SA's Retail Sector is in trouble but Mall Owner managed to eke out growth

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Canal Walk Shopping Centre owner, Hyprop Investments (JSE: HYP) increased its full-year dividend to end-June by 12.1%. Canal Walk Shopping Centre owner, Hyprop Investments (JSE: HYP) increased its full-year dividend to end-June by 12.1%.

Although South Africa’s economic strife has dimmed prospects for a long-term revival in consumer spending, shopping centre owner, Hyprop Investments (JSE: HYP) is still managing to eke out growth.

The precarious prospects of SA’s retail sector were confirmed by recent sales updates from major retailers, which suggested that hard-pressed consumers continue to limit their spending.

Releasing its financial results announced on Friday last week, Real estate investment trust (Reit), Hyprop Investments (JSE: HYP) managed to increase its full-year dividend to end-June by 12.1%.

The company with a R36.8bn portfolio of premium shopping centres in SA, sub-Saharan Africa and southeastern Europe, declared a total dividend of 695.1c per share for the reporting period. The balance sheet was strengthened with a 5.6% rise in net asset value to R99.78 per share and a 6.1% decrease in loan to value to 28.1%.

Its European portfolio held through a UK company, Hystead, was included for the first time for a full year. This helped drive distributable earnings up to R1.7bn, from R1.5bn at June 2016.

Hyprop’s South African portfolio continued to perform well to withstand the recessionary economy, according to CEO Pieter Prinsloo.

"There has been slowing growth in trading densities across malls in SA, but Hyprop centres continued to enjoy good rental growth and above- inflation rental escalations with low rental arrears," he said.

The group disposed of noncore properties worth R867m in the year.

Clearwater, Hyde Park Corner, CapeGate and Somerset Mall performed well during the year, with weighted average growth in distributable earnings of 8.6%, the group said.

Trading density growth continued to slow in the second half of the year.

Excluding The Glen, trading density growth for the year was 2% from 6.7% in 2016. Trading density growth for the year including The Glen was 1.4% from 5%.

Vacancies increased to 1.9% for the year, and dropped to 1.7% post year-end. Hyprop had identified replacement tenants for major spaces vacated by Stuttafords at Canal Walk, Clearwater Mall and Rosebank Mall, which would in future improve trading densities in these stores. International fashion retailer H&M would start trading at Canal Walk in November.

Distributable earnings from the investments in sub-Saharan Africa reduced to R57m from R83.7m, largely due to the exclusion of distributable earnings from Ikeja City Mall in Lagos, Nigeria; replacement of tenants at lower rentals at Manda Hill Centre in Lusaka, Zambia; and rand appreciation against the dollar.

It purchased the Skopje City Mall in Skopje, Macedonia, for €92m in October 2016.

Hyprop is predicting dividend growth of between 7% and 9% for the year to end-June 2018.

Anaylist Comment

Evan Robins, listed property manager of Old Mutual Investment’s MacroSolutions boutique, said a more difficult retail environment was evident from Hyprop’s results but its forecast for 2018 was disappointing.

"Their guidance of 7% to 9% dividend growth in the new financial year disappointed many in the market who are used to double-digit growth from Hyprop, but current conditions are far more trying," he said.


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