JSE-listed retail-focused real estate investment trust (Reit) Vukile Property Fund is bullish about expansion in the rural and township retail market, particularly as trading data shows an abundance of cash circulating in these markets, defying economic expectations.
Vukile CEO Laurence Rapp confirmed to Moneyweb that the group will be venturing into the Eastern Cape with the acquisition of BT Ngebs City – a 60 000m2 shopping centre in Mthatha that was developed by Sisa Ngebulana’s Billion Group and opened in 2015. After securing the deal last year, Rapp expects the transaction will be finalised by the first quarter of 2024.
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“The mall in total is going to cost R800 million. We are buying it in partnership with someone, so we are buying 50% and are spending R400 million in Mthatha. We will then probably put in collectively another R150 million to upgrade the mall because it needs work to be done on it,” he said.
“It’s all about the management and expertise that you put into it, and we think it’s going to be a cracker. So we are very excited about the BT Ngebs acquisition.”
Regarding the rest of Vukile’s development pipeline, Rapp said the group is adopting a strict attitude on future acquisitions, ensuring that future buys fit the Reit’s strategic goals.
He spoke to Moneyweb on the sidelines of the Durban leg of the group’s retail property tour. Following the Reit’s half-year pre-close conference, Vukile hosted investors and the press on a two-day tour of some of its retail properties in Gauteng and KwaZulu-Natal.
The Johannesburg leg included East Rand Mall and Daveyton Mall, while the KwaZulu-Natal stops included Hammarsdale Junction, Pine Crest Centre, KwaMashu Shopping Centre – which was badly affected by the July riots – and Phoenix Plaza.
Unlike retail properties in major cities or suburban locations serving the middle to upper-class segment of the population, Vukile said it has recognised greater defensiveness in its township and rural shopping centres.
This is thanks to greater population densities in township areas, the constant flow of cash, and the fact that shopping centres in townships and rural locations have become the centre of critical services like banking, pharmaceutical care and grocery shopping.
“So when you look at it now, we really are in a difficult macroeconomic environment, and yet you can see how our malls and businesses are still performing so well, and that is because there is a very defensive nature about the business,” said Rapp.
He added that Vukile has been able to extract value in these markets – despite the economic pressure on consumers – by strategically positioning its retail properties as a dominant asset within a large catchment area. This way, even for shoppers who walk in to have their essential needs met, there is a greater chance they will make discretionary purchases on their way out.
In August, Vukile reported a 7% growth in footfall in the retail portfolio year-on-year, while portfolio sales reportedly grew 3.6% and trading density growth increased by 3.5%.
Shopping centres in township and rural areas led trading density growth, beating portfolio averages and increasing by 5.3% and 4.8% respectively.
On a category basis, the portfolio saw the strongest uptick in density and turnover in the health and beauty categories, soaring 16.3% and 16% respectively. Restaurants, coffee shops and bottle stores also saw significant growth.
The fashion category has shown signs of a financially squeezed consumer – with density and turnover barely moving during the period. The athleisure and shoe categories reported 3.7% and 3% rises in trading densities respectively as aspirational buying supports sales.
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“There’s an aspiration from the consumer that they want branded products, and they will find the money [for] that. And I think there is probably more money in the economy than we seem to think because of this cash economy that is not captured in the formal stats. But we see it and feel it in the markets that we operate in,” Rapp told Moneyweb.
The period under review also saw the retail property owner having to respond to consumer shopping preferences, which has meant a noticeable effort across the retail portfolio to rightsize the space occupied by tenants to meet consumer demand.
This process is largely data-driven, according to Vukile’s Southern Africa MD Itumeleng Mothibeli.
“Because we are data-driven, we get a sense of shifting shopper patterns, and we also see opportunities that we have within the portfolio.
“For instance, if there’s a shift that happens in a specific market in terms of support for a specific category and the trading densities shoot up, it is flagged immediately to the team that there’s more demand, so explore it and then try to introduce it to the mall,” Mothibeli said.
“So, if, for instance, the trading densities for a specific category decrease, then asset managers get a trigger the following month to say ‘Listen, watch this category, downsize, get a replacement tenant’. So that is the strategy that the asset management team drives,” he added.
As such, at one of its oldest retail properties, Phoenix Plaza, the group has had to rightsize some space from the retail segment to enable it to expand the presence of two banking tenants. It says this will help meet the demand of banking clients as entrepreneurship continues to grow in the area.
Pedros, Standard Bank, Truworths, John Craig, Power Fashion, Sportscene, Studio 88, Mr Price Baby, KFC, Boxer and Capitec are just some of the latest tenant additions to the group’s retail portfolio.
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