2019 Integrated annual report

and consolidated and separate financial statements

Our market in context

South Africa

Marred by a technical recession and slow economic growth, the South African property sector has faced more headwinds in 2019. S&P Global credit ratings agency has kept South Africa's foreign and local currency credit ratings unchanged at "junk" status with a stable economic outlook. The long-term foreign currency rating is kept at "BB" and the long-term local currency rating at "BB+". Of the three major international ratings agencies, Moody's is the only one not to have a "junk" status rating on South Africa's credit.

Perceived governance issues that plagued JSE listed companies, the impact of the slow economy and the restructuring of Edcon had a material effect on the share prices of property counters and the performance of the SA Listed Property Index performance.

SAPY versus SA 10-year bond yield (%)

SAPY versus SA 10-year bond yield

Source: Singular, Sharenet.

Labour strikes in certain sectors of the economy, revelations about the extent of state capture and corruption in South Africa, continued conflicting pronouncements on policies and priorities, volatility in the currency and eroding disposable income have weighed heavily on the South African economy and resulted in weak confidence among tenants and subdued tenant demand. Global conditions, including weaker economic growth and the US/China trade war have also contributed to the pessimism.

Financial results reported by several listed retailers bear testimony to the tough trading conditions. The SA Listed Property Index declined with returns down by 3,8% over the past three years, and 5,7% over the last year.

Tenant retention remains a priority for SA REITs as the cost of replacing a tenant remains high and time taken to find replacement tenants is lengthening. Operating costs continue to escalate, driven mainly by municipal charges, and other costs related to the economic environment. Discounting of rentals and incentives offered by landlords are likely to continue. Edcon, which recently faced closure, has restructured its business and implemented a two-year turnaround plan. This will include a reduction in its store footprint, adding to the sector's vacancy rates.

E-commerce continues to disrupt traditional brick and mortar shopping centres as consumers explore time-saving and convenient shopping methods. Click-and-collect options and entertainment offerings partially offset this risk for retailers and mall owners, but in the long term it is expected that online retail will gain more market share before reaching a plateau.

Eastern Europe

The Eastern European region continued to grow strongly despite muted global growth and escalating trade tensions in global markets. South African property players continue to explore and expand in this region, confirming its attractiveness as a Rand hedge and a source of investment diversification.

The continued stimulus by the EU has helped in abating unemployment and boosting private consumption, notwithstanding the uncertainty posed by Brexit. Our assets in affluent cities have seen moderate to medium growth in a tough global property market.


Bulgaria has undergone a significant transformation over the past three decades. It has changed from a highly centralised, planned economy to an open, market-based, upper-middle-income economy securely anchored in the EU.

Positive trends in disposable income have helped to sustain private consumption while sound profits, accommodative financing conditions and optimistic expectations about the domestic economy have stimulated investment activity. Real GDP growth is forecast to recover to 3,3% in 2019 and 3,4% in 2020.

On 30 August 2019, Moody's upgraded the country's outlook from stable to positive, citing strengthening fiscal metrics and improved growth prospects thanks to ongoing EU integration.


Croatia's economy has grown by 3% per annum over the past three years.

As wages and employment continue to grow amid low inflation, household consumption is set to remain the main driver of growth for the foreseeable future. In late July 2019, the government announced a new round of tax cuts aimed at young people as part of an effort to stem emigration. The measures are set to come into effect in 2020, and could provide a boost to disposable incomes.

Investment growth is expected to strengthen further in 2019 before moderating in 2020, supported by an improved uptake of EU funds and low interest rates. Real GDP growth is forecast to increase to 3,1% in 2019 before moderating to 2,7% in 2020.


Since its independence in 1991, Macedonia has made progress in liberalising its economy and improving its business environment. Its low tax rates and free economic zones have helped to attract foreign investment, which is still low relative to the rest of Europe.

Macedonia has expected economic growth of 3,2% in 2019 and 4% in 2020, in which year it expects to become a full-fledged member of NATO (Northern Atlantic Treaty Organisation).


Stable consumer spending, inflows from strong foreign direct investment and an improved business climate, reinforced by ongoing efforts to pursue international monetary fund-backed reforms, have supported financial growth in Serbia.

That said, overall annual growth is still expected to come in well below 2018's robust performance, dampened by low industrial production and external headwinds linked to the expected slowdown in the Eurozone, Kosovo import tariffs, rising global trade protectionism and regional tensions.

The National Bank of Serbia expects GDP growth of 3,5% in 2019.


As a new free market economy, Montenegro has fiscal sustainability challenges due to large-scale public infrastructure investments and several new social expenditure programmes.

On 1 January 2019, Montenegro launched its economic citizenship programme, designed to attract a maximum of 2 000 investors from 2019 to 2021. Preliminary estimates suggest the programme could bring as much as USD1 billion in infrastructure investments to the country.

Risks to the outlook include the public debt and the EU slowdown, further overruns on construction costs and persistently high unemployment.

In April 2019, Moody's affirmed Montenegro's "B1" credit rating and stable outlook, supporting the implementation of economic reforms. The economy is expected to grow by 3,1% in 2019.

Sub-Saharan Africa (excluding SA)

Although some countries in the sub-Saharan Africa region have seen considerable growth, on aggregate there has been low economic growth in 2018. According to the World Bank, the region faces the challenges of strengthening resilience and creating higher, more inclusive and durable growth.

Hyprop will reduce its exposure to the region to focus on other growth areas.


The Ghanaian GDP grew by 6,2% in 2018 and is projected to grow by 7,3% in 2019, underpinned by a surge in oil prices and a steady increase in private consumption. The projected growth for the next financial year is a result of Ghana rebasing its GDP in September 2018. The government faces a financing challenge with domestic revenues at about 10% of GDP and gross financing needs of more than 20% of GDP.

Other influences include the marginal improvements in the fiscal deficit, reduced interest rates, and inflation declining to single digits. However, the frequent fluctuations in global oil prices continue to pose a risk to growth in Ghana.


Debt to GDP is 17,5% with real GDP projected to grow by 2,3% in 2019 and 2,4% in 2020 as implementation of the economic recovery and growth plan gains pace.

Trade in non-oil sectors has improved while the oil sector struggled due to the oil price fluctuations and overall low global growth. The slide in oil prices from late 2018 coupled with an output cut imposed by the Organisation of the Petroleum Exporting Countries poses a downside risk to the economic outlook.

Despite low growth in the oil sector, Nigeria is currently not grappling with the dollar shortage experience in 2017, which was brought on in part by the low price of oil.

Sources: World Bank, African Development Bank, Focus Economics, Bloomberg, Sesfikile, European Commission.