THIRD CONSECUTIVE YEAR OF RECORD GROWTH FOR HYPROP
Leading listed retail property fund Hyprop Investments has again outperformed previous distribution growth with its record distribution to unitholders of 225 cents per combined unit for the year to December 2006, up 18,4%. This marks the fund’s third consecutive year of incremental growth in distributions. A significant increase in the value of its portfolio saw pre-tax net asset value per combined unit rise 34% to R39,63.
CEO Pieter Prinsloo attributes the “groundbreaking performance” to strong growth in rentals, both contractual and derived from turnover rental, driven by the fund’s quality retail portfolio. Continued focus on improved tenant mix at all the fund’s centres helped boost trading across the portfolio, supported by strict expense control policies.
“Reduced interest rates further contributed to our thirteenth year of consecutive overall growth,” says Prinsloo. In January 2006 Hyprop arranged with Standard Bank to introduce a capital debt market funding structure, the first property loan stock to do so, which resulted in savings on finance costs.
The fund’s five prime shopping centres contributed 75% of operating income with a 12,7% increase in net property income on a like-for-like basis.
Prinsloo says Hyprop’s proactive tenant management ensured high occupancy levels across the portfolio - vacancies of only 1,1%, reduced further from 2,7% in the previous year, were aided by demand for retail space as favourable trading conditions for retailers continued.
Supporting this strong performance Hyprop continued to make progress in transformation through the initiative with black-owned Vunani Properties. Vunani Property Investment Fund (VPIF) was established in October 2006 with a portfolio of 18 primarily commercial properties valued at R524 million. Vunani Properties holds 50,2% in VPIF while Hyprop holds the remaining 49,8%. “Since we consider BEE a business imperative we will continue to prioritise transformation in the year ahead and are currently considering a possible BEE equity transaction,” says Prinsloo.
Commenting on the post year-end sale of Hyprop’s 46% stake in SA Retail Properties to the Public Investment Corporation for R1,135 billion, he says: “In the interests of our unitholders we chose to exit SA Retail in a single cash transaction at a premium to the original acquisition cost.” Hyprop will use the proceeds of the disposal to repay the fund’s existing borrowings, leaving it with minimal debt. Prinsloo says this will further strengthen Hyprop’s financial position and enable the fund to leverage its R3 billion borrowing capacity for acquisitions and continued expansion.
Looking ahead he says the fund will continue its development strategy in 2007 to unlock further value in its shopping centre assets. “Expansion plans are in line with our strategy 2 of retaining focus on quality retail developments in strategic locations with good demographics.”
These include the recent R11,6 million upgrade of the La Piazza dining node at Canal Walk and the R32,3 million new premises of 3 500m2 for a Mr Price Home. The store is scheduled to open in November 2007 at an anticipated initial return of 13%. In addition the R18 million extension of the Edgars store at The Glen Shopping Centre in Gauteng is set for completion in April 2007, at an initial yield of 10,5%.
“In response to increasing demand from retailers a number of our centres have applied for additional retail rights,” says Prinsloo. Canal Walk is seeking to acquire approximately 16 000m² in additional retail rights with plans for stand-alone retail outlets, while The Glen has applied for an extra 10 000 m².
Hyprop’s newest addition to its retail portfolio, Southcoast Mall in KwaZulu-Natal, is also set to benefit from further developments. Undeveloped land at the entrance to the centre was acquired during 2006 at a cost of R3,35 million for Hyprop in order to develop stand-alone retail outlets, motor dealerships and a service station.
The fund’s commitment to developing long-term investments is evidenced in the new Stoneridge Shopping Centre project in Greenstone Park, Modderfontein, where Phase 1 of construction began in October 2006. “The Stoneridge development is set to further diversify our retail portfolio by offering a new shopping experience through its unconventional, open-air structure,” says Prinsloo. The 50 000 m² lifestyle centre, estimated to cost R544 million with an initial return of 9%, is scheduled for opening in October 2008.
Looking to the year ending 31 December 2007 he anticipates continued growth in distributions with an increase of 12% to 15%. “By continually enhancing tenant mix and the retail experience for shoppers, Hyprop will enable its shopping centres to sustain their positive growth and so continue to deliver strong distributions to our unitholders.”
Trade closed yesterday at R44,05 a unit.