Listed property is a long game: Back companies with a proven record of growing dividends through cycles

South African listed property, especially retail property, is proving a lot of investors wrong. It is defying expectations and showing more robustness than many predicted. People love to speculate about how SA real estate is vulnerable to whatever global chaos hits. But the truth? They significantly overestimate the impact of global disruptions. Real estate is inherently local.

Our business has taken every hit thrown at it – the pandemic, riots, energy volatility and interest rate hikes – and still, the fundamentals are solid. Vacancy rates haven’t spiked, rents are mostly climbing, and tenants keep paying on time.

Then there’s the tired old tale that retail is dying because of e-commerce and changing shopper habits. That myth’s been busted too. Retail real estate, particularly convenience-led shopping centres like those in our portfolio, have shown that when assets are well-positioned, retailer demand remains durable and shopper support strong. 

Bottom line: don’t believe the hype. Retail real estate’s all about what’s happening on the ground, not the headlines.

The power of annuity income

At the core of listed property’s appeal is that it generates predictable, growing income. That’s structured into the REIT (real estate investment trust) asset class. REIT frameworks, both locally and overseas, have rules demanding they pay out most of what they make. That means investors regularly see cash coming back to them.

The result is annuity-style income. Steady. Predictable. Visible. And, importantly, growing.

Inflation eats away at fixed income returns offered by traditional bonds, but property offers a natural hedge. Rent escalations and proactive asset management keep the cashflow growing over time, preserving value in ways bonds just can’t match. For income-focused investors, particularly retirees, this distinction is critical.

When selecting assets for investors seeking income, diversification and inflation protection, REITs belong in your portfolio.

Selecting strength

As with any sector, performance within the REIT sector is not uniform. Property, by its nature, is a long-term game. Markets swing, interest rates bounce, and surprise shocks hit more often than we like. What counts is performance through the cycles. The winners keep vacancies low, grow income, and keep paying dividends no matter the cycle.

How do we measure up?

Through all the challenges – pandemic, unrest, energy issues and more – our vacancy has stayed under 2%. Rental reversions only dipped into the red once, during the worst of the pandemic. Vukile has paid a dividend for 22 years straight, growing it every year except 2020, when the pandemic hit hardest. 

Look at the numbers: base rental growth, low vacancies, positive reversions, strong collections. They’re solid across our portfolios, both in Iberia and South Africa. Setting ourselves apart, we stayed consistent through the cycle and quickly returned to our pre-2020 values. Why? Two big reasons.

A well-diversified portfolio

Geographically, we cover three macroeconomies, with 21 properties in Iberia (16 in Spain, five in Portugal) and 33 in SA. These shopping centres dominate in their areas, with little to no competition. Plus, our centres offer mostly convenience retail that is defensive and tied to non-discretionary spending, which holds up better when consumers tighten their belts.

On the tenant side, 95% of our Iberian tenants and 85% of our SA tenants are national or international retailers with top-tier credit. These blue-chip tenants need to be in our locations because there’s simply no better (or no other) place for them. Plus, retailer groups often run multiple formats, so if one concept stumbles, they pivot to another. Bottom line: our income is low-risk and dependable.

Managed debt and hedging 

Interest rates matter in property, but we’ve got it handled. We keep low loan-to-value ratios between 35% to 40% and hedge our debt heavily, usually for three to five years ahead, often longer. This means short-term rate movements don’t really impact our earnings. After well-managed interest costs, what’s left is steady, growing net operating income. We have a conservative dividend payout of 85%, retaining 15% to reinvest in our centres. That’s how we add value and keep them attractive to shoppers.

Adding value, rotating assets

As mentioned earlier, astute asset management keeps property income growing. It’s the difference between a market-related performance and outperformance. Knowing which assets to sell, and when, is just as important to effective asset management as knowing where and when to invest for better future growth. A recent example is our shift in the Iberian shopping centre market for higher growth potential and value. 

Vukile entered Spain back in 2017 via Castellana Properties, our 99.7% owned subsidiary. We started with smaller, simpler retail park assets, adding value to them through focused asset management and operations. They provided income growth and market insight, while building Castellana’s on-the-ground capability. From that foundation, we expanded into bigger, dominant shopping centres in secondary cities in Spain and into Portugal. We invested in assets with strong catchments, solid tenant demand and upside potential. This strengthened both our earnings and portfolio.

This year, we sold our original Spanish retail parks. Under our watch, these assets increased net operating income by around 23%, driven value-enhancing asset management. With the sale proceeds, plus available cash, we reinvested in high-quality, higher-growth Spanish shopping centres. This includes Berceo in Logroño, Islazul in Madrid, and most recently, a 50% stake in Splau in Barcelona, in partnership with Unibail-Rodamco-Westfield. 

Together, these deals have fundamentally reshaped, diversified and strengthened Castellana’s portfolio, now among the strongest in Iberia, with prime assets in Spain’s three biggest cities: Madrid, Barcelona and Valencia. This asset rotation shows power of specialist value-adding asset management and reflects our disciplined capital allocation and rotation.

So, what are investors getting?

From REITs, investors get annuity income streams that naturally hedge against inflation, and predictable earnings with scale and liquidity from a regulated structure. From Vukile, investors get a business committed to paying consistent and growing dividends, backed by diverse, strong income streams from big name blue-chip tenants in Europe and SA. Dominant assets with no real competition. Value-adding prowess. Disciplined capital allocation and recycling. And interest rate risk that’s well controlled.