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21 February 2012

Vukile dispels poorer quality portfolio myth

Vukile dispels poorer quality portfolio myth

JVs and emerging markets form part of its growth drive amid Sanlam acquisition.

The Vukile Property Fund says its immediate plans post the acquisition of an R1.5bn portfolio from Sanlam is to continue looking for growth, especially in the retail sector.

CEO Laurence Rapp says while it wants the fund to be a balanced one in having exposure to retail, industrial and commercial, the focus will be on retail. Once the R1.5bn Sanlam transaction is closed, it will take Vukile’s gross assets up to around R7.3bn.

Speaking after a tour of Vukile’s malls in Daveyton east of Johannesburg and in Dobsonville, Soweto, south west of Johannesburg, Rapp said emerging markets are attracting business as suburban markets become more and more saturated.

“We are very passionate about it through our experiences over the years and we want to capitalise on that by finding more space next to strong commuter links like taxi ranks and rail links,” Rapp said.

He added that while value to spend per basket was not nearly as high as those in the regional malls, there was growing disposable income in those areas with an increasing footfall.

Anton de Goede of Coronation Fund Managers who was on the tour of Vukile’s properties said the retail assets in the form of the Daveyton and Dobsonville malls had come as a bit of a surprise as the foot traffic was impressive being on a Monday morning and mid-afternoon. De Goede said trade seemed to be doing well indicating the malls were “nicely performing assets”.

On the office front De Goede was less optimistic saying the sector was facing some vacancy and re-letting challenges, for example in the Sunninghill precinct. What does count in Vukile’s favour in terms of the Sanlam acquisition is that the fund is extremely familiar with the assets thereby reducing risk.

Director of Meago Property Investment Managers, Jay Padayatchi, concurs that Vukile’s retail offering in nodes like Daveyton and Dobsonville are doing phenomenally well and will continue to do so provided they remain dominant in the area.

In its current form, these malls are the only substantial offering within at least a ten-kilometre radius of competition like Maponya Mall in Dobsonville. The same applies to Daveyton. Currently they cater for the lower LSMs which include pensioners and people dependent on grants. Many don’t have alternatives in terms of where to shop, making them a very captive market. Commuters are another niche market in that the Dobsonville Mall is adjacent to a bustling taxi rank.

Retailers that are doing particularly well in these malls are Webbers and Studio88 which Vukile believes will soon be giving the nationals a run for their money.

While Rapp believes that its office sector has “tremendous potential” with vacancy rates coming in below national averages and in many cases better than its competitors, fund managers believe this could prove to be a challenge.

“Offices are a work in progress due to vacancy challenges and potential re-letting challenges. The office space in a tough letting environment, could cause some head wounds,” De Goede said.

Padayatchi says while the office vacancies in this acquisition are pretty much in line with the national average there is a substantial expiry of office space in the next 12-24 months which could pose a re-letting risk. He also expressed some concern over the number of B grade offices in the Vukile portfolio with increasingly high vacancies in the B and C grades.

In spite of this, Padayatchi believes Vukile is offering an “overall good quality, relatively defensive portfolio. In terms of the upside that may be generated from the Sanlam acquisition, Vukile is intimately involved with the assets and this takes a lot of risk out of the transaction.”

Rapp says Vukile is trying to dispel perceptions that Vukile has a poorer quality portfolio. “We think the quality of our retail, while not talking about regionals like Sandton, is very high given the percentage of national retailers and high footfall. Retail is the core of our portfolio.”

Office blocks included in Vukile’s portfolio in the northern suburbs include: Sandton St Andrews Complex; Sandton Rivonia Tuscany; Sandton Sunninghill Sanhill Park; Sunninghill Place and the Johannesburg Isle of Houghton.


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