Hyprop Investments interim income grows 13.4%

Hyprop Investments CEO Pieter Prinsloo says the group benefitted from good growth from Rosebank Mall, following its re-development, additional income from the new sub-Saharan African investments, as well as from exchange rate gains.

Hyprop Investments (HYP) which recently bought two shopping malls in Serbia and Montenegro, today reported a dividend of 297,8 cents per share — an 13,4% increase on that declared a year earlier.

An upturn in revenue from its local property assets especially Rosebank Mall, sub-Saharan African investments and rand hedge gains were some of the factors that helped Hyprop distributions growth for the six months ended December 2015.

During the reporting period, the company acquired Ikeja City Mall in Lagos, Nigeria and opened Achimota Mall in Accra, Ghana. Post period, it made its first foray into Eastern Europe, buying significant stakes in a mall in Serbia and one in Montenegro for about R2bn.

“We maintained robust growth in all key indicators,” says CEO Pieter Prinsloo.

Total revenue and distributable earnings from South African investment property increased by 11,9% and 9,7%, respectively, benefiting from the inclusion of income from Rosebank Mall for the full period.

Many South African property funds have invested markedly offshore in the past couple of years, as they were lured by a lower cost of debt in Europe than in SA and promises of superior economic growth than that of SA. But Hyprop has chosen to expand abroad more cautiously than its rivals, which some investors have been impressed by.

Funds such as Redefine Properties, Tower Property Fund and Rockcastle Global Real Estate have bought into Eastern Europe while Texton Property Fund builds a portfolio in the UK.

Evan Robins of Old Mutual Investment Group says the performance had been solid and that the only mall in its portfolio that had seen its income growth decrease was The Glen, which had faced challenges from The Mall of the South, located in the south of Johannesburg.

“There has been a solid South African performance from Hyprop, which was expected. The robustness of their Eastern European and African investment strategy still needs to be demonstrated. The new mall that has completed near the Glen has had a detrimental impact on The Glen,” says Robins.

Ian Anderson, the chief investment officer at Grindrod Asset Management says the SA portfolio did particularly well, highlighting the defensive nature of Hyprop’s high-quality retail portfolio.

"The company has been able to raise its guidance for this year due to the highly accretive transactions in Africa and Eastern Europe, where the company is capitalising on very low funding costs at the moment. Competition in Eastern Europe is obviously hotting up among South African investors, suggesting future opportunities may not be as rewarding as more investors will be chasing the prized assets across the region," says Anderson.

Vacancies and Refurbishments

Retail vacancies declined to 0,9% from 1,3% in June 2015, as a result of new lettings at Somerset Mall and Willowbridge. Vacancies in the office portfolio also improved marginally to 7,2% from 8,3%.

Several smaller projects relating to extensions and tenant refurbishments totalling R141 million were completed during the period, including  the Woolworths extension at Somerset Mall for R58,5 million and the H&M extension at Clearwater Mall for R37 million.

Sub-Saharan and Offshore Investments

Hyprop’s sub-Saharan footprint excluding SA also contributed to growth in net income for the period, with distributable earnings from the investments increasing by 68,2% to R35,3 million, in part due to income from Accra-based malls West Hills Mall and Achimota Mall and Lagos-based Ikeja City Mall.

The current investment in sub-Saharan Africa totals R4,1 billion, which is financed with US Dollar bank funding according to the company.

Recently in February Hyprop acquired a 60% interest in Delta City Belgrade and Delta City Podgorica in via a United Kingdom based joint venture company, Hystead Limited. Homestead Group Holdings Limited has acquired the remaining 40% in both malls.

Analysts say Hyprop is a reliable dividend payer with solid growth prospects but it may need to be more ambitious and try to grow its distributable earnings by numbers in the 20%s instead of just by double digits.