2019 Integrated annual report

and consolidated and separate financial statements

Executives' report

Executives' report

Morné Wilken
Brett Till
Wilhelm Nauta



Revised strategy
under new executive team
Growth in distributable income from South African portfolio of 6,5%, despite the challenging economic climate
Growth in distributable income from the Eastern European portfolio of 13,5%
Very low vacancies in the South African retail portfolio (0,8%)
and in the Eastern European portfolio (<0,5%)
Progress in
reducing exposure to sub-Saharan Africa

(excluding South Africa) – investments in this region impaired by R1,46 billion in the year based on anticipated sales proceeds
Strong liquidity position and R8,5 billion of debt refinanced during the year
Decrease in distribution per share of 1,5%

Introduction and overview

2019 was a year of significant change for Hyprop. Arising from the resignations of the former CEO and CFO, both of whom had been with the group for over a decade, Morné Wilken (CEO) and Brett Till (CFO) were appointed, and together with Wilhelm Nauta (CIO), comprise the new executive team.

In line with the revised strategy, the group will focus on three strategic areas – the South African property portfolio, the Eastern European property portfolio and relevant non-tangible assets arising from the digital disruption which is transforming many traditional market sectors (including the retail and property sectors).

The key priorities for the next 18 months are to exit the sub-Saharan African (excluding South Africa) portfolio, to reposition the South African portfolio and to improve the dominance of the Eastern European portfolio. In addition, we will develop and implement a strategy around digital disruption and technologies in the retail, property and infrastructure spaces.

From a financial perspective we aim to reduce our loan-to-value ratio and restore the group's investment grade credit rating (subject to South Africa's sovereign credit rating). Cash flow management will be a key priority and cash-backed income will form the basis of calculating distributions to shareholders.

Market conditions in the South African and sub-Saharan African regions have deteriorated and tenants face significant challenges as a result of the poor economic growth and currency volatility, respectively. Consumer demand remains depressed and shopping preferences are changing, impacting on the ability to maintain rental rates and growth in distributions.

New appointments to the board, and at operational levels, have been made to ensure the group has the necessary skills to deal with the challenges and opportunities presented by the strategic initiatives. Further details on specific actions being taken to meet these challenges are included in the individual portfolio reviews on the following pages.

These changes, the decision to dispose of the group's sub-Saharan Africa assets and the refinancing of Dollar denominated debt with Rand denominated debt, due to the impairment of the group's sub-Saharan Africa interests based on the anticipated sales proceeds, have/will negatively impact distributable income for the 2019 and the 2020 financial years. The group believes these are necessary for the group's long-term sustainability and anticipate positive growth in distributable income in 2021 and beyond.

Distributable income decreased by 0,1% from R1 905 million for the year ended 30 June 2018 to R1 903 million. The distribution per share for the year decreased by 1,5% from 756,5 cents to 744,9 cents as a result of the increase in the weighted average number of shares in issue during the year. The solid performance by the South African portfolio and strong growth from the Eastern European portfolio were offset by a decrease in distributable income from the sub-Saharan African portfolio.

Strategic review

Following the appointment of the new executive team Hyprop's strategy was interrogated, resulting in a new three-year strategic plan that will see Hyprop adapt to the rapidly evolving retail landscape, disruptive technologies and market conditions.

Underlying the group’s new vision and mission is our “Why” – why do we exist:

“To create environments and opportunities for people to connect and have authentic and meaningful experiences.”

The group’s vision remains largely unchanged:

“To be the leading South African based REIT through managing and developing tangible and non-tangible assets”.

How do we aim to achieve these objectives:

“By owning and managing mixed-use precincts underpinned by dominant retail centres in key economic nodes in South Africa and Europe.”

Arising from the revised vision, why and how, the group will exit its sub-Saharan African portfolio to focus on its South African and European portfolios. Consideration will be given to expanding the European geographies in which the group invests to include all of Eastern Europe and not only South-Eastern Europe as at present.

Mixed-use precincts are increasingly becoming hubs for economic and social activity internationally and in South Africa. We believe that these precincts will provide better opportunities for sustainable growth in the long term. In line with our vision, we will focus on owning retail centres in our South African and Eastern European portfolios which are focal points within mixed-use precincts and provide a range of retail, entertainment and related services to residents and workers within the precinct. It is not our intention to become developers of mixed-use precincts, but rather to play a leading role within the precinct and provide a strong retail underpin.

The group's activities will be expanded to embrace and develop relevant non-tangible assets arising from the digital disruption which is transforming many traditional market sectors (including the retail and property sectors). Our disruptive technology strategy is multifaceted, and will include:

Further details of specific elements of this strategy will be communicated in due course.

Strategic priorities, which align with the group's overall strategic objectives, have been set for each of the group's focus areas and are explained in more detail in the relevant sections which follow.

Organisation structure

In order to achieve the group's strategic objectives various changes have been made to the organisational structure.

A new strategic committee (Stratco), comprising the three executive directors, portfolio executives Nicole Greenstone and Wayne Abbeglen, and national development executive Steven Riley, was established. Stratco's mandate is to oversee all aspects of the group's operations and divisions, including setting strategic priorities for each division and allocation of resources across the group. Stratco meets monthly to set and review progress on achieving strategic priorities and overall group financial performance.

The existing executive committees (Excos) for the South African and Eastern European portfolios have been restructured and revised mandates for the committees put in place. A new Exco was recently established under Hyprop's leadership for the sub-Saharan African portfolio and includes representatives of AttAfrica. Each Exco comprises at least three Stratco members as well as senior executives from the relevant regions covering operations, finance, human resources, IT, marketing and legal. The Excos are responsible for driving the operational and financial performance of the regional businesses, as well as collaboration between the different divisions and between the malls within each division.

Portfolio executives are responsible for the strategic development of their respective portfolio malls, including tenant profiling and selection, leasing strategies, and planning and assessment of major capital projects. There are currently two portfolio executives in the South African portfolio (with a possible third to be appointed in the 2020 financial year) and one in the Eastern European portfolio. A new portfolio executive was recently appointed for the sub-Saharan African (excluding South Africa) portfolio to enable the asset management role to be done in-house. The portfolio executive's main role is to provide guidance and support to the general managers of each mall, who are in turn responsible for implementing the mall strategy and day-to-day operations and performance of their mall.

Collaboration across the group is a key element to our future success. Existing operating and support structures have been reorganised to ensure higher levels of collaboration between divisions and malls, which should result in improved efficiencies and economies of scale.

The group's support functions for finance, capital projects and developments, human resources, and legal and compliance are based in Johannesburg and provide support to all group operating divisions, including Eastern Europe and sub-Saharan Africa (excluding South Africa).

Given the importance of debt and capital management, a specific role was created to manage all aspects of the group's borrowings. The benefits of this revised focus are evident through the group's refinancing of R8,5 billion of debt during the year, the increase in available borrowing facilities and the reduction in the cost of borrowing.

Portfolio reviews

South African portfolio

The shopping centre portfolio in South Africa includes super-regional centre Canal Walk, large regional centres Clearwater, The Glen, Woodlands, CapeGate, Somerset and Rosebank Malls, regional centre Hyde Park Corner and value centre, Atterbury Value Mart.

Distributable income   Gross asset value

Key priorities

Assess and reposition malls:

  • New brands
  • Entertainment and other offerings
  • Alternative uses
  • Reduce Edcon exposure

Increase trading densities

Increase non-GLA revenue

Financial performance

30 June 2019 
  30 June 2018 
Revenue 3 003 847    2 889 135   
Expenses (1 092 420)   (956 146)  
Net property income 1 911 427    1 932 989   
Other operating expenses (44 969)   (59 707)  
Net interest (239 190)   (280 812)  
Net operating income before fair value adjustments 1 627 268    1 592 470   
Adjustments to calculate distributable income 67 743    (796)  
Distributable income 1 695 011    1 591 674   

Distributable income from the South African portfolio increased by 6,5% over 2018, in line with the guidance provided in September 2018. This was achieved despite a further deterioration in the South African economy and consumer confidence, particularly in the second half of the financial year.

Total revenue (before the lease straight-line adjustment) increased by 6,6% over the 2018 year, largely as a result of a 16% increase in municipal and other cost recoveries. Rental income increased by 6% having been somewhat protected from the economic climate by contractual rental escalations.

Trading density across the retail portfolio increased by 0,6% year on year and the overall rent to turnover ratio increased from 9,1% to 9,4%.

Trading density by centre (movements reflect year-on-year changes) Trading density (SA portfolio by month)

The opening of the new food court and play area at Woodlands in May 2019 had a positive effect, with foot count at the mall up 13% and trading density up 2,4% in May and June 2019. Canal Walk, The Glen, Somerset Mall, Rosebank Mall and Atterbury Value Mart also achieved good growth in trading densities in the last quarter of the financial year increasing by an average of 4,3% year on year.

Property expenses increased by 14% compared to the year ended 30 June 2018, due to a 16% increase in non-controllable expenses (mainly rates, taxes and power-related costs). By contrast, controllable costs (excluding bad debts and depreciation), increased by 7,5%. The combined effect was an increase in the portfolio gross cost to income ratio from 33,0% in 2018 to 35,4% in 2019. On a net basis, the cost to income ratio increased from 15,8% in 2018 to 17,1% in 2019.

Gross cost to income ratio

Other operating expenses decreased due to an increase in asset management fees received from Hystead as a result of the additional properties acquired in April 2018, and savings in staff and related costs.

Tenant arrears

At 30 June 2019 rental arrears were R31,5 million, compared to R18,9 million at 30 June 2018. Following the adoption of IFRS 9: Financial Instruments and the requirements relating to how doubtful debt provisions should be calculated, doubtful debt provisions increased to R26,8 million. The increase above this amount reflects the financial pressure on the consumer, and ultimately on retailers. At 30 June 2019 the group had no material doubtful debt exposure to, or arrear rentals owing by, any particular tenant or tenant group, including the Edcon Group (Edcon).

Lettings and vacancies

Over the past four to five years rental escalations have outpaced South Africa's economic growth and inflation rates and the growth in trading densities at our malls (as indicated in the below graph), leading to pressure on rental rates.

Historic trading environment

Due to the current economic environment, the significant increases in other occupancy costs borne by tenants and low growth in trading densities, rent reversions were negative 9%, with a positive weighted average escalation rate of 7%. Reversions on renewals were negative 7,3%, compared to negative 12,9% on new lettings.

As noted in the prospects below, we anticipate a reduction in distributable income in the 2020 financial year due to the anticipated impact of negative rent reversions. By the end of the 2020 financial year approximately 50% of the South African portfolio leases will have been renewed and, subject to no further deterioration in the South African economy, we expect a reduction in the risk of further aggregate rent reversions thereafter.

New lettings and renewals – South Africa

Leasing activity % of total
Retail 17,2 113 795  (9,1) 7,0   
   New lettings 6,5 42 839  (12,9) 6,5   
   Renewals 10,7 70 954  (7,3) 7,3   
Offices 15,2 6 626  (8,7) 6,7   
Total 17,0 120 420  (9,1) 7,0   
Retail vacancy – South Africa

Vacancy levels across the retail portfolio decreased to 0,8% (5 103m2) at 30 June 2019, largely due to reductions at The Glen, Atterbury Value Mart and Clearwater Mall. Office vacancies were 4 638m2 (10,7%), mainly due to an increase in vacancy levels at Hyde Park Corner's office component.

The strategy to reposition the South African portfolio is designed to drive positive growth in trading densities, thereby reducing rent ratios for tenants. Over R360 million of capital expenditure is budgeted for the 2020 financial year towards achieving these objectives (see following below). We are also evaluating projects aimed at reducing occupancy costs for tenants, such as the introduction of solar plants at our malls, water saving initiatives and other "green" technologies.

At 30 June 2019 Edcon occupied 57 145m2 (2018: 66 781m2) in Hyprop malls, equivalent to 8,1% (2018: 9,2%) of GLA. During the year Hyprop initiated a plan to reduce our exposure to Edcon by 15 910m2. By 30 June 2019, 9 636m2 of this space had been re-let and it is anticipated that the remaining 6 274m2 will be re-let during the 2020 financial year. In re-letting the space vacated by Edcon we plan to introduce new strong anchor tenants to our centres that should positively impact trading densities.


The market value of the South African portfolio, as determined by the group's independent valuers, decreased by R143 million (0,5%) from R28,77 billion (excluding assets held-for-sale) at 30 June 2018 to R28,64 billion at 30 June 2019. The main reasons for the decrease are negative rent reversions and the impact of the two-year Edcon restructure. The valuations are based on an average discount rate of 12,5% (2018: 12,5%) and an average exit cap rate of 6,8% (2018: 6,8%). The resultant average implied yield on the portfolio is 7,2% (2018: 7,1%).

  Value attributable to Hyprop Value per m2
Property valuations – South Africa Rentable area 
30 June 2019
30 June 2018
30 June 2019
Shopping centres 653 509  27 089 719 27 351 847 45 455
Value centres 48 649  1 411 000 1 303 000 29 004
Total retail 702 158  28 500 719 28 654 847 44 315
Total standalone offices1 4 468  136 000 323 000 30 437
Investment property – independent valuations 706 626  28 636 719 28 977 847 44 227
1 Reduction from 2018 to 2019 as a result of the disposal of Lakefield Office Park (2018 value: R198 million).

Capital expenditure

Capital projects with a value of R132 million were completed during the year. A further R87 million of projects were delayed to the 2020 financial year. New capital expenditure for the 2020 financial year has been budgeted at R363 million, and is focused on repositioning our malls and improving trading densities.

Capital expenditure

Included in yield-driven projects for 2020 is an amount of R54 million relating to new tenant installations as a result of the reduction in space occupied by Edcon, as well as R69 million to be spent on tenant installations for the replacement and/or relocation of tenants as we fine tune our tenant mixes in line with changing customer preferences and to strengthen tenant profiles. Trading density improvement projects are aimed at improving shopper experience and dwell times. These include the development of a technology based customer interaction platform which will allow improved connectivity with "new-age" shoppers, enhancing the food and entertainment offerings at many of our malls, upgrading parking systems (including use of better technology to reduce customer frustration and improve controls), installation and improvements to back-up power supply systems (to ensure continuous trading) and air-conditioning systems. Other projects under consideration are centred on creating co-working and co-trading environments for new entrants to the retail sector to showcase and promote their products and services in a flexible and affordable manner.


The sale of Lakefield Office Park was finalised on 4 January 2019 and the sale proceeds of R200 million were received.

Eastern Europe

Hyprop's Eastern European investments, held via a 60% interest in UK-based Hystead Limited (Hystead), include interests in Delta City in Belgrade, Serbia; Delta City in Podgorica, Montenegro; Skopje City Mall in Skopje, Macedonia; The Mall in Sofia, Bulgaria, and a 90% interest (effective 54% interest for Hyprop) in City Center One East and City Center One West, both in Zagreb, Croatia.

Distributable income   Gross asset value

Key priorities

Retain dominance:

  • Extensions
  • Asset management initiatives

Leverage SA expertise

Formalise growth strategy

In line with the provisions of the Hystead shareholders' agreement, Hyprop accounts for the investment in Hystead as a financial asset.

Financial performance

year ended
30 June 2019
year ended
30 June 2018
Year ended
30 June 2019
Year ended
30 June 2018
Dividend income 221 190 180 525 13 080 11 820  
Guarantee fees 40 542 46 671 2 397 3 051  
Foreign exchange gains 4 284 7 277
Distributable income 266 016 234 473 15 477 14 871  

Distributable income from Hystead, comprising dividends from Hystead and guarantee fees from PDI Investment Holdings (PDI), increased by 13% from R234 million to R266 million.

Trading conditions in the region remain favourable with all sites, other than Delta City Belgrade, achieving growth in net operating income. The reduction in net operating income for Delta City Belgrade was mainly due to the substantial increase in electricity prices, and the conversion of the fixed rental with Inditex to turnover based rental. The average trading density for the portfolio increased by 3.7% from 2018.

Trading density per month Net operating income

In June 2019 The Mall in Sofia, Bulgaria, successfully completed a 12 000m2 extension. The extension added 40 new stores, an increase from 182 to 222, making it the second largest shopping centre in Bulgaria at 62 000m2 . A diverse portfolio of brands has been added to The Mall, including a modernised version of Billa supermarket (one of Central and Eastern Europe's leading supermarket chains), one of the first Pepco stores in Sofia, a Ciela book store on two levels, Scandinavian home and living retailer Jysk, and a renovated Hippoland kids store. In addition, LPP, a leading international fashion group from Poland, opened the biggest Sinsay store (900m2) in Sofia in August. Initial feedback after the opening has been positive.

Various other investment projects are planned for the new financial year to maintain the portfolio's dominance. Skopje City Mall is undergoing an 18-month project to right-size various tenants, introduce additional international retailers, improve foot-flow and public and common areas, and refresh the food court and entertainment offerings. The project is budgeted to be earnings accretive and expected to be completed by March 2021 at an estimated cost of EUR6 million.

Investment property

30 June 2019
30 June 2018
Investment property – independent value (100%) €795 732 €771 800  
Hyprop attributable share1 €458 539 €456 330  
Hyprop attributable share1 R7 386 292 R7 302 740  
Rentable area m2 241 326 230 584  
Value per m2 €3 297 €3 347  
1 Based on Hyprop's 60% effective interest in Hystead, other than Hystead's Croatian assets in which Hyprop has a 54% effective interest due to the 10% minority shareholder in Croatia.

At 30 June 2019 Hystead's investment property portfolio was valued at EUR796 million (2018: EUR772 million) based on a weighted average capitalisation rate of 7,6% (2018: 7,5%). This is equivalent to an implied forward yield of 8,0%. Hyprop's attributable share of the Hystead portfolio was R7,4 billion (EUR459 million) (2018: R7,3 billion (EUR456 million)).


The Hystead portfolio remains almost fully let with a vacancy level of 0,5% (2018: 0,1%) due mainly to the new extension at Skopje City Mall.

Retail vacancy – Eastern European portfolio


Sub-Saharan Africa (excluding SA)


Distributable income   Gross asset value

Key priorities

  • Take control of asset management
  • Implement exit strategy
  • Preserve value

Pursuant to the strategy review during the year, Hyprop will look to divest of the sub-Saharan African portfolio over the next 12 to 18 months, in order to focus on South Africa and Eastern Europe going forward. We have made good progress in this regard.

At 30 June 2019 the sub-Saharan African portfolio included interests in Accra Mall and West Hills Mall in Accra, Ghana; Kumasi City Mall in Kumasi, Ghana (all held via the group's 37,5% interest in AttAfrica); Manda Hill Centre in Lusaka, Zambia (held jointly with AttAfrica) and Ikeja City Mall in Lagos, Nigeria.

In June 2019, AttAfrica disposed of its interest in Achimota Retail Centre, in Accra, Ghana. Hyprop's share of the net disposal proceeds, being USD16 million, was received by Hyprop Mauritius on 26 June 2019.

Subsequent to year-end, Hyprop Mauritius (50%) and AttAfrica (50%) disposed of their interests in Manda Hill Shopping Centre. The group's interest in Manda Hill is accounted for as an investment in a joint venture and is included under loans receivable on the statement of financial position at 30 June 2019. The carrying value of the investment has been adjusted in line with Hyprop's share of the total net sale proceeds, being approximately USD50 million.

Progress is being made on the disposal of the group's remaining sub-Saharan African assets and the interest in Ikeja City Mall is classified as an asset held-for-sale at 30 June 2019.

Net proceeds from the disposals will be applied to reduce the group's US Dollar denominated debt.

In light of the decision to dispose of the sub-Saharan African portfolio, the carrying amounts of the remaining properties have been impaired to align with their anticipated sales proceeds. The result of these adjustments is an impairment/fair value adjustment of Hyprop's investments in sub-Saharan Africa of R1,46 billion at 30 June 2019.

Financial performance

Sub-Saharan Africa 30 June 2019 
30 June 2018 
Revenue 214 000  224 578   
Expenses (86 634) (93 746)  
Net property income 127 366  130 832   
Other operating expenses (914) (1 095)  
Net interest paid (221 965) (1 461)  
Net operating income before fair value adjustments (95 513) 128 276   
Adjustments to calculate distributable income 37 154  (49 909)  
Distributable income (58 359) 78 367   

The investments in sub-Saharan Africa were affected, inter alia, by weaker local currencies against the US Dollar and certain South African retailers that have curtailed their operations. This resulted in an increase in vacancies and a need to re-tenant at lower yields. As a consequence, cash flow in Hyprop Mauritius, after servicing borrowings, was negative.

Accounting income from the sub-Saharan African portfolio comprises operating profits from Ikeja City Mall and interest received on loans advanced by Hyprop Mauritius to AttAfrica and Manda Hill. Ikeja City Mall and Accra Mall (owned by AttAfrica) continued to trade in line with expectations and contributed positively to distributable income for the year. Interest income from AttAfrica is only recognised on the net unimpaired loan balance and to the extent it is received in cash. This resulted in the increase in net interest paid for the year.

Distributable income from the sub-Saharan African investments reduced from R78 million for the year ended 30 June 2018 to a loss of R58 million after deducting interest paid in Hyprop Mauritius. The negative distributable income in 2019 was exacerbated by the devaluation of the Rand against the Dollar from 2018 to 2019.

Operations and structure

Management have reviewed the business model of AttAfrica and are implementing certain changes with the objective of preserving the value of the assets until the disposal process is completed. These include the internalisation of the asset management function, retaining and hiring key staff (including a new portfolio executive who was recruited post-year-end), which should result in clearer lines of communication between operations and shareholders, re-organising arrangements with in-country partners, restructuring portions of the in-country bank debt to reduce borrowing costs and restructuring the shareholder funding arrangement from 1 January 2020.

Many questions have been asked by investors about the similarities between the group's investments and funding structures in Africa and Eastern Europe. We have analysed the main risk factors and lessons learnt from the group's experience in Africa and how these risks are mitigated in our investments in Eastern Europe, as set out below:

  Sub-Saharan Africa   Eastern Europe
Impact of currency depreciation   Volatile with significant depreciation against USD over time.   Local currency is Euro or pegged to Euro in two countries. Other currencies relatively stable against Euro.
Cost of hard currency debt   Cost of debt very close to yield on property assets.   Average cost of debt 3% compared to property yields of 8%. Healthy interest cover ratio of 2,5 times.
Internal versus external asset management   External asset management.   On-site internal asset management team based in Europe.
Alignment of shareholders' interests   Multiple shareholders across multiple jurisdictions, each with different objectives.   PDI is only partner in Hystead. Interests of shareholders are aligned in terms of capital and income growth/distributions. One local minority shareholder in Croatian assets with no minority protections.
Skin in the game   Financial investment and risk not proportionate to shareholding.   PDI has invested R1,4 billion in Hystead, which is at risk. Compensation is paid to Hyprop in return for Hyprop guaranteeing more than its pro rata proportion of debt.
Specification levels of malls   Developed malls are oversized and too high-spec for the environment.   Appropriate specifications for market and environment.
Risk of greenfields developments   Mall developments undertaken based on South African development model.   All malls were acquired with trading histories and known market shares and positioning.
Secure local tenants   Reliance on South African based retailers as anchor tenants.   Strong support and demand for space from local tenants and retailers.
GDP and GDP growth   Volatile GDP growth of commodity based economies.   Stable positive GDP growth.

Group financial results and analysis

Distribution   NAV per share

Key priorities

  • Reduce LTV ratio
  • Restore investment grade credit rating
  • Cash backed distributions
  • Clear and transparent reporting
Distributable income and dividend

Distributable income decreased by 0,1% from R1 905 million for the year ended 30 June 2018 to R1 903 million. The distribution per share decreased by 1,5% from 756,5 cents to 744,9 cents.

The solid performance by the South African portfolio and strong growth from the Eastern European portfolio were offset by a decrease in distributable income from the sub-Saharan African portfolio.

   30 June 2019  30 June 2018    
   South Africa 
South Africa 
Net income before fair value adjustments  1 627 268  266 016  (95 513) 1 797 771  1 592 470  234 473  128 276  1 955 220    
Adjustments to calculate distributable income  67 743  –  37 154  104 897  (797) –  (49 909) (50 706)   
Straight-line rental income accrual  81 399  –  6 488  87 887  4 696  –  (848) 3 847    
Non-controlling interest  –  –  30 959  30 959  –  –  2 600  2 600    
Taxation paid  –  –  (427) (427) –  –  (4 381) (4 381)   
Net interest adjustments  –  –  134  134  –  –  (47 279) (47 279)   
Other fair value adjustments – Edcon  (12 705) –  –  (12 705) –  –  –  –    
Capital items for distribution purposes  (951) –  –  (951) (5 493) –  –  (5 493)   
Distributable income  1 695 011  266 016  (58 359) 1 902 668  1 591 673  234 473  78 368  1 904 514    
% change  6,5  13,5  –  (0,1) –  –  –  –    
Weighted average number of shares  255 429 238  251 741 343    
Shares in issue for calculating distribution per share          
– first half  255 540 828  247 995 018    
– second half  255 309 759  255 448 256    
Distribution per share (cents)                           
– first half  330,5  53,3  1,7  385,6  313,0  47,1  16,1  376,3    
– second half  333,1  50,9  (24,6) 359,3  319,2  46,1  15,0  380,3    
Total distribution per share (cents) 663,6  104,1  (22,9) 744,9  632,2  93,2  31,1  756,5    
% change  5,0  11,8  (1,5)

The weighted average number of shares used to calculate the distribution per share increased by 3,7 million from 251,7 million to 255,4 million, primarily as a result of the 7,5 million new shares issued in April 2018 when additional capital was raised.

Cash backed distributions

Cash flow management is a key priority and cash backed income forms the basis of calculating distributions to shareholders. The table below provides a reconciliation of cash generated from operations to distributable income for each operating division.

2019  South Africa 
Cash generated from operations  1 989 011  44 826  116 095  2 149 932   
Working capital changes  (9 272) 18 490  9 218   
Depreciation  (40 523) (1 686) (42 209)  
Straight-line rental income accrual  (81 399) (6 489) (87 888)  
Other non-cash items  (4 063) 41  (4 022)  
Fair value adjustment – Edcon  12 705  12 705   
Net interest paid  (239 190) (221 965) (461 155)  
Dividends received  221 190  221 190   
Net income before fair value adjustments  1 627 269  266 016  (95 514) 1 797 771   
Straight-line rental income accrual  81 399  6 489  87 887   
Non-controlling interest  30 959  30 959   
Taxation expense – Mauritius  (427) (427)  
Sub-Saharan Africa  134  134   
Fair value adjustment – Edcon  (12 705) (12 705)  
Capital items for distribution purposes  (952) (952)  
Distributable income  1 695 011  266 016  (58 359) 1 902 668   

As is evident from the table above, cash generated from operations less net interest paid from the South African portfolio exceeded distributable income for the year.

Approximately 90% of the dividend income from Hystead for the year was received in cash before 30 June 2019, with the balance received in September 2019, before payment of the final dividend for the year ended 30 June 2019 to Hyprop shareholders.

Hyprop has historically paid out 100% of its distributable income as a dividend each year. In light of the current economic climate, participants in the real estate sector have started to debate the sustainability of this practice and its long-term impact on LTV ratios, particularly when growth in property values slows or becomes negative. Market sentiment is shifting in favour of reduced pay-out ratios which will allow REITs to fund capital expenditure partly out of operating profits, and thereby strengthen their balance sheet. The group is considering a reduced dividend pay-out ratio. Any decision in this regard will be communicated to the market in advance of it being implemented.

Interests in investment property
Investment property  
South Africa  R31,2bn (61%)   
Hyprop share  R28,6bn (72,4%)   
Cap rates  6,3% – 8,3%    
Forward yield  7,2%    
Eastern Europe  R12,8bn (25%)   
Hyprop share  R7,4bn (18,7%)   
Cap rates  7,0% – 9,3%    
Forward yield  8,0%    
Sub-Saharan Africa  R7,2bn (14%)   
Hyprop share  R3,5bn (8,9%)   
Cap rates  7,8% – 8,8%    
Forward yield  7,9%    

The total value of the shopping centres in which Hyprop has interests in South Africa, Eastern Europe and sub-Saharan Africa was R51 billion at 30 June 2019. Hyprop's attributable share of this value was R39,5 billion and is reflected on the consolidated statement of financial position as follows:

All investment properties are valued by independent valuers at least annually.

The impairments of the loans receivable from AttAfrica and Manda Hill were calculated with reference to the underlying independent valuations of the investment properties, anticipated proceeds which will be received on disposal of the investment properties, the impact of current year losses in AttAfrica and Hyprop Mauritius, and expected credit losses until 30 June 2020, by which date it is anticipated that the investments in sub-Saharan Africa will be sold.

Investment in Hystead – financial asset

As a result of the provisions of the suite of agreements which govern the relationship between the shareholders of Hystead, Hyprop accounts for its interest in Hystead as a financial asset. The value of the financial asset is calculated as the present value of the anticipated dividends and guarantee fees estimated to be received by Hyprop from Hystead and PDI respectively.

The value of the financial asset increased from R153 million at 30 June 2018 to R218 million at 30 June 2019 mainly as a result of growth in net operating income for the underlying property companies, the effect of the new supermarket opened in The Mall in Sofia and the reduction in borrowing costs following the refinancing of debt during the year.

In line with the group's objective of improving the clarity of its financial reporting, we have provided additional financial information for Hystead, including an indicative balance sheet and statement of operating/distributable income for the year ended 30 June 2019, on page 195 of the integrated annual report. This information has not been audited or reported on by the company's auditor.


As part of Edcon's restructuring, Edcon approached its top 31 landlords in November 2018 and offered the landlords an opportunity to subscribe for an equity interest in Edcon, or, as an alternative, requested a 40,9% reduction in rentals for a 24-month period commencing on 1 April 2019 (the Edcon rent reduction). Hyprop agreed to assist Edcon by subscribing for equity in Edcon on a monthly basis for an amount equivalent to the monthly Edcon rent reduction (a total of R12 million from 1 April 2019 to 30 June 2019) (the Edcon subscription).

The equity which Hyprop has received in Edcon has been impaired to zero at 30 June 2019. Distributable income for the year was reduced by R12 million, as a consequence of the reduction in net cash flow received from Edcon.

Net asset value

The group's net asset value at 30 June 2019 was R95,78 per share, equating to a premium of 37,1% to the share price of R69,87 at that date.


Group (including guaranteed debt) sources of funding   Group (including guaranteed debt) by lender   Total debt refinanced R8,5bn  

In February 2019, Moody's lowered Hyprop's long-term national scale issuer rating to Aa3.za from Aa1.za and affirmed the short-term national scale rating of Prime-1.za. The main reason cited for the decrease in the rating is that Moody's estimated that Hyprop's debt-to-asset ratio, adjusted for the full consolidation of Hystead, had increased to 41% at 30 June 2018, from 33,4% in 2017, as a result of debt-funded acquisitions in Eastern Europe. Moody's further stated that Hyprop would rely on external debt financing to cover R5 billion of debt coming due in the next 18 months, including the Hystead debt that it guarantees.

Hyprop has taken cognisance of Moody's points which led to two key initiatives:

Reducing the LTV (%)

It is stressed that there is no pressure on Hyprop by any of its banks, financial institutions or bond holders to reduce its LTV ratio. Reducing the LTV ratio is motivated by the key priorities of restoring Hyprop's investment grade credit rating (subject to South Africa's sovereign credit rating) by 31 December 2020 and reducing gearing levels in line with more difficult economic conditions. We will continue to engage with Moody's in that regard.

30 June 2019 (R000) 30 June 2018 (R000)
LTV calculation See-through  Fully consolidated See-through  Fully consolidated  
Hyprop total assets 33 432 598  33 432 598 35 012 920  35 012 920  
Hystead total assets 13 570 002 13 216 438  
Hystead NAV (total assets – in-country debt) x 60% 4 604 241  4 297 489 
Total assets 38 036 839  47 062 600 39 310 409  48 229 358  
Hyprop gross debt 8 385 363  8 385 363 7 884 994  7 884 994  
Hystead gross debt 12 289 038 12 194 954  
Hystead debt guaranteed by all shareholders (gross) 6 392 771  6 352 742 
Hystead debt guaranteed by PDI (EUR40 million) (644 332) (640 128)
Security from PDI held by Hyprop (EUR46,8 million) (754 133) (748 950)
Total debt 13 379 670  20 674 401 12 848 659  20 079 948  
Gross debt/total assets (%) 35,2  44,0 32,7  41,6  

The majority of Hyprop's lender banks use the "see-through" LTV for covenant purposes.

At 30 June 2019, the group's see-through LTV ratio was 35,2% (calculated taking into account Hyprop's attributable share of the net assets of Hystead, the Hystead debt guaranteed by Hyprop, and the back-to-back security Hyprop holds from PDI in relation to the guarantees). If calculated on a fully consolidated basis (including 100% of Hystead's assets and borrowings) the LTV is 44,0%.

LTV ratio sensitivity analysis
Change in property values
Actual 35,2%  (5%) (10%) (15%) (20%)  
Rand (stronger)/weaker (20%) 33,7%  35,5%  37,6%  40,0%   
(10%) 35,4%  37,4%  39,6%  42,1%   
0%  37,0%  39,1%  41,4%  44,1%   
10%  38,6%  40,8%  43,2%  46,0%   
20%  40,2%  42,4%  45,0%  47,8%   

We have tested the sensitivity of changes in the valuation of the investment property portfolio on the group's see-through LTV ratio. A 20% reduction in the valuation of the investment property portfolio would result in an increase in the overall see-through LTV ratio to 44%, with the group still fully compliant with its banking covenants.

Interest cover ratio (ICR)

The group's interest cover ratio remains healthy, reflecting the strong cash generative nature of Hyprop's properties. During the year the group adopted a new interest rate hedging policy, in terms of which a minimum of 75% of interest rate exposure must be hedged. Interest rate hedges are matched with loan maturity dates.

The group complied with all of its banking covenants during the year.

Rand denominated debt
Debt maturity profile South Africa  
Key statistics June 2019 June 2018  
Property value (Rbn) 28,6bn 28,6bn  
LTV 15,62% 9,83%  
Weighted average cost of debt (including hedges) 9,3% 9,4%  
Weighted average loan tenor (years) 2,84 3,15  
Proportion of debt hedged 101,1% 113,6%  

The South African bank debt is secured against South African investment property, while the DCM funding is unsecured.

During the year R750 million was raised by issuing new bonds with an average duration of 4,5 years and an average interest rate of 1,62% above three-month JIBAR.

On 26 June 2019, USD100 million of debt in Hyprop Mauritius was re-financed through a Rand denominated four-year term loan of R958 million and a R500 million revolving credit facility, at an interest rate of 1,65% above three-month JIBAR.

Borrowings of R1,0 billion are due for repayment before 30 June 2020. This includes the HILB05 bond of R358 million which was redeemed from available cash resources on 11 July 2019. The remaining R650 million of the short-term debt will be refinanced through new bond issuances, term loans or available bank facilities.

US Dollar denominated debt
Debt maturity profile sub-Saharan Africa  
Key statistics June 2019 June 2018  
Property value (Rbn) 3,5bn 5,0bn  
LTV 103,4% 98,9%  
Weighted average cost of debt (including hedges) 5,4% 5,0%  
Weighted average loan tenor (years) 1,35 1,98  
Proportion of debt hedged 44,6% 61,0%  

Total USD-denominated bank debt at 30 June 2019 was USD244 million (2018: USD343 million), equivalent to R3,5 billion (2018: R4,7 billion). USD188 million of this debt is secured by guarantees from Hyprop and against South African investment property.

Proceeds received from the disposal of the sub-Saharan African assets will be utilised to settle USD-denominated debt, after retaining sufficient cash to cover operating costs and service the remaining USD-denominated debt for the next 12 months.

Euro-denominated debt
Debt maturity profile Eastern Europe
(only guaranteed loans)
Key statistics June
Guaranteed by
Property value (EURm) 796m 796m 796m  
LTV 47,11% 43,45% 95,93%  
Weighted average cost of debt 2,03% 3,57% 2,67%  
Weighted average loan tenor (years) 3,12 3,59 3,42%  
Proportion of debt hedged 100% 30% 74%  

At 30 June 2019, Hyprop had guaranteed EUR357 million of interest-bearing loans advanced by banks to Hystead and certain of its subsidiaries. This debt is not consolidated in Hyprop's statement of financial position, however, the financial support results in the recognition of a financial liability in Hyprop's statement of financial position. Hyprop's obligations under these guarantees are secured against South African investment property. In exchange for providing guarantees which exceed Hyprop's 60% shareholding in Hystead, Hyprop receives a credit enhancement fee from PDI, currently equivalent to 11% of the dividends declared by Hystead.

During the period, EUR395 million of bank loans advanced to Hystead were refinanced for three to four years at an average interest rate of 2,0%. This resulted in new financial guarantees with an initial value of R110 million being recognised, and the derecognition of financial guarantees of R186 million in respect of the retired debt. As a result of more information on credit default rates having become publicly available since implementation of IFRS 9: Financial Instruments, the average credit default rates used by the independent valuers to determine the fair values of the financial guarantee liabilities reduced significantly from 2018, with a corresponding decrease in the financial liabilities.

Hyprop regularly reviews the funding of its investments in Eastern Europe. In the context of the current low European interest rate environment, the prudent interest rate hedging strategy adopted by the group and the stable performance of the Eastern European portfolio, the board is comfortable that the current funding structure is appropriate.

Exchange rates

The functional and reporting currencies for the investments in sub-Saharan African and Eastern Europe are the US Dollar and Euro, respectively. The exchange rates used to convert foreign currency amounts to Rand were as follows:

30 June 2019 30 June 2018
Exchange rates Average rate
average rate
spot rate
Average rate
average rate
spot rate
US Dollar 14,13 14,15 12,47 12,53 13,70  
Euro 16,04 16,91 16,11 15,32 14,80 16,00  

The realised average exchange rate is the weighted average of the actual exchange rates at which foreign currency dividends received were converted to Rand. This rate is higher than the average exchange rate for the year ended 30 June 2019 as a result of exchange rate hedges utilised during the year.


In line with the group's revised strategic plan, the following key priorities have been set for the next 18 months:

Hyprop expects a reduction in distributable income per share for the year ending 30 June 2020 of approximately 10% to 13%. The main reasons for the reduction are:

The board believes that the new strategy and key priorities will create a more defensive balance sheet and a base for sustainable long-term growth, and expects that following the reduction in distributable income in the 2020 financial year, the group will achieve positive growth in distributable income for the 2021 financial year, and beyond. Hyprop continues to evaluate other potential initiatives to improve financial performance and reduce the LTV.

This guidance is based on the following key assumptions:

These prospects have not been reviewed or reported on by the company's auditors.


We would like to thank our executives, management and staff for their efforts during the year and the manner in which they have embraced the changes brought about by the new executive team. We also thank our fellow directors for their guidance and support and all our other stakeholders for their support. We look forward to the next stage of Hyprop's development.


Morné Wilken
Brett Till
Wilhelm Nauta