shares at 30 September 2019.
Arrowhead (formerly Gemgrow) – 11.3% shareholding
Arrowhead Properties Limited (Arrowhead) is a JSE listed REIT with a dual share structure, comprising A and B shares. Prior to 30 September 2019, the shareholders of Gemgrow and Arrowhead, approved the merger of the two entities to create a simpler, more efficient structure, reducing corporate costs and allowing for improved liquidity, and in order to better position the merged entity to access equity markets in future. Following the merger, the entity is a diversified fund that invests in retail, office and industrial property, situated across South Africa.
Vukile anticipates a total dividend from Arrowhead of R84.9 million for the year to March 2020, a decrease of 7.2% over the prior year. Dividends calculated on a full 12-month period reflect a yield of 16.8%, based on the share price at 30 September 2019. for the six months to September 2019 were R41.2 million after dividend withholding tax (WHT), compared to R46.5 million for the same period to September 2018 (the prior period had no WHT deducted since Atlantic Leaf converted to UK REIT in February 2019). In total, 89% of forecast net dividends from Atlantic Leaf (represented by a gross dividend of 9.5 pence per share) is hedged over the next 12 months. Dividends calculated on a full 12-month period reflect a yield of 8.6%, based on the value of Atlantic Leaf's shares at 30 September 2019.
INVESTMENT IN SUBSIDIARY
Castellana – 82.5%
Castellana Properties is a Spanish SOCIMI (equivalent to a REIT) specialising in the acquisition, ownership and management of shopping centres in Spain. The company was founded in 2015 and was listed on the Alternative Spanish Stock Exchange (MAB) on 25