Tuesday, 17 September 2024. Hyprop, the owner of dominant retail centres in South Africa (SA) and Eastern Europe (EE), reported distributable income for the year to 30 June 2024 that was better than its March guidance. Management is confident that it’s set for future growth as it delivers on a number of strategic priorities and anticipates an easing of the recent tough trading environment in the year ahead.
“Discernible green shoots in the global and domestic economies, combined with Hyprop’s sustainable business model, excellent property portfolios, strong balance sheet, prudent capital management, and continuous investment in keeping the portfolio relevant, in our human capital and environmental initiatives, should position us to deliver further growth and value for all our stakeholders over the long term,” CEO Morné Wilken says.
“The Group’s outlook is positive, despite the difficult global economic environment and unique challenges in each of the regions in which we operate. We are optimistic that the peak of inflation and interest rates is near, but the Group’s financial performance will still be negatively impacted in the short term by high interest costs and the timing of the implementation of the sale of the sub-Saharan Africa portfolio.”
Hyprop’s distributable income was 370.4c a share for the year to 30 June 2024, a reduction of 8.6% from 405.2c reported for the year to 30 June 2023. In March 2024, management warned shareholders there would be a 15-20% decrease, owing to higher interest costs for longer, an increase in issued shares due to the dividend reinvestment plan, further foreign exchange losses on its Nigerian properties and the acquisition of Table Bay Mall. The reasons for a better outcome included a strong operational performance from the SA and EE portfolios as well as improved cash management, lower hedging costs and reduced margins on refinanced borrowings, the impact of withholding the interim dividend and timing delays in capital projects, which all offset the higher interest costs.
A final dividend of 280c a share (2023: 299.3c a share) was declared in-line with the dividend policy being 75% of the distributable income from the SA and EE portfolios.
In the year under review, Hyprop acquired Table Bay Mall for R1.68 billion, and the centre is trading well as it is being integrated into the portfolio. Since year-end, the Group has signed binding legal agreements to dispose of its sub-Saharan Africa (SSA) portfolio (centres in Nigeria and Ghana) to Lango Real Estate Limited, in exchange for Lango shares. This will free Hyprop’s management to focus on the core portfolios in SA and EE.
Over the past five years, a number of steps have been taken to reinforce Hyprop’s balance sheet. The loan to value (LTV) ratio was maintained at 36.4% in June 2024, despite the debt-funded acquisition of Table Bay Mall and impairment of the SSA portfolio in line with the sale transaction. At end-June 2024, Hyprop was in a strong liquidity position, with R803 million of cash and R2 billion of available bank facilities. At present, 80% of the interest rate exposure is hedged.
SA portfolio
Despite a challenging domestic economic environment, the Group’s nine centres (four in the Western Cape and five in Gauteng), achieved higher tenant turnover, foot count and trading density. The overall rent reversion rate improved to positive 5.8% compared to negative 7% a year ago.
Canal Walk opened 20 new stores in the past year. Somerset Mall launched a new Checkers FreshX and upgraded Pick n Pay Hypermarket, while a key project to improve the food journey supporting Ster-Kinekor was completed. Somerset Mall is in the midst of a two-year expansion project which will add 5 400m² of GLA. Rosebank Mall is benefiting from an improved tenant mix, reporting a 10.9% increase in tenants’ turnover and 8.5% growth in foot count. Woodlands opened three new drive-thrus for Steers, Burger King and Chicken Licken, The Fun Company and W Cellar (as part of the Woolworths extension project).
At Hyde Park Corner, the renovation of the north office block and The Forum is progressing well. Workshop 17 and The Forum will open in October 2024 and Workshop 17’s offices are expected to have a positive impact on the centre’s trading.
The independent valuation of the South Africa property portfolio was R25.4 billion in June 2024 (2023: R23.03 billion). The revaluation includes the costs of acquiring Table Bay Mall and shows the result of higher net operating income.
EE portfolio
The EE properties delivered excellent results, as they benefited from wage escalations in Europe as well as lower inflation and electricity prices across the region. European team continued to optimise the tenant mix and invest in projects and upgrades to maintain the centres’ dominant market positions. Across the portfolio, trading density rose by 8.9% year-on-year and retail vacancies at period end were 0.1%, an improvement from 0.3% a year earlier.
The Mall in Bulgaria completed a new staircase link from the centre into the new food court, which should improve the performance of the food tenants. Despite new legislation in Croatia that limits trading hours, City Center one East grew tenant turnover by 10.9% and trading density by 11%. City Center one West’s tenants’ turnover increased by 11.4% and trading density by 12.2%. Skopje City Mall enjoyed its most successful year since opening, with tenant’s turnover up by 7.5% and trading density by 8% compared with 2023. This year, a project will be completed to centralise all the ATMs and upgrade the Cineplexx complex.
The valuation of the EE portfolio increased from €574.7 million (R11.8 billion) in June 2023 to €610 million (R11.9 billion) in June 2024.
SSA portfolio
Weak economic conditions in West Africa, particularly in Nigeria, affected the trading performance of the centres, as did the marked depreciation of local currencies against the dollar.
Ikeja City Mall in Nigeria has welcomed four new tenants, which reduces its vacancy rate to below 1% at present from 2.1% at end-June 2024. In Ghana, replacement tenants were secured for the space vacated by Game in December 2022: ten-year leases have been signed by Melcom and Decathlon in all three of the centres.
The transaction to dispose of the portfolio to Lango is expected to be completed before 31 December 2024.
Other significant developments
Hyprop spent R81 million on energy projects in the year, including the installation of solar PV at Woodlands, Rosebank Mall and Clearwater Mall, but excluding Table Bay Mall. This year, work will begin on installing new solar PV at The Glen and CapeGate. Various projects to conserve water are underway, and the installation of potable water storage at several centres is about to commence. The Group has also spent R21.7 million on various initiatives to minimise waste and increase recycling.
Outlook
“More positive sentiment is evident in businesses, consumers and retailers in South Africa as a result of the formation of the Government of National Unity and more stable electricity supply. Globally, interest rate cuts are anticipated from the US Federal Reserve, which should encourage the South African Reserve Bank to cut rates also, giving much-needed relief to consumers, in turn having a positive impact on our operations” says Wilken.
Hyprop anticipates that it will achieve a 4-7% increase in distributable income a share for the year to 30 June 2025 compared with 2024. This increase is conditional on, among other factors, contractual rental escalations and market-related lease renewals, no further deterioration in South African electricity supply or the economy, and no other regional or global disruptions.
