Tenant struggles take a toll on Hyprop Investments
Rising debt levels and store closures have gutted some of the nation’s biggest retailers — and that’s during bad economic times which has hit Hyprop Investments [JSE: HYP] performance.
The precarious prospects of the South African retail sector were confirmed by recent sales updates from major retailers, which suggested that hard-pressed consumers continue to limit their spending.
Hyprop, the landlord that owns blue-chip malls like Joburg’s Rosebank Mall and Canal Walk in Cape Town, declared one of its worst sets of interim results last week Thursday, with distributable income for the period decreasing 13% – from R985 million (HY2018) to R857 million (HY2019).
The latest update saw its distributable income per share decreasing from 385.6 cents to 335.6 cents.
The company has also had to contend with Edcon’s struggles to turn itself around. The owner of Edgars stores was recently recapitalised with the help of landlords and has been cutting space in malls accross the nation.
Hyprop reduced its Edcon exposure by 18%, from 66 781m² in December 2018 to 54 569m² in February 2020. The introduction of the new Checkers FreshX stores at The Glen, opened in November 2019, and Rosebank Mall, to open in December 2020, will enhance the customer experience at those malls.
The exposure to Edcon will reduce by a further 4 400m² as Checkers will take up the space currently occupied by Edgars in Rosebank Mall.
The company currently has interests in a R48 billion portfolio of shopping centres in South Africa, sub-Saharan Africa (excluding SA), and Eastern Europe. Its local portfolio market value, as determined by the group’s independent valuers, decreased from R28.6 billion at its previous year-end in June, to R27.6 billion at 31 December 2019.
Hyprop which is trying to sell its stakes in disappointing African property assets, has been restructuring its balance sheet to reduce its debt level and to fill vacancies left by tenants who are battling to make profits in a weak economy.
It repaid R1.3bn worth of debt in the reporting period. This brought the loan-to-value down to 34.2% from about 35.2%.
SA retail vacancies increased from 0.8% at 30 June 2019 to 1.6% at 31 December 2019.
Last year the group suffered a R1.45 billion impairment on its “rest of Africa” assets, which included stakes in the old AttAfrica retail portfolio and a stake in a mall in Nigeria. A few malls within the portfolio have since been sold.
But trading conditions in Eastern Europe were attractive, with most markets experiencing political stability and sustained economic growth. Hyprop co-owns retail assets in Bulgaria, Croatia, Serbia, Montenegro and North Macedonia.
CEO Morné Wilken says the company understand the importance of our assets being relevant to tenants within our centres and thereby meeting the needs of our customers.
“To this end we have adopted a multifaceted approach and completed a full market study and nodal analysis on our portfolio. The profiles and footprints of our tenants are evolving and customers no longer visit malls to purely purchase and transact. Our malls are morphing into community spaces that offer a wider range of social experiences and amenities,” he said.
Brett Till, CFO of Hyprop, is optimistic that the company will restore its investment grade credit rating over time.
“Our current LTV is 34,2%, with a healthy level of interest cover at 3.8 times. 78% of the Company’s borrowing costs are hedged. We deal with a variety of South African and overseas banks, as well as the local debt capital markets, and have always had good access to funding. New corporate bonds worth R950 million were issued during the period,” Till said.