SIMON BROWN: I’m chatting now with Gary Booysen from Rand Swiss. Gary, I appreciate the early morning time. I’ve been chatting with a bunch of my commentators around the second-tier set of results coming out in the Reit space. Vukile is one of them, and certainly [produced] a good set of numbers. The standout of course is their vacancies – down to 2.3%. But your take on the numbers overall?
GARY BOOYSEN: I think it was an excellent set of numbers and it really seems to be bucking the trend. If you were to ask me how property, as you say, in the second tier would be faring, specifically in the rural areas, I would say it would probably be terrible.
But that’s absolutely not what we’re getting from these numbers, and I don’t think it’s the sense I got. If you went around any shopping mall over Black Friday, it’s clear people are out and about. I think people want to get out after Covid, so Vukile is seeing a big increase in footfall and, as you said, [has] fantastically low vacancy rates. They are obviously facing the shifts; it’s very retail based, it is a malls business, and they’re facing the same kind of pressures that all malls are facing – and that’s a change to their tenant mix.
So you are seeing the likes of furniture companies doing worse, jewellers aren’t performing well, and banks and electronics are disappearing out of malls. But what they’re being replaced with is non-discretionary grocers, fashion value. TFG is now their biggest client. But the likes of Mr Price and Pepkor are looking for more space, expanding and generally doing pretty well.
SIMON BROWN: You say you wouldn’t have expected in the rural malls. I agree. And then Spain – I look at Europe and I look at the energy crisis and wars on the continent, and again managing that part of the business is significantly… I don’t want to sort of ding them with praise, but [they are] exceeding expectations.
GARY BOOYSEN: I think when you’re looking at a company like this as an investor, one of the things that that should be concerning you – at one point you mentioned the energy crisis in Europe – is the energy crisis in South Africa [chuckling].
But specifically, looking at load shedding just in South Africa as a side point, 9% of the energy consumption is now solar that they’re catering for themselves. They’re looking at adding another 3.9 megawatts locally. So, as you said, very clever, very active management of these properties.
But as an investor the other thing that should be concerning you when you are looking at property is the idea that you’ve got increasing interest rates, and a property company like this almost competes with fixed-income products. So would you rather go and stick your money in a bank and get a higher interest rate, or do you go to look for something that’s going to generate a bit of yield like a property?
If you look at what’s happening inside specifically their debt profile, they’re largely insulated against rising interest rates, specifically in Spain. Now Spain makes up – it depends on whether you want to measure it by revenue or by assets – let’s call it roughly 50%. There, if you look at their weighted average lease, it’s a long-term lease. But what’s interesting is none of their debt is expiring until 2026. There is some debt expiring in the South African business, but in the context of, let’s say, a R35 billion NAV company, [with a] market cap around R14 billion, it’s tiny. You’re talking about R669 million expiring this year in South Africa, another R342 million expiring next year. So they’ve got hedging in place on these things. They’re going to be refinancing later.
We hope, if Jerome Powell gives us some relief in December, that we might see these interest-rate hikes slowing. And if we start to see the cycle turning and inflation coming down, suddenly these become very, very attractive investments. You might see a significant rerating in the share price – not that it’s been doing particularly badly this year anyway. So Vukile compared to the rest [is] up 16% year to date. Compare that to something like Growthpoint or Resilient, which are down 8% and 4.3% respectively.
SIMON BROWN: A quick word answer. You said, ‘if Jerome Powell gives us relief in December’ – you don’t mean ‘cut rates’, you just mean half a percent?
GARY BOOYSEN: Yeah, half a percent instead of…
SIMON BROWN: I thought you meant cutting points. I’m like, Yoh! – and then it occurred to me that can’t be true.
We’ll leave it there. Gary Booysen from Rand Swiss, I always appreciate the early morning insights.
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