Archives for November 27, 2024

Hyprop set for growth given the reduced risks and financial strength

Hyprop, a total returns-focused fund that specialises in retail property announced its operational update for the four months ended 31 October 2024. The Group’s dominant retail centres in South Africa and Eastern Europe continued to grow tenants’ turnover and trading density. This reflects management’s ongoing repositioning initiatives and leasing strategies, combined with better consumer sentiment.

“The pleasing performance reflects our investments over the last few years, not only in centre and tenant upgrades and improvements but also in energy and water projects at all our centres,” said Hyprop CEO Morné Wilken. “We have given particular attention to areas most affected by infrastructure decay, to ensure our tenants and shoppers can continue to trade without disruption.”

The company’s pre-close operational update showed a pro-forma improvement in the loan-to-value ratio (LTV) to 35.2% at end-October from 36.4% at end-June, and an increase in interest cover to 2.62 times from 2.5 times. This follows the completion of the disposal of the sub-Saharan Africa (SSA) portfolio to Lango Real Estate Limited. At the end of the period, Hyprop held R575 million cash on hand and R1.2 billion of available bank facilities, after paying the 2024 dividend.

Given factors such as the improvement in the overall risk environment, that Hyprop has caught up on historic capital underspending in SA, the sub-Saharan portfolio has now been sold and Hyprop’s balance sheet strength, the Board intends to review the dividend policy and payout ratio. Any changes will be communicated when the results for the six months ending 31 December 2024 are released in March 2025.

Operational performance

South Africa

In the four months to end-October, Hyprop welcomed several new stores to its centres in South Africa, some of which were “firsts” for the country. It also refurbished and “right-sized” (expanding some spaces and reducing others) stores, where necessary.

Tenants’ turnover in this period was 5.2% higher than in the same period in 2023 and trading density was 3.9% better. Foot count was flat (-0.2%). The improving trend in rent reversions continued, with a positive weighted average reversion rate of 6.7%. Retail vacancies, at 2%, were well controlled.

Some of the highlights were:

In the Western Cape, Canal Walk has been enhanced by some exciting new concepts. These include Old School, a retailer specialising in the sale of South African sports supporters’ jerseys and other merchandise; and the first South African store for Baseus, one of the world’s fastest-growing consumer electronics brands. Silki, which sells luxurious skin, hair and body care products, opened its first stand-alone store.

Hyprop is adding 5 500m² of GLA at Somerset Mall as a part of its redevelopment and expansion project. The project planning is progressing well with most council and other regulatory approvals obtained. Construction work will commence later this financial year and is expected to be complete at the end of July 2026. The project will add 50 new stores to the vibrant centre, focusing on affordable luxury and athleisure as well as family entertainment and food.

In Gauteng, new store openings in Rosebank Mall included the first Cable & Co (fashion and footwear) in Gauteng and Ajmaan, which sells modest clothing. Continental Linen, Waxit and Ribz N Wings all opened during the period. In July 2024, the Soko District became fully let.

The Glen welcomed Porter & Craft, a luxury leather goods retailer and Cannafrica during the period. While The Glen Continental Linen and Chateau Gateaux during the period.

There were exciting developments at Hyde Park Corner. The Forum (a new events venue) and Workshop 17 (flexible office space) both opened in October. The centre also welcomed new outlets for strong global brands such as Birkenstock and Ted Baker; Avenue 2A, which houses international luxury brands; Colourbox, an international and local luxury lifestyle brands retailer; Kids Around, a luxury and premium children’s fashion brand; and Health Works, a health store that offers both products and a blend of traditional healing and cutting edge services.

Eastern Europe (EE)

The EE portfolio continued to achieve strong operational results in these four months, notably in tenant turnover and trading density. Asset management initiatives and investments in upgrades have distinguished Hyprop’s centres from its competitors, allowing it to benefit from the overall growth in retail within the region.

As at 31 October 2024, the EE portfolio’s retail vacancy rate was an impressive 0.2%. Tenants’ turnover was up 11.5% for the four-month period compared with the same period in 2023 and trading density lifted by 9.4%. Foot count was 1.6% higher.

Some of the highlights were:

In Croatia, both City Center one East and City Center one West reported growth in all key metrics, including foot count, despite the non-working Sundays Trade Act, which allows retailers to operate only 16 Sundays per calendar year. Centres are not allowed to trade on public holidays.

In Bulgaria, The Mall’s new tenants included Jeff de Bruges, a new premium chocolatier concept; Intesa, a locksmith; Stilna jena, a Bulgarian ladies fashion brand; Sunday Habit, a Bulgarian influencers’ merchandise shop; and Elenski Balkandjii, a farmer’s deli shop.

In North Macedonia, Skopje City Mall continues to refine its tenant mix and will soon welcome Gerry Weber, M House Roastery Café and mobile operator M-tel. Cineplexx has undergone a comprehensive upgrade, and Skopje City Mall is now the only centre in North Macedonia with a state-of-the-art cinema as part of its entertainment offering.

Environmental initiatives

Hyprop has made progress on ensuring energy and water security for its centres in South Africa, with a gas and battery storage project underway at Rosebank Mall. Management is taking steps to source solar power through Power Purchase Agreements at The Glen and Cape Gate and is looking at wheeling green energy from a third party to Canal Walk and Somerset Mall. Projects have started to install potable water storage at Clearwater Mall, Woodlands and Hyde Park Corner and similar projects will begin at the Glen and Rosebank Mall in 2025.

Canal Walk, Somerset Mall, Woodlands, and The Glen have all achieved net zero waste status. The integration of Table Bay Mall with the Group’s waste management strategy is progressing.

Outlook

Wilken said management’s priorities in the current year and beyond would include driving the implementation of sustainable solutions to reduce the impact of the infrastructure challenges we face in South Africa, expedite organic growth opportunities, for example, the Somerset Mall expansion in the South African portfolio, reviewing the portfolios annually to evaluate the case for recycling of assets and to consider new growth opportunities, disposing of the shareholding in Lango and redeploying the capital into new growth opportunities, and maintaining the health of the balance sheet.

“With these priorities in place, we are well-positioned to pursue growth opportunities without being hindered by past structural, financial, and asset-related issues,” he said.