Corporate governance

Our commitment to accountable and transparent governance is fundamental to the sustainability of our business.

In line with its charter, the board acts as the focal point for, and custodian of, corporate governance by conducting its relationships with management, shareholders and other stakeholders in a manner that is consistent with accepted corporate governance principles.

King IV

The board is committed to the promotion of good corporate governance as integral to running the organisation and delivering outcomes that include an ethical culture, good performance, effective control and legitimacy.

The board recognises the importance of the triple context in which the company operates (economy, society and the environment) and seeks to ensure that operations are conducted in a manner that takes account of the six capitals (financial, intellectual, manufactured, human, social and relationship, and natural).

Corporate governance is approached with a view to meeting the following objectives:

Reinforcing corporate governance as a holistic and interrelated set of arrangements to be understood and implemented in an integrated manner
Encouraging transparent and meaningful reporting to stakeholders
Presenting corporate governance reports with reference to structure and process, as well as ethical consciousness and conduct.

The board is committed to applying the relevant recommendations of King IV and complying with the JSE Listings Requirements and the Companies Act. The board ensures it acts in the best interest of the company at all times. In this report, the directors have made disclosures pertaining to the code in line with the principles of King IV.

Key practices to ensure the achievement of good corporate governance include:

Ensuring the board fulfils its responsibilities in accordance with the board charter, which is reviewed annually
The board meets at least four times a year, with additional special meetings scheduled on an ad hoc basis as and when required
The board has unrestricted access to all company information, records, documents and property
The board and members of the board committees (audit and risk, remuneration and nomination, social and ethics) may take independent advice (at the company's expense) in the performance of their duties after following a process previously approved by the board.

Please view the full King IV principles application report online www.hyprop.co.za.

The Hyprop board

The board evaluates and approves group strategy, assesses and considers group performance and measures executive management's performance against key performance deliverables.
There is a clear division of responsibilities at board level, to ensure that no one director has unfettered powers of decision-making.
The board is committed to the promotion of transformation and gender and racial diversity.
Succession planning is in place to ensure that leadership structures are sustainable.
The board oversees and provides guidance and advice on the group's financial, audit, governance and risk management controls.
The board has responsibility for the remuneration process (specifically at senior level).
The credentials of individual directors are presented to shareholders to enable them to assess both individual directors and the board as a collective.
Real or perceived conflicts of interest are disclosed to the board and are managed appropriately.

Composition of the board

In determining the optimal number of directors to serve on the board, the remuneration and nomination committee considers the knowledge, skills and experience of individuals. At present, the size of the board is considered appropriate, given Hyprop's scale and geographical diversification. This is reviewed periodically against the size of the company and its needs.
At year-end, the board comprised 10 directors: six independent non-executives, two non-executives and two executives. The classification of directors is based on an annual assessment of their independence.
At year-end, the board had two executive directors, namely the chief executive officer (CEO) and the financial director (FD).
Diversity at board level receives regular consideration and the policies on gender and race diversity are available on our website www.hyprop.co.za.

The chairman of the board

The chairman is an independent non-executive director, appointed in June 2013.
He is not a former CEO.
There is a formal description of the role of the chairperson: his role is separate from that of the CEO. He provides leadership and guidance to the board and encourages deliberations on all matters requiring directors' attention.
Succession planning is in place for this role.

Non-executive directors

Non-executive directors have diverse backgrounds in commerce and industry. Their collective experience enables them to provide sound, objective judgement in decision-making.
At least one-third of directors retire by rotation every year, in line with the JSE Listings Requirements and Hyprop's Memorandum of incorporation (MOI).
A directors' code of conduct is addressed in the board charter.
Independent non-executive directors serving for more than nine years are subject to an annual review process by the board to ensure their continued independence.
The independence of non-executive directors is evaluated by the board annually.
Directors' and officers' liability insurance is provided by the company.

Director development

Directors have access to independent experts and other advisers for assistance in carrying out their duties if required (and after following a previously approved process).
The board ensures that inexperienced directors are developed through mentorship programmes.
Continuing professional development programmes are implemented as required.
Directors are encouraged to further their professional development in their personal capacity.
The board ensures that directors are regularly briefed on changes in risks, laws and the business environment.
A formal induction programme is in place for new directors. This includes a briefing by the chairman, CEO, FD and Hyprop's JSE sponsor. New directors are introduced to key senior management at company and shopping centre levels, and site visits to shopping centres are facilitated.

Dealing in securities

The board complies with the Financial Markets Act and JSE Listings Requirements applicable to trading in Hyprop's shares by directors, the company secretary, their associates and affected employees in closed periods (as defined).
In conjunction with the FD and the JSE sponsor, the board ensures that trading in Hyprop shares by these individuals is disclosed on SENS.
In line with company policy, directors and senior employees with access to Hyprop's financial results and other price-sensitive information are prohibited from dealing in the company's shares for specified periods before relevant announcements are released on SENS.
All directors, employees and affected parties are notified before the company enters a closed period.

Conflicts of interest

As per the code of conduct, directors must declare to the chairman and company secretary their shareholdings, additional directorships and any potential conﬂicts of interest.

Company secretary

CIS Company Secretaries Proprietary Limited is an independent practice providing company secretarial services to numerous JSE-listed companies.
The board is satisfied that the company secretary and its representative, Gillian Prestwich, are sufficiently qualified and skilled to act in accordance with, and advise directors on, the recommendations of King IV, the Companies Act and other relevant legislation and regulations.
The board reviews the relationship between the company secretary and itself as well as its committees annually.
The board has determined that the company secretary is independent of management and does not take on any management or executive duties.
The company secretary is not a director of Hyprop, nor a material shareholder in the company or any subsidiary, and has no major contractual relationship with the company or any director. Accordingly, the board is satisfied that the company secretary maintained an arm's-length relationship with all directors during the year under review.

Functions of the company secretary

The functions of the company secretary include:

Guiding directors, collectively and individually, on their duties, responsibilities and powers.
Providing information on legislation, regulation and relevant matters of ethics and good corporate governance.
Recording the minutes of meetings, maintaining attendance registers, resolutions and directors' declarations of personal and financial interests, and records of all notices and circulars issued by the company.
Preparing the notice of the annual general meeting.
Filing annual and other statutory returns with the Companies and Intellectual Property Commission (CIPC) in terms of the Companies Act.

Board appointment process

The board, supported by the remuneration and nomination committee, is responsible for the appointment of executive and non-executive directors.
Identification and selection of candidates is conducted in a formal and transparent manner. The remuneration and nomination committee considers the blend of skills and experience that is required to drive the company's strategic and operational objectives and transformation goals.
The appointment of new directors is confirmed by shareholders at the first annual general meeting following their appointment.

Rotation of directors

As required by the JSE Listings Requirements, the company's MOI provides for one-third of the non-executive directors to retire by rotation after a three-year term. If eligible and available, these directors offer themselves for re-election.
Directors who have been appointed to fill a casual vacancy during the year, retire at the next AGM, when they may make themselves available for re-election.

Succession planning

The remuneration and nomination committee is responsible for ensuring that adequate succession planning is in place for directors and senior management, and that all committees are appropriately constituted and chaired. The board is satisfied that the depth of skills among current directors meets succession requirements. Succession planning at management level is actively monitored by executive management and communicated to the board.

Performance self-assessment

The board is satisfied that all independent non-executive directors continue to meet the criteria for independence as defined by King IV.
Board effectiveness is evaluated annually through an online questionnaire assessment. Results are reviewed by the chairman and any identified issues are discussed with the board and addressed as appropriate. The board and the committees were evaluated in July 2018.

Access to information

Directors have unrestricted access to company records, information, documents, property and the company secretary. Non-executive directors have full access to the external and internal auditors, and to management. All directors are entitled, at Hyprop's expense, to take independent advice on any matters concerning the affairs of the company (in terms of an approved procedure).

Technology and information governance

The board, through the audit and risk committee, is responsible for governing relevant information and technology risks:

Information and technology governance is an integral part of the company's approach to governance. Executive management is tasked with managing IT risks, with oversight from the audit and risk committee.
The board is mindful of the importance of safeguarding company information and intellectual capital, and ensures that appropriate technology architecture is maintained to protect information.
A governance framework supports effective management of IT resources and facilitates achieving the company's strategic objectives.
The board reviews opportunities for improved efficiencies and value that technology can add to the business. Equally, it is conscious of risks that may affect the security of classified information and intellectual capital.
The human resources executive is responsible for IT and has the appropriate levels of knowledge and experience. She interacts regularly with the audit and risk committee and executive management on IT governance matters.

Access to the board

Shareholders can provide recommendations to the board at the annual general meeting, at one-on-one meetings and investor presentations, and through investor polls.

Board committees

The board is satisfied that all board committees fulfilled their responsibilities during the year, in terms of their approved charters. Each committee's performance is reviewed annually.
The need for additional and/or ad hoc committees is evaluated regularly. Hyprop's remuneration and nomination committees are combined. Discussions on nomination matters are led by the board chairman.
Hyprop's audit and risk committees are combined.
The chairs of the committees provide feedback to the board on a regular basis. In addition, the chairman of the board and committee chairs attend Hyprop's annual general meeting to answer questions from shareholders.

Board committee members

Audit and risk	Social and ethics	Investment	Remuneration and nomination
Lindie Engelbrecht (chair)⁽¹⁾	Mike Lewin (chair)⁽¹⁾	Pieter Prinsloo (chair)	Stewart Shaw-Taylor (chair⁽¹⁾, remuneration matters)
Gavin Tipper	Pieter Prinsloo	Stewart Shaw-Taylor	Gavin Tipper (chair⁽¹⁾, nomination matters
Thabo Mokgatlha	Laurence Cohen		Lindie Engelbrecht
Stewart Shaw-Taylor	Nonyameko Mandindi	Louis Norval
Zuleka Jasper		Kevin Ellerine
		Gavin Tipper
By invitation	By invitation	By invitation	By invitation
CEO	Financial managers	Investments director	CEO
FD	Legal executive	FD	FD
Financial managers	Developments executive		Human resources executive
External auditor	Human resources executive
Internal auditor	Chairman
Legal executive
Company secretary
In attendance	In attendance	In attendance	In attendance
Company secretary	Company secretary	Company secretary	Company secretary

⁽¹⁾ The chairs of these committees are all independent non-executive directors

The committee charters are available to view online www.hyprop.co.za.

The audit and risk committee

The committee:

Comprises four members, all of whom are independent non-executive directors. Members are appointed by the shareholders of the company at each annual general meeting, on the recommendation by the board
Chair is an independent non-executive director, whose appointment has been recommended by the board
Ensures that Hyprop has established appropriate financial reporting procedures and that these are operating effectively
Oversees cooperation between external and internal audit to avoid overlapping of audit scope
Approves the external auditor's terms of engagement and remuneration
Recommends to shareholders the appointment, reappointment and removal of the external auditor
With regards to audit matters, has an independent role, operating as an overseer and makes recommendations to the board for its consideration and final approval
Is accountable to both the board and shareholders
Does not assume the functions of management, which remain the responsibility of the executive directors, officers and other members of senior management
Adopts and implements an appropriate risk management policy which, as a minimum, is in accordance with industry practice
Monitors the process of assessment and management of risks, supporting sustainable value creation for the company on behalf of the board. The board's responsibility for risk governance is expressed in its charter as well as in the risk policy and plan
Is responsible for ensuring that risks are managed in line with the company's level of risk tolerance, which is determined by the board on an annual basis
Regularly reviews the risk matrix, prepared by the CEO, in conjunction with the FD and financial manager
Ensures that the risk assessment process addresses risks affecting Hyprop's various income streams, critical dependencies, sustainability, and the legitimate interests and expectations of stakeholders
Has oversight of the integrity of the annual financial statements (including subsidiaries) and, to the extent delegated by the board, other external reports issued by Hyprop
Exercises oversight of governance of information and technology systems
Confirms that it is satisfied that it has fulfilled its responsibilities as per the terms of its charter.

The following specific matters were considered by the audit and risk committee:

Going concern

The committee confirmed the going concern assumption as the basis of preparation of the consolidated financial statements having reviewed the solvency and liquidity tests undertaken for distributions at interim and year-end and has reported on going concern to the board.

External auditor

The committee has considered a report, containing the information detailed in paragraph 22.15(h) of the JSE Listings Requirements, received from KPMG motivating its independence and is satisfied with the independence of the external auditor and with the terms, nature, scope and proposed fee of the external auditor for the year ended 30 June 2018. The committee further confirms the suitability for appointment of KPMG, is in accordance with paragraph 3.84(g)(iii) of the JSE Listings Requirements.

Internal control and combined assurance framework

The committee reviews the reports of both the internal and external auditor, with respect to the group's internal control environment taking note of significant issues raised and the subsequent remedial responses thereto to satisfy themselves that the group's internal controls continue to operate effectively.

The committee reviewed the group's policies on risk assessment and regularly monitors the combined assurance dashboard and risk matrix covering both operational and financial reporting matters and provides feedback and recommendations on actions to mitigate the identified risks.

The committee approved the appointment of KPMG Services to provide limited assurance for selected sustainability development indicators. In addition the committee relies on management, the external auditor, internal audit as well as the group's independent ethics reporting telephone line to highlight any concerns, complaints or allegations relating to internal financial controls, the content of the financial statements and potential violations of the law or questionable accounting or auditing practices. Separate meetings are also held with management, the external auditor and the internal auditor every quarter unless a greater frequency is requested.

Financial director and finance function

The company's financial director (FD), Laurence Cohen resigned effective 31 July 2018. The committee confirms that it is satisfied with Laurence's experience and expertise during the year under review. Brett Till was appointed as FD effective 1 October 2018.

The consolidated financial statements have been audited in compliance with section 30 of the Companies Act of South Africa. Vasti Booysen CA(SA), financial manager is responsible for this set of financial statements and was supervised by Pieter Prinsloo in his capacity as CEO.

The consolidated financial statements are reviewed by management, the committee and the board, and are audited by the external auditor of the group. The committee is satisfied with the consolidated financial statements and the accounting policies used in their preparation, and has recommended the consolidated financial statements to the board for approval.

The committee is further satisfied that the company has established appropriate financial reporting procedures and that these procedures are operating effectively, as required by paragraph 3.84(g)(ii) of the JSE Listings Requirements.

The following is a description of the key accounting matters considered by the committee.

Key issue	Judgements in financial reporting	Audit and risk committee review	Conclusion

Classification and valuation of investment in Hystead Limited (Hystead)	Judgements are applied by management in interpreting the IFRS implications of the suite of agreements in place to determine the appropriateness of the classification as a financial asset. Estimations and judgements were also applied in the determination of future cash flows, appropriate discount and exit cap rates and the application of annual and terminal growth rates. Having determined the valuation of the Hystead financial asset, judgement was further applied to the determination of the portion of that valuation that would be deferred as a day-one gain.	The committee reviewed the prior year treatment of Hystead and assessed the appropriateness of the accounting classification. The committee received briefings on the consistency of the valuation methodology and deferral of day-one gains and the expanded disclosure of these two elements in the 2018 financial statements.	Having considered management's views on the classification and measurement of the investment in Hystead, the committee concluded that the classification as a financial asset remained appropriate and the valuation was sound.


Sub-Saharan Africa loan recoverability	Judgements and assumptions were applied by management in calculating the recoverable amount of the loans extended to AttAfrica and Manda Hill particularly with respect to: determining the cash-generating units (CGU) and the ongoing appropriateness of the CGUs being used for the purpose of impairment testing assumptions on future pricing, net cash inflows and discount rates.	The committee assessed the appropriateness of the CGUs and reviewed the impairment triggers. In considering the need for an impairment of the loans the committee considered the following: the long-term nature of the underlying investment the remaining period of the loans and the probability of their extension upon maturity that the negative net asset value included deferred tax liabilities on the revaluation of investment properties that Hyprop believed would not realise on the sale of shares in the SPVs that Kumasi Mall (Ghana) recently opened in April 2017 and we expected further growth in the upcoming years.	The committee agreed with management's final impairment level taking a conservative view on the potential uplift in net asset value.


Classification and valuation of financial guarantees	Management applied judgement in determining the impact of financial guarantees extended in the South-Eastern Europe portfolio on the value of the financial asset recognised in respect of the Hystead investment. Management further sought external valuations for the financial guarantees.	The committee was briefed on the external valuations which supported the accounting entries and reviewed the adequacy of the disclosures relating to financial guarantees as well as the interaction of the financial guarantees on the financial asset valuation.	The committee agreed with management's classification and valuation of the financial guarantees.

The remuneration and nomination committee

The committee comprises three members, all of whom are independent non-executive directors, and is chaired by an independent non-executive director
Members are nominated by the board
Reviews and recommends to the board the company's remuneration philosophy and policies for directors and employees
Oversees implementation of the remuneration policy on behalf of the board
Ensures that the remuneration strategy promotes the delivery of Hyprop's strategic objectives, encourages individual performance, rewards sustainable value creation, is comparable to the sectoral remuneration environment, and complies with relevant principles of good governance
Ensures that stakeholders can make informed assessments of reward practices and governance processes
Ensures that salary structures and policies motivate employees to deliver on company strategies and goals, and are linked to realistic performance objectives that support sustainable long-term growth
Considers whether the objectives of the remuneration policy have been achieved
Ensures that the ratio of fixed and variable pay - in cash, benefits and shares - is aligned with the achievement of the company's strategic objectives
Reviews the effectiveness of performance measures that govern vesting of incentives
Ensures that all benefits, including retirement benefits and other financial arrangements, are justifiable and correctly valued
Selects an appropriate peer group when comparing remuneration levels
Considers the performance of the CEO and FD, when determining their remuneration
Addresses the remuneration of non-executive directors, executive directors, executive management (including prescribed officers) and other employees
Oversees preparation of the remuneration report in the integrated annual report, to ensure it is accurate, complete and transparent, and clearly explains how the remuneration policy has been implemented.

The social and ethics committee

The committee comprises four members, two independent non-executive directors and two executive directors.
The committee is chaired by an independent non-executive director, who has been appointed by the board.
Given the nature and size of Hyprop's operations, the current composition is appropriate. The committee is satisfied that it fulfilled its responsibilities in line with its charter.

The committee monitors the group's activities in terms of social, environmental and economic development, including:

Good corporate citizenship – promoting ethical leadership, integrity and anticorruption, sustainability and value creation, equality, preventing discrimination and contributing to the development of the communities in which its activities are predominantly conducted
Environmental impact – as a landlord, Hyprop has a low environmental impact, and aims to reduce this further in its daily operations. The committee reviews the environmental policy biannually and reports to the board on it
Stakeholder relations – ensuring that all communications to stakeholders are transparent
Human capital – labour and employment, education and skills development
Transformation – broad-based black economic empowerment and employment equity.

The committee monitors compliance with Hyprop's code of conduct and ethics and other relevant social, ethical and legal requirements, as well as best practice. It reports to shareholders on matters in its mandate at the annual general meeting.

Attendance at board and committee meetings for the period 1 July 2017 to 30 June 2018 is shown below.

Initiative

Board

Audit and risk

Remuneration and nomination

Social and ethics

Investment

Independent non-executive directors

Gavin Tipper (board chairman)⁽¹⁾

6/6

2/2

2/2⁽⁶⁾

Thabo Mokgatlha

6/6

Nonyameko Mandindi

4/6

Lindie Engelbrecht⁽²⁾

6/6

2/2

Mike Lewin⁽³⁾

6/6

2/2

Stewart Shaw-Taylor⁽⁴⁾

5/6

6/6

2/2

Non-executive directors

Kevin Ellerine

6/6

2/2

Louis Norval

6/6

2/2

Executive directors

Pieter Prinsloo (CEO)⁽⁵⁾

6/6

2/2

Laurence Cohen (FD)⁽⁷⁾

6/6

1/2

2/2

2/2⁽⁶⁾

⁽¹⁾ Chair nomination committee ⁽²⁾ Chair audit and risk committee ⁽³⁾ Chair social and ethics committee ⁽⁴⁾ Chair remuneration committee
⁽⁵⁾ Chair investment committee ⁽⁶⁾ By invitation ⁽⁷⁾ Resigned effective 31 July 2018

The investment committee

The committee comprises six members: two executive directors, two non-executive directors and two independent non-executive directors.
The role of the committee is to:
- Assist the board in considering investment opportunities in respect of properties, listed securities and other corporate actions
- Approve acquisitions, disposals and capital expenditure in line with the limits of authority delegated to it and in line with the strategy determined by the board
- Review the investment strategy
- Set criteria and targets for investment
- Approve proposals for developments, acquisitions and sales of properties
- Periodically review due diligence processes for acquisitions
- Approve equity and other strategic investments
- Review market valuations by external valuers
- Annually review the performance of the property portfolio
- Make recommendations to the board for approval.

The investment committee meets as and when required.

Compliance with laws, rules, codes and standards

The board monitors the company's compliance with applicable legislation, regulations, codes and standards.
The board has discharged its responsibility to ensure an effective compliance framework by:
- Establishing appropriate structures, including training programmes, stakeholder communication channels and compliance measurement systems
- Tasking compliance to the legal executive, and human resources executives, supported by the company's sponsor and the company secretary
- Highlighting areas of non-compliance, through the risk management process, supervised by the audit and risk committee
- Periodically discussing the long-awaited property sector charter, particularly as regards transformation and related issues.

External advisers to board committees

The board committees use the services of independent external advisers as required, as and when required.

Board and committee meetings

The board meets at least four times a year, with ad hoc meetings as required. Notice of meetings and documentation is provided to directors timeously, allowing them to prepare for meetings and ensuring that they can make informed decisions.

Relevant legislation/regulations

As Hyprop is a listed REIT, it is required to comply with the JSE Listings Requirements and rules specific to REITs in South Africa, along with country-specific legislation and standards:

Basic Conditions of Employment Act 75 of 1997
Broad-Based Black Economic Empowerment Act 53 2003
Companies Act 71 of 2008 (and Companies Regulations of 2011)
Compensation for Occupational Injuries and Disease Act 130 of 1993
Competition Act 89 of 1998
Constitution of the Republic of South Africa 108 of 1996
Consumer Protection Act 68 of 2008
Electronic Communication Act 36 of 2002
Employment Equity Act 55 of 1998
Financial Intelligence Centre Act 38 of 2001
Financial Markets Act 19 of 2012
Income Tax Act 58 of 1962
King IV Report on Corporate Governance for South Africa 2016
Labour Relations Act 66 of 1995
National Environmental Management Act 107 of 1998
Occupational Health and Safety Act 85 of 1993
Promotion of Access to Information Act 2 of 2000
Amended Property Sector Code
Protected Disclosures Act 2C of 2000
Securities Services Act 36 of 2004
Skills Development Act 97 of 1998
Tobacco Products Control Act 83 of 1993
Unemployment Insurance Act 63 of 2001
Value Added Tax Act 89 of 1991.

There were no material non-compliance issues identified/reported during the year.

Anticompetitive behaviour

During the period under review, Hyprop has not been party to anticompetitive behaviour or monopoly practices.

Documents available online

The following documents are available to view online www.hyprop.co.za:

Board charter
Audit and risk committee charter
Investment committee charter
Remuneration and nomination committee charter
Social and ethics committee charter
Code of conduct and company policy
Employment equity policy and plan
Memorandum of Incorporation
Board gender diversity policy
Board race diversity policy
Remuneration policy.