| Mon 31 Aug 2020, 15:42 | | VUKILE PROPERTY FUND LIMITED - Voluntary trading update |
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Voluntary trading update
VUKILE PROPERTY FUND LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2002/027194/06)
JSE share code: VKE NSX share code: VKN
ISIN: ZAE000180865
Bond company code: VKEI
(Granted REIT status with the JSE)
("Vukile" or "the company")
VOLUNTARY TRADING UPDATE
Trading update - Southern Africa portfolio
The Southern Africa portfolio continues to weather the short-term impacts of the COVID-19 pandemic remarkably
well. The negotiation and administration of the lockdown period rental relief programme has been completed and all
malls are now trading, with continued strict health protocols across all of our shopping centres. We have been pleased
by the better than anticipated return of shoppers to our centres and anticipate further improvement in the coming
months.
Footfall
As at August 2020, footfall has recovered to 83% of the levels attained over the same period last year. Rural centres
continue to be the best performing in terms of footcount, as they have been throughout the period of the lockdown,
with 85% of feet compared to last year, followed by Township and Commuter malls at 83% and lastly Urban malls at
76%. Overall footfall has improved steadily from April to August (from 32% in April, 57% in May, 71% in June, 80%
in July and 83% in August), which is an indication that shoppers are returning to the malls. We anticipate that this will
further improve as new COVID-19 cases decrease across the board and as we move to warmer weather.
Trading Statistics
The average annual trading density of R29,641/m2 as at end of July is marginally ahead of the average of R29,183/m2
that was reported at the end of March 2020. The year on year growth is 3.2%. Trading density growth in health and
beauty, home décor and supermarkets continue to show real growth in excess of inflation, while trading density in
fashion categories across the board have shown negative growth.
Vacancies
Vacancies as the end of July have increased from 2.9% at year end to 3.3%. Categories under pressure are independent
restaurants and furniture stores. Vacancies have primarily increased as a result of tenants who entered the COVID-19
environment with poor prospects. The partnership approach of granting concessions to our tenants, primarily SMME's,
has significantly cushioned the effects of the downtime in trade experienced over the period of full and partial
lockdown.
Rent Collection
Despite the difficult prevailing trading conditions, the portfolio has managed to collect 95% of its billings (less
concessions and opening balances) during the period 1 January 2020 to mid-August 2020. Tenant arrears have
however increased by R75 million during this period, with 38% of the balance due by SMME's. In addition to the
R108 million concessions communicated to the market at year-end, a further R12 million of concessions have been
agreed with tenants who have had further interruptions in trade.
Leasing Activity
New shops in the portfolio amounting to 4 000 m2 have opened since the start of the lockdown and we currently have
48% of the portfolio vacancies under negotiation. Although new deal activity has slowed, bullish second tier tenants
remain active, opening stores predominantly in rural and township centres, using the challenging trading environment
to expand their reach.
Due to the nature of the COVID-19 crisis, the focus has been on short-term relief, with limited appetite from national
tenants to discuss long-term renewals. This has resulted in the portfolio weighted average lease expiry (WALE)
decreasing from 3.7 to 3.3 years.
We are confident that strategies implemented by our inhouse leasing team will achieve the conclusion of these
outstanding renewals by year-end. We however anticipate that both rent reversions and escalations will remain
challenged and trend downwards to the end of the 2021 financial year.
Prospects
The portfolio remains well positioned in the most defensive segment of the market to withstand the challenging retail
environment, which we anticipate will persist into the medium-term. Arrears and leasing will become the primary
focus area of our asset management team leading up to the end of the 2021 financial year.
We have been encouraged by the progress in the acquisition of Jet and Edgars by The Foschini Group and Retailability
respectively and look forward to working with these businesses to drive further value within our portfolio. Our
exposure to Edcon comprises of 25 Jet and 5 Edgars stores, contributing 3.0% to portfolio rent and 4.4% to portfolio
GLA. We have negotiated and agreed that all stores will be taken over by the prospective purchasers with options to
right size certain stores in future, which will add further diversification and value to the portfolio. As at 31 March
2020, any equity investment in the broader Edcon business was fully impaired in the statement of financial position.
Trading update - Castellana (Spanish portfolio)
Status of the COVID-19 pandemic
In the two months since the end of the nation-wide lockdown in Spain and the re-opening of the country, cases of
COVID-19 have progressively increased, albeit with significant differences among regions. While the number of daily
infections are increasing, most affected patients are younger and the number of hospitalisations is lower, leaving
hospitals with sufficient capacity. The mortality rate also appears lower, mainly due to wider testing and a younger
infected population.
Operating environment
Footfall
Jan Feb Mar Apr May Jun Jul Aug
Monthly -2,8% 3,2% -59,6% -93,4% -79,3% -34,2% -34,2% -27,6%*
* at 23 August2020
(1) Footfall data includes El Faro, Bahía Sur, Los Arcos, Vallsur, Habaneras, Puerta Europa and Granaíta Retail Park.
There are no counters in the retail park assets. Granaita Retail Park counts only cars, so we have estimated 2 people
on average per car.
Castellana has seen a continuous improvement in footfall since the reopening of the economy on 21 June 2020.
Notwithstanding challenges experienced in Granaita due to the centre having a large leisure and cinema component,
and Habaneras, where international tourists are an important part of the catchment area, the portfolio overall has
recovered up to 70% of pre-COVID footfall levels. Furthermore, with three centres undergoing improvement works
(Los Arcos, Bahia Sur and El Faro), which would have had an impact on footfall outside of the pandemic impacts, we
expect these centres' footfall performance to improve further, post completion of the works and hence enhance overall
portfolio footfall levels.
Sales
Jan Feb Mar Apr May Jun Jul
Monthly -0,8% 8,3% -55,0% -89,4% -70,8% -15,7% -10,4%
(1) All retail assets are included in sales data.
- The reduction in sales in March is as a result of the closing of stores due to the COVID-19 pandemic
(15 March 2020). In April, all stores were closed, except 'essential' retailers that were permitted to trade. These
tenants were Tienda Animal, Kiwoko, Mercadona, Economy Cash, Carrefour, Prenatal and Bricomart.
- In May (except Vallsur and Habaneras SCs), stores were able to trade from the 25th of the month. Therefore, the
reduction in sales was less severe than in April.
- In June, the reduction in sales in the shopping centers (-24.4%) was compensated by the retail parks (+26.0%).
There was good performance in DIY, electronics, pets and household goods categories, with increments of over
20%.
- In July, performance was similar to June. Retail parks performed very well (+22%), while shopping centres
improved relative to the previous month. The trend observed in recent months has continued and the average
spending basket has increased. The sales recovery has been faster than the footfall index and is only 10% below
last year's comparable period.
Rent Collections, Vacancies & Leasing Activity
Castellana is continuing to work with tenants to ensure a return to payment of full rentals. Over the past 3 months we
have seen a steady and consistent increase in billing. At a portfolio level, we are currently at c. 82,1% of full rents and
recoveries. In the current financial year (which commenced on 1 April 2020), only 14% of billed amounts are still
outstanding from tenants.
Vacancies continue to be contained at 1.8% of GLA as reported at 31 March 2020, with no tenants to date indicating
a desire to close any of their stores in the portfolio due to the pandemic.
As at 31 July 2020, 71% of the portfolio (by gross rental income) has had addenda to the leases signed, in respect of
COVID-19 rent concession agreements with tenants, while discussions with tenants in respect of a further 14% of the
portfolio are well advanced and are expected to be finalised within the coming weeks. The last 15% of rent concession
discussions (also by gross rental income) remain to be concluded.
Discount agreements have been closed with Inditex for all the units in the portfolio up to 31 December 2020 (29 263m2
distributed in 35 units in 6 Shopping Centres), with many leases extended.
Inditex has expressed appreciation to Castellana for its commitment and the efforts made to support them during the
pandemic and this has been evidenced by the fact that Castellana is one of a few landlords who will not be experiencing
any closure of Inditex stores in its centres.
Cinemas and restaurants continue to be under pressure, due to the impact of the COVID-19 pandemic. Castellana
continues to offer support to these sectors, through increasing outdoor terrace areas and improving cross selling with
events and promotions. Cinemas, leisure and restaurants comprise 10,4% of total GLA and 11,3% of rental income.
Over the last two months, the portfolio has benefited from over 4,000m2 of new lettings in our shopping centres.
31 August 2020
JSE sponsor NSX sponsor
Java Capital IJG Securities (Pty) Ltd
Date: 31-08-2020 03:42:00
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