Hyprop Investments is an SA real estate investment trust (Reit) listed on the JSE that specialises in investing and managing high-quality regional and super-regional shopping centres in major metropolitan areas that are dominant in their respective catchment areas.
The SA portfolio includes Canal Walk, CapeGate and Somerset Mall in Cape Town, Clearwater on the West Rand, Rosebank Mall, The Glen and Hyde Park Corner in Johannesburg, and Woodlands and Atterbury Value Mart in Pretoria.
The company is internally managed by an experienced asset management team with an excellent track record. Hyprop distributes 100% of its distributable income to shareholders. CEO Pieter Prinsloo leads the executive management team and is assisted by financial director Laurence Cohen.
Large regional shopping centres have a history of outperforming all other asset classes over the long term. This is evident by Hyprop’s current vacant space of 1.1% (including offices). However, as with all other property sectors, retail has not been immune to the current weak economic environment.
For the 12 months ending December 2016, Statistics SA reported retail sales growth of only 1% (constant 2012 prices). Latest Statistics SA figures showthat retail sales grew only 0.8% in the first quarter of 2017.
Hyprop’s average growth in trading density for the shopping centre portfolio was 3.4% and was the lowest trading density growth reported by the company in four years. This resulted in the rent-to-sales ratio in the portfolio increasing from 7.5% to 7.8%.
Many of the national retailers, especially the apparel retailers, continue to feel the pressure from the weaker economic environment and increased competition from international retailers such as H&M and Cotton On who continue to expand their footprint in SA.
SA’s largest retailer, Edcon, continues to rationalise store space and Stuttafords was placed in business rescue recently. River Island, Nine West and Mango also announced that they would be exiting the SA market. Despite the negative sentiment, Hyprop continues to focus on improving its mall offering and is still seeing demand from national and international retailers for space.
As at December 31 2016, Hyprop’s direct property portfolio consisted of nine shopping centres valued at about R27.3bn and a small office portfolio of about R300m. In addition, it has investments in sub-Saharan Africa of about R4bn of which Manda Hill in Lusaka, Zambia and Ikeja City Mall in Lagos, Nigeria are the largest. Hyprop’s African (excluding SA) exposure is predominantly in Nigeria, Ghana and Zambia.
During February 2016, Hyprop expanded into South and Eastern Europe, with the acquisition of a 60% interest in Delta City in Belgrade in Serbia and Delta City Podgorica in Montenegro. The total consideration paid for the two malls was €130m.
Management continued to expand its footprint in the region by acquiring Skopje City Mall in Skopje, Macedonia for €92m in October 2016.
In July 2017, Hyprop announced the €156m acquisition of The Mall, a 52,000m² shopping centre in Bulgaria’s capital city of Sofia through UK-based Hystead Limited, in which Hyprop has a 60% interest. The latest acquisition takes Hystead’s South-Eastern European portfolio to a gross asset value of about €460m. The macro-fundamentals in South and Eastern Europe still appear favourable relative to SA but the region has attracted quite a lot of capital in the past few years and the risk of overpaying for assets has increased. For the six months ending December 2016, Hyprop’s distribution per share was 16.6% higher than that of the previous comparable period. The SA portfolio accounted for 90% of the distributable income while sub-Saharan Africa and South and Eastern Europe accounted for 3% and 7% respectively. Despite the tough local environment, management’s distribution growth guidance for the 12 months ending June 2017 is between 10% and 12%, which is well above the sector average. This is exceptional for a company with fairly low financial leverage.
• Curwin Rittles: investment analyst, Catalyst Fund Managers
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