Published Date: 2021-06-10 | Source: INCE|Community | Author: The Finance Ghost
On a busy day for property results, Hyprop and Vukile both released market updates.
Hyprop's release was an operational update for the four months ended April 2021. The fund is heavily focused on retail properties, including a number of large malls like Canal Walk and Clearwater. There are Eastern European investments in the portfolio as well, along with some malls in Africa.
Needless to say, life at Hyprop hasn't been easy during the pandemic. The fund has been focused on balance sheet strength and repositioning the portfolio. To this end, the loan to value (LTV) ratio has improved to 35.8% from 38.8% at 31 December 2020, assisted by a R358m accelerated bookbuild (which means the company raised money by issuing more shares).
Retail vacancy rates have improved to 2.6% at the end of April, from 3.0% at the end of December. Turnover and trading density have largely recovered but footfall remains lower at Hyprop's malls.
Tenants in the "Electronics" category are trading "exceptionally well" which could be an interesting look-through for businesses like Game within Massmart. However, it's difficult to draw meaningful conclusions from such a generic statement.
The major concern is around rental reversions which are negative in the South African portfolio. This is a measure of whether landlords have been able to increase rental rates on expiring leases that were renewed. Clearly, the pressure isn't over for landlords.
In Eastern Europe, footfall is low but vacancies remain below 1%, which is significantly better than in South Africa.
In the Sub-Saharan Africa portfolio, which Hyprop wants to sell, vacancies were 11.7% in April 2021. That's much higher than the rest of the portfolio but is an improvement from 12.8% in April 2020.
Despite the obvious pressures in the portfolio, the market saw green shoots and the share price closed over 5% higher.
Vukile is also a retail-focused fund, but it holds less flashy malls. Lower-LSM consumers have been somewhat resilient during the pandemic, propped up by government support and the strength of the informal economy.
The earnings announcement is for the year ended March 2021, so one would expect tough numbers as it includes almost the entire lockdown period.
Despite the focus on lower-LSM consumers, rental reversions were still negative as retailers piled the pressure onto landlords. Footfall is trending towards pre-Covid levels but hasn't recovered yet, which is in line with Hyprop's commentary.
Importantly, Vukile managed to reduce its LTV to 42.8% at March 2021 vs. 46.1% the year before. Strong progress has been made after year-end in negotiating for debt extensions and an increase in undrawn debt facilities.
Gross property revenue for the year was down around 9% and operating profit before finance costs decreased by over 31%. As a result of this pressure, the dividend for FY21 is more than 21% lower at 101 cents per share.
At a share price of R11.38, Vukile is trading on a dividend yield of 8.9% after the share price rallied 7.8% based on the earnings announcement.