HYPROPííS QUALITY PORTFOLIO DELIVERS IN TOUGH TIMES
The JSE’s top retail property fund - Hyprop Investments - continued to deliver growth in distributions for the six months to June 2009 despite a recessionary climate. Hyprop returned to unitholders 161 cents a unit for the period, a 7,3% increase on June 2008. The company’s quality shopping centres successfully demonstrated their defensive qualities under tough trading conditions to prove the portfolio’s resilience in a downcycle. Further, the R662 million expansion programme continued on track for completion by year-end and saw new retail space significantly let, which should boost earnings from 2010.
New CEO Mike Rodel says the single-digit distribution growth is in line with expectations when contextualised by the economic downturn and following on five consecutive years’ strong growth in distributions, averaging 17% between 2004 and 2008.
“National retail sales to June 2009 show a drop of 6.7%. In contrast, despite construction activity at three of our six centres, retail sales in Hyprop’s portfolio grew by 1% in absolute terms,” he says. He adds that while this level of growth is not optimal for Hyprop, shopper flow into the centres improved in the second quarter boding well for prospects. “With developments at Canal Walk, Hyde Park and The Glen close to completion, and early signs of economic stability if not recovery, we are confident of better trading conditions in the summer.”
Net income from shopping centres on a comparative basis to last year (excluding Stoneridge) was up 10%. Rodel says the balance sheet remains strong. Gearing is at only 12%, well below industry norms, notwithstanding the increased debt financing for the expansion programme.
Hyprop managed to maintain high occupancy levels - 96% of all lettable space is taken up and the shopping centres (excluding Stoneridge) are 98% full. The bulk of vacancies remain at Stoneridge, which opened to a challenging start in September 2008 at the onset of the downturn. “Retailers were less confident to join a new centre while the surrounding residential and commercial blocks were experiencing a slowdown in occupancy,” says Rodel. He emphasises that Stoneridge is a major operational focus for management going forward.
To date Canal Walk has opened five of its six new stand-alone retail ‘pods’. The final ‘pod’ is set to be tenanted and open for trade before year-end, which will take the total number of new tenants to eight. The new stores adding 15 500m² of retail space in total, already house Bride & Co, Golfer’s Club, Hi-Fi Corporation, Sports Direct and Urban Living. “In addition Foschini @home Living Space and Cape Union Mart have stores in the ‘pods’ which are flagships across Africa for the respective chains.”
Similarly dominating its region, The Glen will become a fully fledged regional shopping centre of over 75 000 m² when its new retail offering costing R371 million is completed in November 2009. Rodel says 98% of the additional space has been let to major tenants such as Game and Dischem, who anchor ‘super lifestyle’ retailers including Wetherlys, Hi-Fi Corporation, Foschini @Home and Incredible Connection.
The Southern Sun Hyde Park is on track to open in September 2009 atop Hyde Park shopping centre. The four-star hotel aimed at executives is expected to draw more visitors to the centre at the same time as expanding Hyprop’s leisure footprint. “We are realistic about expected occupancy in the first six months of the hotel opening its doors. The Soccer World Cup in June 2010 should boost demand for rooms.”
Rodel says Hyprop’s strategy of unlocking value in existing properties extends beyond the centres themselves into the surrounding high growth nodes. He cites as an example the recent acquisition of two Rosebank office blocks, which take Hyprop’s investment in the area to over R1 billion. “The acquisitions are intended to maximise retail opportunities at The Mall of Rosebank with additional parking and supplementary offices, all part of the node’s rejuvenation ahead of the new Gautrain and BRT stations,” says Rodel.
Looking ahead he is cautiously optimistic that the improvement in GDP figures released last week is an initial sign of a strengthening economy. “However, management remains prudent and will continue to focus on tenant mix and tenant sustainability while driving marketing activities.”
He concludes that Hyprop is well-positioned to take advantage of an upturn in the economy. “Hyprop’s stable, premium retail properties have a sustainable lease profile and are managed by experienced teams with specialist knowledge.” To support management Hyprop has finalised a consultancy agreement with Redefine Income Fund (formerly Madison) that will see the continued strategic input of the former Madison key executives.
Combined units in Hyprop closed Friday at R41,50.