Wednesday, 15 September 2021 – Hyprop Investments, the JSE-listed REIT that owns a R43.3 billion portfolio of retail real estate in South Africa and Eastern Europe (EE), has made very good progress executing its strategy. Hyprop has moved ahead on all its priorities, including strengthening the balance sheet, advancing the implementation of its non-tangible strategy with the successful opening of the SOKO District (SOKO) at Rosebank Mall, and good progress in repositioning its South African portfolio by rolling out its “Golden Thread”.SOKO is the world’s first platform that enables digital-first retailers access to flexible physical space, book the space, build a store, and sign a lease in under ten minutes online. It also provides landlords with access to a platform that allows them to manage a pipeline of digital-first retailers. Hyprop currently has a waiting list of 168 online retailers for SOKO.
The Golden Thread entails the further repositioning of the South African shopping centres around three key pillars – place, brand and people. The Company is evolving from a traditional mall structure to an omni-channel environment that offers customers excitement, personalisation, and experience-led spaces. The repositioning will create a distinct personality for the malls around a “town square” concept and allows all Hyprop malls to be connected through a unified set of services, offerings and experiences. Hyprop’s overriding goal is to create safe environments and opportunities for people to connect and have authentic and meaningful experiences.
“The ongoing strategic repositioning of the South African portfolio is vital to improving footfall, tenant performance and ultimately rental income growth,” says Hyprop CEO Morné Wilken. “With the ongoing impact of the pandemic on our centres and the environments within which we operate, we expect relatively low rental income growth for the next two years. This underlines the need for the Company to continue the process of repositioning its malls to ensure that they remain relevant in an ever-changing retail landscape. We are confident that our Golden Thread initiative will assist with just that.”
Financial results
The group’s distributable income for the year was R1.035 billion, equivalent to 336.5 cents per share (2020: 493.4cps), following a 21% increase in the number of shares in issue as a result of the 2020 dividend reinvestment plan (DRIP) and accelerated bookbuild in April 2021.
The results were also impacted by negative reversions, and the effect of rental discounts granted to struggling tenants and R119 million less income received from Hystead which reduced the group’s distributable income by R278 million, or 90 cents a share. A dividend of 336.5 cents was declared and shareholders will have the option of reinvesting the net cash dividend in return for additional Hyprop shares through a DRIP.
During the year, the group repaid more than R1 billion of debt, bringing total debt repayments for the past two years to over R2 billion. The loan-to-value (LTV) ratio at year-end of 37.2% was well below the LTV covenant of 50%. The R1.1 billion proceeds from the sale of Atterbury Value Mart, which was completed just after year-end, will further reduce the LTV to 34.9%. The interest cover ratio was constant at 3.0 times, aided by a decrease in the net interest costs from R548 million to R522 million.
Hystead has accepted an offer to sell Delta City in Belgrade for €115 million, with the proceeds to be used to reduce Hystead’s euro equity debt.
Operational performance
Trading metrics for the South African portfolio are still below pre-Covid levels. Average monthly footfall was 7.6% lower than in 2020, tenant turnover rose 3% and trading density was down 2.5%. Total retail vacancies remained stable at 2.4%.
Some of the significant new lettings in 2021 included Checkers FreshX stores in Rosebank Mall and Woodlands and Starbucks stores in Canal Walk, Somerset Mall and Woodlands. New leases were concluded with the buyers of the former Edcon brands, and exposure to CNA has been reduced from five stores to one through re-lettings.
The Eastern European (EE) portfolio, Hystead, has taken longer to recover from the pandemic than the South African centres because of lockdowns, to varying degrees, between November 2020 and May 2021. Most EE centres resumed normal trading from late April, but some restrictions remain. Average monthly footfall was 15.6% lower than in 2020 and trading density was down 7.6%. However, spend per head was 12.9% higher. Retail vacancies were 0.3%, underscoring the dominance of these centres in their markets. During the quieter trading conditions, some of the facility upgrade projects were completed.
Over 40 new stores were opened across the EE portfolio during the year, including brands such as Zara, Pandora, Samsung, Hugo Boss, Ted Baker and Okaidi. Replacement tenants have been secured for the seven stores vacated by the Inditex Group as part of Inditex’s world-wide store reduction strategy.
Trading conditions in Nigeria and Ghana remained challenging, reflecting economic conditions in the region, however Ikeja Mall remains fully let and produced a good result, while the trading performance of the Ghanaian malls improved. Total vacancies in sub-Saharan Africa were 12.1%, while net property income rose 31%. Hyprop continues to pursue an exit from its sub-Saharan investments.
Outlook
Wilken says the group’s strategy and key priorities remain relevant, even in the event of a prolonged Covid-19 environment. Key focus areas for the year ahead include completing negotiations on the agreement with PDI Investment Holdings to take control of the Hystead portfolio, strengthening the balance sheet, repositioning the South African portfolio for future growth, increasing the dominance of the Eastern European properties, extracting value from Africa whilst pursuing the exit strategy, and growing the non-tangible asset base.
“Covid-19 remains a risk, as does the underperforming local economy,” Wilken says. “Consumer spending is expected to remain under pressure and consumer behaviour will continue to evolve. While we anticipate further negative rent reversions in South Africa in the short-term, our repositioning strategies and strong balance sheet position will enable Hyprop to successfully navigate these challenges and reset the base for growth in long-term.”
