Retail focus lifts Hyprop Investments distributions

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Hyprop Investments CEO Pieter Prinsloo says the portfolio’s resilience was driven by the continued strong performance at Hyprop’s shopping malls. Hyprop Investments CEO Pieter Prinsloo says the portfolio’s resilience was driven by the continued strong performance at Hyprop’s shopping malls.

Rosebank Mall owners, Hyprop Investments Limited today declared 9,5% rise in distributions for the six months ended December 2013 to 231c per unit, and had significantly "bulked up" its asset base to R25 billion.

Distributable earnings from regional and super-regional malls excluding Somerset Mall was up 9,6% benefitting in part from extensions at Canal Walk and The Glen.

The earnings rose to 561.9 million rand from 514.8 million rand a year ago, the company said. Revenue increased to 1.17 billion rand compared with 1.12 billion rand.

The property cost-to-income ratio improved to 33,1% from 34,4% due to timing delays in operating cost expenditure.

Hyprop CEO Pieter Prinsloo says the portfolio’s resilience was driven by the continued strong performance at Hyprop’s shopping malls.

Occupancy levels in the total portfolio increased to 98,2% from 97,3% in June 2013, reducing retail vacancies to 1,2%. Office vacancies saw a slight increase from 8,1% to 8,2%.

The total portfolio value grew from R22,5 billion to R25 billion, primarily due to developments, the acquisition of African Land and a fair value adjustment of R658 million. Excluding Somerset Mall, the value of investment property increased by 4,9%, driven by income growth, supported by strong demand for quality shopping centres. 

Giving an analysis on the results, Stanlib Head of Listed Property Funds Keillen Ndlovu points out that the distribution growth of 9.5% surprised us on the upside. "We were looking for about 7.5%," he said.

"Hyprop is our preferred pick for metropolitan retail shopping centres in the listed property space. It has dominant shopping centres that are likely to fare better in a slowing consumer environment and also in an environment where the number of shopping centres is increasing across South Africa," Ndlovu said.

Grindrod Asset Management’s chief investment officer Ian Anderson said the results highlight the quality and defensive nature of Hyprop’s predominantly super and large regional shopping centre portfolio.

"The results continued a trend seen in the listed property sector so far this year of distribution growth rates exceeding market expectations. However, this trend has gone largely unnoticed by investors who continue to sell the stocks aggressively in anticipation of higher official interest rates," Anderson said.

Prinsloo says he is pleased with the progress of the Rosebank Mall redevelopment, which remains on track for completion in September 2014, with lease commitments at 98% and 30 new stores already open.

Sub-Saharan Africa

During the period Hyprop made further strides in its investment strategy in the rest of Africa with the acquisition of 87% in African Land for R768 million gaining exposure to Manda Hill in Lusaka, Zambia.

Hyprop intends to invest up to R3 billion in sub-Saharan Africa excluding South Africa over the next five years, up from the original R750 million. 

“These African investments are already contributing to distributable earnings”, says Prinsloo referring to the R2,5 million and R3,8 million received from Atterbury Africa and African Land, respectively.

Borrowings

Net borrowings increased to R6,7 billion, mainly due to the acquisition of African Land, capital expenditure on the Rosebank Mall redevelopment and developments in Atterbury Africa. Hyprop’s debt capital markets issuances stand at R2,1 billion, or 30% of total borrowings, following the issuance of a R450 million six-year bond in November 2013.

Energy saving initiatives  

As part of its Green Design and Environmental Strategy, Hyprop commenced with an R11,5 million electricity reduction project. Once completed, the project is estimated to save Hyprop around R9,7 million in electricity cost annually.

Prospects

Looking ahead Prinsloo says the challenging economic environment is expected to decrease consumer spend.

Distribution growth for the fiscal year ending June will range from 8.5 percent to 10.5 percent, compared with previous guidance of 6.5 percent to 8.5 percent, Hyprop said.

The shares rose 1.4 percent, the biggest intraday climb since Feb. 10, to 74.79 rand as of 9:32 a.m. in Johannesburg. That pared losses this year to 2.2 percent, compared with a 2.8 percent gain in the 165-member FTSE/JSE Africa All Shares Index. (JALSH) Fountainhead Property Trust, a competitor to Hyprop, fell 4.1 percent (FPT) in 2014.

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Listed Property / REITs  |  Hyprop Investments  |  Pieter Prinsloo  |  Atterbury Africa Limited  |  African Land Investments