Vukile's Laurence Rapp is on the prowl for more deals in Spain 

The company will pour R2 billion into the country after selling its existing assets.

The leap into Spain in 2017 by South Africa-based real estate company, Vukile Property Fund, is paying off handsomely. Vukile first invested in Spain in July 2017, when it bought a portfolio of nine newly built retail parks via its 98.3 percent holding in little-known Castellana Properties Socimi for €193 million (about R2 billion at the time). 

The deal was unusual at the time because Vukile didn’t follow the rest of its counterparts that made large investments into Eastern Europe. Instead, it chose to invest in Madrid, where Castellana Properties owns retail assets.This bet has worked in Vukile’s favour. 

Today, Vukile owns 72.2 percent of Castellana Properties, which grown its asset base from €308 million two years ago to €916.5 million (R15 billion) — making it the ninth largest real estate investment trust in that country. Vukile’s total assets amounted to R35.1 billion, in which 51 percent is based in South Africa, 45 percent are in Spain and the balance in the UK. 

The company is planning to raise more than R2 billion through the possible sale of its interests in UK and SA real estate funds over the next year – money that will be used for its expansion into Spain.  Vukile CEO Laurence Rapp (pictured) discusses the company’s strategy in Spain and opportunities it is seeking in the country. 

M&A Africa: How has the Spanish market fared for Vukile two years since the company made its initial investment?

Laurence Rapp: Because of the scale we have now built in Spain, we are really seen as a dominant player in the market. We are seeing a very healthy pipeline of deals and opportunities. The business has matured significantly. We can scale it further. All the retail parks that we have bought in the initial portfolio are fully let. The value adds and refurbishments we have added in our Spain properties has translated positively for us. We have the highest offshore exposure than any other property company in South Africa. 

M&A Africa: What was the initial rationale for going into Spain?

Laurence Rapp: When we went into Spain, investors were concerned because the base rentals that we would achieve from our properties were very low. But because of the strong macroeconomic environment and trading environment in Spain, there would be scope for an upward revision in base rentals. And we have achieved this. Meanwhile, South Africa has a difficult macro-economic environment, political uncertainty, and industry-specific issues, which limits rental growth. 

Spain only has 560 shopping centres, which is a quarter of the number of shopping centres in South Africa, albeit the population is smaller in Spain with 44 million people compared with 55 million people in South Africa. It has four times GDP per capita. If we are looking ten to 15 years into the future, Spain is not going to have 1 000 shopping centres. They have tight construction planning guidelines and they are disciplined when it comes to shopping centre developments. Spain is the fourth largest economy in Europe. There is a chance for us to gain scale, own that market and become a dominant player. 

M&A Africa: Are there any other mergers and acquisition opportunities that you are considering?

Laurence Rapp: We currently have a deal that we are evaluating. It is currently under due diligence. It is nowhere near the size of what we have done before. It is not a portfolio of properties, but it’s a single asset deal. It fits with the investment philosophy of buying dominant shopping centres in areas that have at least 150 000 inhabitants. We are looking for stable net operating income on the properties [in other words, strong rental income] with value add [or redevelopment] opportunities. We are about to kick off due diligence on that opportunity. 

M&A Africa: Are you looking for assets in Barcelona, where there are more people than in Madrid?

Laurence Rapp: We haven’t actively looked in the city because for our investor base in South Africa is still too driven by what they are reading in the press [about the political uncertainty caused by Catalonia declaring independence from Spain] and not understanding the detail. We have even seen opportunities in the Barcelona area, but those opportunities are not matching our strategy perfectly. 

We will buy anywhere in Spain. But it is more about doing the analysis of the node when you find the opportunity. We are more asset driven. We evaluate the strength of opportunities as they come and that includes the strength of a node, demographic and catchment area. We think there is still good value to be had in dominant areas, where there are big catchment areas. There is so much opportunity in Spain and we can become a dominant player in the country.