FINANCIAL DIRECTOR’S REPORT

2015 IN PERSPECTIVE

Laurence Cohen

Hyprop declared a dividend of 280,3 cents per share for the six months ended 30 June 2015, an increase of 16,3% on the corresponding period in 2014. The total distribution for the year of 543 cents per share is 15,0% higher than the prior period.

 

Laurence Cohen,financial director

Distributable earnings statement

    12 months ended
30 June 2015
  12 months ended
30 June 2014
 
                   
Business segment   Revenue
R000
  Distributable
earnings
R000
  Revenue
R000
  Distributable
earnings
R000
 
Canal Walk (80%)   579 188   412 308   545 252   379 254  
Clearwater Mall   358 011   245 039   336 499   224 585  
Rosebank Mall   234 353   149 665   121 808   63 302  
Woodlands Boulevard   231 701   152 821   214 842   142 336  
Somerset Mall   231 100   159 387   166 624   116 017  
The Glen (75,15%)   218 999   153 796   214 218   143 198  
Hyde Park Corner   199 074   130 900   179 905   120 000  
CapeGate   167 562   96 472   157 166   91 674  
Shopping centres   2 219 988   1 500 388   1 936 314   1 280 366  
Atterbury Value Mart   120 286   89 544   112 551   83 714  
Willowbridge1   90 746   49 793   85 797   46 232  
Somerset Value Mart   23 7841   15 3081   22 692   14 466  
Value centres   234 816   154 645   221 040   144 412  
Stoneridge2 (90%)   56 275   29 110   67 864   31 042  
CapeGate Lifestyle2   32 937   22 178   46 380   31 721  
Properties sold   89 212   51 288   114 244   62 763  
Total retail   2 544 016   1 706 321   2 271 598   1 487 541  
Standalone offices3   73 126   45 866   67 900   42 159  
Investment property   2 617 142   1 752 187   2 339 498   1 529 700  
Investments in sub-Saharan Africa (excluding SA)       42 368   77 953   35 078  
Listed property securities4           37 265   37 265  
Word4Word Marketing   25 807   4 243   15 008   3 180  
Fund management expenses       (62 001)       (55 139)  
Net interest       (417 178)       (401 484)  
Straight-line rental income accrual   60 085       45 055      
Total   2 703 034   1 319 619   2 514 779   1 148 600  


Hyprop has again presented a solid set of results, maintaining distribution and capital growth well above the sector average.

Hyprop declared a dividend of 280,3 cents per share for the six months ended 30 June 2015, an increase of 16,3% on the corresponding period in 2014. The total distribution for the year of 543 cents per share is 15,0% higher than the prior year.

Total revenue and distributable earnings from investment property increased by 11,9% and 14,5%, respectively, benefiting from increased income from Rosebank Mall, the inclusion of income from Somerset Mall (acquired 1 October 2013) for the full year and tight control of operating expenses. Like-for-like revenue and distributable earnings from investment property increased by 6,5% and 8,1%, respectively.

Rosebank Mall was transferred from development property to investment property on 1 July 2014. The majority of incremental income from the redevelopment was earned from 1 October 2014.

The property cost-to-income ratio reduced to 33,6% (2014: 34,4%). The total cost-to-income ratio at fund level reduced to 36,0% (2014: 37,3%).

The 3,9% increase in net interest costs for the year was limited by applying the proceeds of non-core asset sales (Stoneridge, and CapeGate Value and Lifestyle Centres) to repaying debt.

Total arrears at 30 June 2015 were R19,4 million (2014: R19,2 million). This constitutes 0,6% (2014: 0,5%) of rental income. The corresponding allowance for doubtful debts was R10,7 million (2014: R8,8 million).

Property portfolio

    Value attributable to Hyprop   Value per
rentable area
30 June 2015
R/m2
 
Business segment   Rentable area
m2
  30 June 2015
R000
  30 June 2014
R000
 
Canal Walk (80%)   156 689   6 732 800   6 064 000   53 711  
Clearwater Mall   86 081   3 944 000   3 473 000   45 817  
Rosebank Mall   80 712   2 495 000   1 849 000   30 912  
Somerset Mall   66 354   2 450 000   2 252 000   36 923  
The Glen (75,15%)   79 665   2 329 830   2 059 269   38 913  
Woodlands Boulevard   71 659   2 296 000   2 196 000   32 041  
Hyde Park Corner   38 117   2 009 000   1 769 000   52 706  
CapeGate   63 700   1 534 0001   1 738 000   24 082  
Shopping centres   642 977   23 790 630   21 400 269   40 816  
Atterbury Value Mart   47 785   1 112 000   1 105 000   23 271  
Willowbridge4   42 378   622 000   594 000   14 677  
Somerset Value Mart   12 546   193 0004   185 000   15 383  
Stoneridge2 (90%)           432 000      
Value centres   102 709   1 927 000   2 316 000   18 762  
Total retail   745 686   25 717 630   23 716 269   37 779  
Standalone offices3   34 386   508 775   457 000   14 796  
Investment property   780 072   26 226 405   24 173 269   36 766  
Investment in sub-Saharan Africa(excluding SA)       2 339 121   2 220 721      
    780 072   28 565 526   26 393 990      

Investment property was independently valued at 30 June 2015 at R26,2 billion (2014: R24,2 billion), an increase of 12,1% (excluding the effect of disposing of Stoneridge and CapeGate Lifestyle). The higher value was primarily due to income growth, as well as a 34,9% increase in the valuation of Rosebank Mall after its redevelopment.

Investments in sub-Saharan Africa (excluding SA)

Distributable earnings from investments in sub-Saharan Africa (excluding SA) increased by 20,8% to R42,4 million, in part due to income from Manda Hill (Lusaka, Zambia – effective December 2013) and West Hills Mall (Accra, Ghana – effective November 2014). Income from our investments in sub-Saharan Africa (excluding SA) benefited from exchange gains of R2,3 million.

Approved funds for investment in sub-Saharan Africa (excluding SA) total R5 billion (includes amounts invested to date). Investment opportunities in other sub-Saharan countries, including Nigeria and Kenya, are being considered.

Net asset value

Net asset value (NAV) per share at 30 June 2015 increased by 17,1% to R89,04 (2014: R76,02). This was due in part to an increase in the independent valuation of the investment property portfolio.

Non-accrual for the final dividend (in accordance with IFRS and industry best practice) added R2,80 to NAV per share. On a like-for-like basis (excluding the effect of non-accrual of final dividend), growth in NAV per share was 13,4%.

At 30 June 2015, the closing share price of R121,00 represented a premium of 35,9% to NAV per share.

Borrowings

  30 June
2015
Rm
  30 June
2014
Rm
 
Bank debt 4 250   4 902  
   South Africa 2 327   3 509  
   USD (Rand equivalent) 2 193   1 393  
Debt capital market (DCM) 2 172   2 297  
   Corporate bonds 1 800   1 600  
   Commercial paper 372   697  
   Cash and cash equivalents (138)   (125)  
Net borrowings 6 554   7 074  
Loan to value (%) 22,9   26,6  

Net borrowings reduced after repaying South African bank facilities from the proceeds of non-core asset sales.

At 30 June 2015, interest rates were fixed for 94,5% (2014: 71,4%) of borrowings, at a weighted average rate of 7,1% (2014: 7,5%), for an average 5,2 years
(2014: 4,2 years).

During the year, Hyprop extended a number of interest rate swaps at only marginal additional cost, resulting in an average fixed rate maturity profile of over five years.

The ratio of debt with fixed interest rates increased during the year, in part due to debt repayments (without breaking any interest rate swaps), and due to fixing the US Dollar (USD) debt incurred to restructure the interest in Manda Hill, Zambia.

Investments in sub-Saharan Africa (excluding SA) are financed with USD funding. An increase in the ratio of USD funding to total debt to 33,5% (up from 19,7% at
30 June 2014) effectively reduces the overall cost of funding.

Debt capital market funding at 30 June 2015 was 32% of total debt (2014: 32%).

The loan-to-value ratio, at 22,9%, is below Hyprop’s ideal range of 30% to 40%. Higher loan-to-value levels depend largely on corporate activity, particularly acquisitions. In the absence of significant acquisitions, it is unlikely that the loan-to-value ratio will reach these levels.

The maturity profile of Hyprop’s debt facilities, fixed rate agreements and interest rate swaps is reflected below:

Maturity profile
Fixed rates and swaps

Maturity profile

Debt maturity profile
Bank facilities and debt capital market fundingDebt maturity profile


Cash management

All rental income earned by the company, less property expenses and interest on debt, is distributed to shareholders semi-annually.

Cash collected between distribution payments is paid into floating rate debt facilities to benefit from the interest saving.

New developments and capital expenditure are funded with debt while acquisitions, depending on their size, may be funded in part by equity. Proceeds from the sale of non-core assets will be applied to capital expenditure, developments and the reduction of debt.

Appreciation

I thank the finance team for their dedication, commitment and hard work during the year. I also extend my appreciation to my fellow board members for their sound advice and valued guidance.

Laurence Cohen
Financial director

 
REGISTERED OFFICE AND BUSINESS ADDRESS

Registration number: 1987/005284/06
2nd Floor, Cradock Heights, 21 Cradock
Avenue, Rosebank, 2196
PO Box 52509, Saxonwold, 2132
Tel: +27 11 447 0090
Fax: +27 11 447 0092
Website: www.hyprop.co.za

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