Hyprop benefits from move offshore
Hyprop benefits from move offshore
Published Date: 2019-03-04 | Source: Stephen Gunnion | Author: Stephen Gunnion
The shopping centre owner says it has agreed to support Edcon as part of its restructuring proposal and may take up an equity stake in the retailer.
Hyprop's growing diversity has helped it weather a tough period for the SA property sector - and an even more difficult time for its assets in sub-Saharan Africa outside of SA, where deteriorating economic and trading conditions resulted in a big drop in cash flow and distributable earnings. However, the real estate investment trust (REIT) says UK subsidiary Hystead exceeded expectations.
The REIT's R37.3 billion portfolio is spread across shopping centres in SA, the rest of Africa and South-Eastern Europe through its 60% stake in Hystead.
In SA, where it owns Cape Town's Canal Walk, Clearwater outside Johannesburg, the Rosebank Mall and Hyde Park Corner, amongst others, it said its portfolio performed in line with expectations, with revenue up by 8%, underpinned by contractual rent escalations. However, property expenses surged 15.8% mainly as a result of a 27.1% increase in rates and taxes, increases in electricity and power-related costs at rates above inflation, and higher provisions for bad debts. Net municipal costs, after recoveries from tenants, increased by 35.7%. It said it had objected to the new municipal valuations for its Johannesburg-based investment properties.
In South-Eastern Europe, it said average rental rates and trading densities at all of its malls increased from a year earlier, despite the low inflation environment in the region. Following the acquisitions of The Mall in Sofia, Bulgaria, and City Centre One East and City Centre One West in Zagreb, Croatia, it said Hystead had attained critical mass in the region.
Trading conditions in Nigeria, Ghana and Zambia remained difficult over the period with low economic growth, weakening currencies and political instability. Landlords faced a shortage of high-quality tenants following the withdrawal of a number of SA retailers from these markets, leading to growing vacancy levels. It said had made good progress in identifying potential buyers for some of its African investments. In the meantime, it's impaired its investment in jointly-held investment company AttAfrica and the Manda Hill shopping centre in Zambia by R1.1 billion.
Distributable income from its SA portfolio increased by 8.8%, while Hystead grew distributable income by 16.6%. Distributable income from sub-Saharan Africa outside of SA declined by 89%. Vacancies fell to 1.6% in SA and less than 0.1% in Europe. During the period, Hyprop sold its last non-core asset, Lakefield office park in Centurion.
Group revenue increased by 6% to R1.63 billion in the six months to end-December, with net property income rising 2.5% to R1.04 billion. Diluted headline earnings per share fell to a loss of 80.6c from earnings of 356.2c after it impaired a loan to its joint venture by R1.07 billion. It's declared an interim dividend of 385.6c, up 2.5% from a year earlier, after taking into account the increased number of shares in issue.
It said it expected distribution growth of about 2% for the full year.
It said it had agreed to support Edcon as part of its restructuring proposal and may subscribe for an equity stake in the ailing retail group. In the meantime, it has been working with Edcon to reduce its space requirements and has secured new tenants for most of the space that Edcon will vacate.
Its shares gained 5.9% to R82.03 on Friday.
Hyprop interims show 2.5% growth with guidance reduced to 2% for FY19. Mgmt. impaired the rest of Africa portfolio by R1bn to reflect reality. SA trading densities turned negative to -0.6%. Edcon exposure is about 67k m2 and guidance includes impact of restructure. Net LTV @ 33%-- Sesfikile Capital (@Sesfikile_Cap) March 1, 2019