H. FUNDING AND RELATED ITEMS
H1 BORROWINGS
H1.1 Accounting policy
  Interest-bearing borrowings are initially measured at fair value, net of transaction costs. Interest-bearing borrowings are subsequently measured at amortised cost using the effective interest method (see note D4.1 for the accounting policy for borrowings cost).
   
H1.2 Carrying value
 
Group    Company 
June 2020 
R'000
 
June 2019 
R'000
 
June 2020 
Rí000
 
June 2019 
Rí000
 
  
Profile 
Secured bank loans  4 153 233  5 012 217  1 158 693  1 558 308    
Debt capital market (DCM) funding  3 340 490  3 099 476  3 340 490  3 099 476    
   Secured  499 533  –  499 533  –    
   Unsecured  2 840 957  3 099 476  2 840 957  3 099 476    
Shareholder loans  356 623  273 670  761 124  761 125    
           
Total borrowings  7 850 346  8 385 363  5 260 307  5 418 909    
 
Maturity profile 
Non-current  4 074 183  6 320 801  4 835 307  4 410 909    
   Bank loans  1 158 693  4 029 325  1 158 693  1 358 308    
   DCM funding  2 915 490  2 291 476  2 915 490  2 291 476    
   Non-controlling shareholder/subsidiary  –  –  761 124  761 125    
Current  2 463 877  1 008 000  425 000  1 008 000    
   Bank loans  2 038 877  200 000  –  200 000    
   DCM funding  425 000  808 000  425 000  808 000    
Liabilities associated with assets held-for-sale  1 312 286  1 056 562  –  –    
           
Total borrowings  7 850 346  8 385 363  5 260 307  5 418 909    
           
Movement reconciliation           
Opening balance at 1 July  8 385 363  7 884 994  5 418 909  3 710 403    
Foreign exchange movement  608 406  161 448  –  –    
New borrowings raised during the year  1 247 982  1 708 077  1 247 982  1 708 077    
Raising fees - amortised  1 435  429  1 436  429    
Repayments during the year  (2 469 969) (1 414 851) (1 408 020) –    
Net interest accrued  78 416  25 862  –  –    
Fair value adjustment  (1 287) 19 404  –  –    
Balance at the end of the year  7 850 346  8 385 363  5 260 307  5 418 909    

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
H1.3
 
 
H1.4 Individual facilites
 
Group Company
Facility   Maturity
date
  Initial
term
  Security   Base
currency
  Interest rate
at
30 June 2020
%
  Interest rate
at
30 June 2019
%
  Nominal
interest rate %
  June 2020
R'000
June 2019
R'000
June 2020
R'000
June 2019
R'000
 
Bank loans
Rand Merchant Bank R200m   Nov 2019   5 years   Secured   ZAR     8.52   3 month JIBAR + 1.5   200 000 200 000  
Old Mutual Specialised Finance (Pty) Ltd R400m   Sep 2022   7 years   Secured   ZAR     8.57   3 -month JIBAR + 1.55   399 649 399 649  
The Standard Bank of South Africa Ltd R959m   Jun 2023   4 years   Secured   ZAR   5.56   8.67   3 -month JIBAR + 1.65   958 885 958 658 958 885 958 658  
The Standard Bank of South Africa Ltd R500m (3)   Jun 2023   4 years   Secured   ZAR   5.81   8.81   Prime less 1.44   1 1  
Nedbank Limited R200m (3)   Mar 2022   2 years   Secured   ZAR   5.41     3 month JIBAR + 1.6   199 808 199 808  
Rand Merchant Bank USD23m   May 2021   3 years   Secured   USD   3.39   4.82   LIBOR +2.3   316 318 247 577  
The Standard Bank of South Africa Ltd USD111m   Aug 2020   5 years   Secured   USD   4.02   4.37   LIBOR +2.47 (fixed)   821 337 1 574 518  
Standard Finance (Isle of Man) Ltd USD60m   Oct 2020   3 years   Secured   USD   3.64   4.82   LIBOR +2.24   901 222 848 922  
Stanbic IBTC Bank PLC (1) USD31.6m   Jan 2021   3 years   Secured   USD   7.01 and 6.01   8.83 and 7.83   (2)   546 418 447 632  
Ninety One (Pty) Ltd (1) USD23.7m   Jan 2021   3 years   Secured   USD   7.01 and 6.01   8.83 and 7.83   (2)   409 245 335 260  
Total bank loans 4 153 233 5 012 217 1 158 693 1 558 308  
DCM funding
HILB04 R450m   Nov 2019   6 years   Unsecured   ZAR     8.56   3- month JIBAR + 1.54   450 000 450 000  
HILB05 R358m   Jul 2019   3 years   Unsecured   ZAR     8.71   3-month JIBAR + 1.69   358 000 358 000  
HILB06 R425m   Jul 2020   4 years   Unsecured   ZAR   5.70   8.81   3 -month JIBAR + 1.79   425 000 424 947 425 000 424 947  
HILB07 R317m   Jul 2021   5 years   Unsecured   ZAR   5.81   8.92   3- month JIBAR +1.90   316 970 316 937 316 970 316 937  
HILB08 R452m   Mar 2023   5 years   Unsecured   ZAR   5.51   8.62   3- month JIBAR + 1.60   451 876 451 831 451 876 451 831  
HILB09 R348m   Mar 2025   7 years   Unsecured   ZAR   5.61   8.92   3- month JIBAR + 1.90   347 882 347 856 347 882 347 856  
HILB10 R250m   Mar 2022   3.5 years   Unsecured   ZAR   5.35   8.46   3- month JIBAR + 1.44   249 940 249 905 249 940 249 905  
HILB11 R150m   Mar 2024   5 years   Unsecured   ZAR   5.66   8.77   3- month JIBAR + 1.75   149 944 150 000 149 944 150 000  
HILB12 R350m   Mar 2024   5 years   Unsecured   ZAR   5.61   8.72   3- month JIBAR + 1.70   349 870 350 000 349 870 350 000  
HILB13 R100m   Dec 2021   1.5 years   Unsecured   ZAR   5.96     3- month JIBAR + 2.05   100 000 100 000  
HIL03U R500m   Nov 2022   3 years   Secured   ZAR   5.41     3- month JIBAR + 1.5   499 533 499 533  
HIL02U R450m   Oct 2022   3 years   Unsecured   ZAR   5.41     3- month JIBAR + 1.5   449 475 449 475  
Total DCM funding 3 340 490 3 099 476 3 340 490 3 099 476  
Shareholder funding
African Land (Pty) Ltd (4)   Unsecured   ZAR   761 124 761 125  
AIH International Ltd (1) Mar 2021   Unsecured   USD   10.08   10.08   356 623 273 670  
Total borrowings 7 850 346 8 385 363 5 260 307 5 418 909  
Undrawn facilities
Total Group/Company undrawn facilities at year end amount to:     R500m R500m R500m R500m
The secured loans above are secured against investment property as set out in note E1.8 - Mortgaged properties. Interest on all loans is paid monthly or quarterly as applicable. Capital is repayable on the loan maturity date.
(1) Loans disclosed under liabilities associated with assets held-for-sale.
(2) Facility A: 3-month LIBOR+6.25; facility B: 3-month LIBOR+5.25.
(3) Revolving credit facility
(4) The African Land loan is repayable on a minimum of 12 months' written notice.
H2 DERIVATIVES
H2.1 Accounting policy
 

Derivatives are initially measured at fair value and are subsequently remeasured at fair value. Any directly attributable transaction costs are recognised in profit or loss as incurred.

Derivative instruments comprise interest rate swaps, exchange rate zero cost collars (put and call options) and forward exchange contracts. The interest rate swaps are used to hedge interest rate exposure on long-term debt facilities and corporate bonds. Zero cost collars are used to hedge the exchange rate in anticipation of receipt of dividends from Hystead and Hyprop Mauritius. Forward exchange contracts are used to hedge amounts committed to recapitalise Hyprop Mauritius and anticipated dividends from Hystead.

Further disclosure on the designation of the interest rate swaps and their risk mitigation role is provided in note M3 Ė Interest rate risk and sensitivity.

   
H2.2 Net carrying value
Group     Company 
Note    June 2020 
R'000
 
June 2019 
R'000
 
June 2020 
R'000
 
June 2019 
R'000
 
 
  Currency collars and forward exchange contracts  H2.4    (32 019) 3 310  (32 019) 3 310   
  Interest rate swaps  H2.5    (253 630) (67 563) (249 840) (66 734)  
  Total derivatives  (285 649) (64 253) (281 859) (63 424)  
H2.3  Maturity profile 
  Non-current assets  –  619  –  619   
  Current assets  –  2 691  –  2 691   
  Non-current liabilities  (233 669) (60 224) (233 669) (59 408)  
  Current liabilities  (51 980) (7 339) (48 190) (7 326)  
  Total derivatives  (285 649) (64 253) (281 859) (63 424)  
H2.4  Currency collars and forward exchange contracts     
H2.4.1  Net carrying value 
  Non-current assets  –  619  –  619   
  Current assets  –  2 691  2 691   
  Non-current liabilities  (3 693) –  (3 693) –   
  Current liabilities  (28 326) –  (28 326) –   
  Total derivatives  (32 019) 3 310  (32 019) 3 310   
H2.4.2  Movement reconciliation 
  Opening balance at 1 July  3 310  (1 722) 3 310  (1 722)  
  New contracts entered into  (30 622) 3 310  (30 622) 3 310   
  Contracts utilised  (2 691) 1 722  (2 691) 1 722   
  Fair value adjustment  (2 016) –  (2 016) –   
  Balance at the end of the year  (32 019) 3 310  (32 019) 3 310   

H2.4.3 Individual instruments
 
Group  Company
Counterparty
bank
 
Type of
instrument
 
  Expiry
date
 
  Currency    Nominal
value
Ď000
 
  June 2020 
R'000
 
  June 2019 
R'000
 
  June 2020 
R'000
 
  June 2019 
R'000
 
 
RMB  Currency collar    Sep 2019    EUR    2 400    –    819    –    819   
RMB  Currency collar    Jan 2020    EUR    2 000    –    580    –    580   
RMB  Currency collar    Jan 2020    EUR    2 000    –    660    –    660   
RMB  Currency collar    Apr 2020    EUR    2 000    –    632    –    632   
RMB  Currency collar    Jul 2020    EUR    2 000    (1 397)   619    (1 397)   619   
RMB  Currency collar    Jul 2020    EUR    2 000    (4 082)   –    (4 082)   –   
ABSA  Participation forward (net)   Jul 2020    USD    25 000    (4 765)   –    (4 765)   –   
ABSA  Forward exchange contract    Aug 2020    USD    45 000    (2 925)   –    (2 925)   –   
RMB  Currency collar    Sep 2020    EUR    3 350    (7 334)   –    (7 334)   –   
ABSA  Forward exchange contract    Feb 2021    EUR    2 100    (3 972)   –    (3 972)   –   
ABSA  Currency collar    Apr 2021    EUR    2 100    (3 851)   –    (3 851)   –   
ABSA  Currency collar    Jul 2021    EUR    2 100    (3 693)   –    (3 693)   –   
Total currency collars and forward exchange contracts                 (32 019)   3 310    (32 019)   3 310   

H2.5 Interest rate swaps
H2.5.1 Net carrying value
  Group   Company  
  June 2020 
R'000 
  June 2019 
R'000 
  June 2020 
R'000 
  June 2019 
R'000 
 
Non-current liabilities (229 976)   (60 224)   (229 976)   (59 408)  
Current liabilities (23 654)   (7 339)   (19 864)   (7 326)  
Total interest rate swaps (253 630)   (67 563)   (249 840)   (66 734)  
Movement reconciliation
Opening balance at 1 July (67 563)   (16 676)   (66 734)   (24 113)  
Foreign exchange movement (196)   3 684    –    –   
New contracts entered into –    (5 931)   –    (5 931)  
Contracts utilised/expired 7 326    (554)   7 326    278   
Fair value adjustment (193 197)   (48 086)   (190 432)   (36 968)  
Balance at the end of the year (253 630)   (67 563)   (249 840)   (66 734)  
 
H2.5.2

H2.5.3 Individual instruments
 
Group     Company 
Counterparty Bank  Nominal amount  Expiry date  Fixed rate payable%  Variable rate receivable  June 2020 
Rí000
 
  June 2019 
Rí000
 
June 2020 
Rí000
 
  June 2019 
Rí000
 
 
Standard Bank  R100m  Nov 2019  8.04  3-month JIBAR  –    (496) –    (496)  
Standard Bank  R100m  Feb 2020  8.50  3-month JIBAR  –    (1 148) –    (1 148)  
Standard Bank  R450m  Oct 2020  7.85  3-month JIBAR  (8 171)   (6 903) (8 171)   (6 903)  
Standard Bank  R958m  Jun 2023  7.04  3-month JIBAR  (79 402)   (4 814) (79 402)   (4 814)  
Standard Bank  R300m  Oct 2023  7.82  3-month JIBAR  (34 550)   (10 127) (34 550)   (10 127)  
Standard Bank  R100m  May 2024  7.85  3-month JIBAR  (12 129)   (3 455) (12 129)   (3 455)  
Standard Bank  R350m  Mar 2024  7.52  3-month JIBAR  (37 084)   (7 348) (37 084)   (7 348)  
Standard Bank  R150m  Mar 2024  7.52  3-month JIBAR  (15 893)   (3 149) (15 893)   (3 149)  
RMB  R200m  Sep 2019  7.73  3-month JIBAR  –    (337) –    (337)  
Nedbank  R250m  Jan 2020  8.54  3-month JIBAR  –    (2 905) –    (2 905)  
Nedbank  R250m  Jan 2020  8.29  3-month JIBAR  –    (2 440) –    (2 440)  
Nedbank  R500m  Jan 2021  7.43  3-month JIBAR  (11 694)   (5 500) (11 694)   (5 500)  
Nedbank  R500m  Sep 2021  7.61  3-month JIBAR  (24 404)   (9 015) (24 404)   (9 015)  
Nedbank  R500m  Oct 2021  7.55  3-month JIBAR  (26 513)   (9 097) (26 513)   (9 097)  
Standard Bank  USD 27.1m  Oct 2020  2.11  3-month LIBOR  (3 790)   (817) –    –   
RMB  USD 4.98m  May 2020  2.10  3-month LIBOR  –    (13) –    –   
Total interest rate swaps           (253 630)   (67 563)   (249 840)   (66 734)  
   
H2.6 Valuation assumptions – unobservable inputs
 
Group Company
June 2020 June 2020
The key assumptions used in determining the fair value of derivatives are in the following ranges:
USD revaluation rate   R17.39/USD – R17.49/USD     R17.39/USD – R17.49/USD  
EUR revaluation rate   R19.47/EUR – R20.00/EUR     R19.47/EUR – R20.00/EUR  
Projected forward interest rate (JIBAR)   3.5% – 6.7%     3.5% – 6.7%  
Projected forward interest rate (LIBOR)   0.3% – 0.8%     n/a  

H2.7 Valuation sensitivity
 
Group Company
June 2020
% change
June 2020   
     R'000
June 2020   
     R'000
Currency collars and forward exchange contracts
   Increase in Delta 25% (230 154) (230 154)
   Decrease in Delta 25%  359 279  359 279
Interest rate swaps
   Increase in projected forward interest rate 25%  81 645  81 645
   Decrease in projected forward interest rate 25%   (81 266)   (81 266)

H3 FINANCIAL GUARANTEES
H3.1 Accounting policy
 

Financial guarantees are contracts that require the Group to make specified payments to reimburse the holder for a loss that it incurs because a specified debtor fails to make payment when it is due in accordance with the original or modified terms of a debt instrument. Liabilities under financial guarantees are recognised initially at fair value and subsequently at the higher of the loss allowance determined in accordance with IFRS 9 (see note M5.2.3.1) and the amount initially recognised less, when appropriate, the cumulative amount of income recognised in accordance with the principles of IFRS 15: Revenue from contracts with customers.

Management assessed the obligations under the guarantees and concluded that these meet the definition of financial guarantees, and the change in fair value of the guarantees represents a charge to profit or loss.

H3.2 Key judgements and estimations
 

Valuation of financial guarantees

The guarantees issued by Hyprop are recognised as financial liabilities on the statement of financial position at the higher of the day-one fair value or ECL value.

The fair value of the financial guarantees have been calculated by independent advisers as follows:

Contractual future cash flows related to each loan were calculated and then multiplied by an appropriate probability of default (PD) and loss given default (LGD). The amounts were then discounted (using risk-free rates) to either the inception date of the exposure or the valuation date (30 June 2020) to obtain the day-one fair value or expected credit loss (ECL) at 30 June 2020 respectively.

In determining the ECL for the financial guarantee, an adjustment to the credit risk profile of the entities was considered given the economic effects of the Covid-19 pandemic. This was performed by first determining the historic GDP and associated corporate default probabilities, and then applying the forecasted GDP for 2020 per country to project the expected probability of default (PD). The resultant PD's therefore incorporate forward looking macro-economic information.

For the ECL calculations, these can be calculated for either a 12-month period (stage 1) or lifetime (stage 2). Depending on the stage or exposure, the relevant ECL value is compared to the day-one fair value. Due to the difficult market conditions affecting the real estate environment globally and the impact of Covid-19, the current lifetime (stage 2) ECL has been used as the valuation basis and compared to the day-one fair values. The credit rating of the underlying entities were assumed as one notch lower than Hyprop's credit rating.

Disclosure of the sensitivity of the valuations of the financial guarantees to changes in the underlying assumptions is included in note H3.7 - Valuation sensitivity.


H3.3 Profile
  The Company has provided guarantees to banks that have provided funding to Hyprop Mauritius (a wholly owned subsidiary) and Hystead. The guarantees are secured by mortgage bonds over certain of the Company's South African investment properties as disclosed in note E1.8Mortgaged properties. Details of the secured loans are disclosed in note H1.4.
H3.3.1 USD guarantees
  On consolidation the USD guarantees are eliminated as the underlying loans are reflected on the statement of financial position.
   
H3.3.2 EUR guarantees
  Hyprop and PDI Investment Holdings Limited (PDI) have guaranteed EUR 401.5 million of loans advanced by banks to Hystead as follows:
 

Hyprop    EUR 361.5 million (June 2019: EUR 360.8 million)
PDI           EUR 40 million (June 2019: EUR 40 million)

PDI has provided back-to-back guarantees to Hyprop for a further EUR 46.8 million (2019: EUR 46.8 million) (equivalent to 11.7% of the EUR 401.5 million (2019: EUR 400.8 million) guaranteed debt).

For the EUR 73.5 million of debt (2019: EUR 73.2 million) (18.3% of the EUR 401.5 million (2019: EUR 400.8 million) guaranteed debts) which Hyprop has guaranteed in excess of its pro rata 60% interest in Hystead, Hyprop receives 60% of the related dividends declared to PDI from Hystead, which equates to 11% (60% x 18.3%) of the dividends paid by Hystead, as a guarantee fee (the credit enhancement fee).This agreement is in place until May 2021.

The total guarantee fee earned during the year is detailed below:

Group    Company 
June 2020 
R'000
 
June 2019 
R'000
 
June 2020 
R'000
 
June 2019 
R'000
 
  
   Guarantee fee income  22 111  40 542  22 111  40 542    
     
     
H3.4  Carrying value 
   Guarantees in respect of Hyprop Mauritius  –  –  114 861  186 023    
   Guarantees in respect of Hystead  127 066  110 401  127 066  110 401    
   Total financial guarantees  127 066  110 401  241 927  296 424    
H3.5  Maturity profile 
   Non-current liabilities  127 066  110 401  127 066  296 424    
   Current liabilities  –  –  114 861  –    
   Total financial guarantees  127 066  110 401  241 927  296 424    
H3.6  Movement reconciliation 
   Opening balance at 1 July  110 401  185 686  296 424  388 508    
   New guarantees issued  –  110 401  –  110 401    
   Increase / (decrease) in fair value  16 665  –  (54 497) 16 294    
   Derecognition of guarantee cancelled  –  (185 686) –  (218 779)   
   Balance at the end of the year  127 066  110 401  241 927  296 424    
  The decrease in the financial liability for guarantees given on behalf of Hyprop Mauritius is due to repayment of a portion of the guaranteed loans during the year.

H3.7 Valuation assumptions – unobservable inputs
 
Group and Company   Group and Company  
Risk-free rate June 2020
EUR IOS and USD IOS
  June 2019
EUR IOS and USD IOS
 
Data used for probability of default Publically available IMF data and management input   Market traded instruments  
Loss given default (%) Between 20% and 30% for EUR
guarantees and between 30% and 40%
for USD guarantees
  20% for EUR and USD guarantees  
Credit rating BB+ to BBB-   BB+ to BBB  

H3.8 Valuation sensitivity
 

The valuation of the financial guarantees is sensitive to changes to the unobservable inputs. Changes to one of the unobservable inputs, while holding the other inputs constant, would have the following effects on the carrying value of the financial guarantees on the statement of financial position.

The USD based guarantees all take into account the negative net asset value of the underlying entity (Hyprop Mauritius). Due to the negative net asset value of Hyprop Mauritius being greater than the changes under the sensitivity testing, the valuation of the guarantees given on behalf of Hyprop Mauritius are not affected by the changes in the unobservable inputs and all sensitivity fluctuations relate to the EUR based guarantees.

 
Group and Company
Change in credit risk June 2020 
R'000 
One notch better credit risk than Hyprop (49 287)
One notch worse credit risk than Hyprop 32 533 

H4 COVENANTS AND CAPITAL MANAGEMENT
H4.1 External restrictions
 

In terms of the agreements between the Group and the financial institutions who have granted loans to the Group, the Group is required to maintain certain key financial ratios (covenants). If a covenant is breached on or before the reporting date, the affected loans should be classified as current if the Group does not have the right to defer settlement for at least 12 months after the reporting date.

Summary of the Groupís key covenants and their status

 
Covenant Benchmark range
(2020/2019)
  Reported as   June 2020   Status   June 2019   Status  
Loan to value ratio A maximum of 50% / 50% to 60%   Percentage   42.4 - 49.5     18.0 - 40.0    
Secured portfolio loan to value ratio A maximum of 65% to 70% / 55% to 70%   Percentage   59.2 - 65.5     12.5 - 49.0    
Net asset value A minimum of R7.5 billion   Rbn   18.5     22.9    
Interest cover ratio (EBITDA/interest expense) A minimum of 1.75 to 2 times cover   Times   2.7 - 3.0     3.6 - 6.3    
Secured portfolio interest cover ratio A minimum of 1.75 to 1.8 / 1.75 to 2 times cover   Times   2.0 - 5.0     3.1 - 5.9    

The Group complied with all of its loan covenants during the current and preceding financial years.

H4.2 Internal restrictions
 

Hyprop's capital management objective is to maintain a strong capital base to provide sustainable returns to shareholders over the long-term. The Company's borrowings are not limited by its Memorandum of Incorporation. However, in terms of the JSE listings requirements a REIT's total consolidated borrowings may not exceed 60% of its consolidated gross asset value, as reflected in its latest published financial statements or results. Should the 60% threshold be exceeded, Hyprop may lose its REIT status under the JSE rules.

Hyprop's (theoretical) unutilised borrowing capacity can be summarised as follows:

 
Group    Company  
Note     June 2020 
R'000
 
June 2019 
R'000
 
June 2020 
R'000
 
   June 2019 
R'000
 
  
Total consolidated assets/gross asset value  28 959 704  33 653 572  26 880 655     30 857 940    
60% of gross asset value  17 375 822  20 192 143  16 128 393     18 514 764    
Total consolidated borrowings  H1.4     (7 850 346) (7 328 801) (5 260 307)    (5 418 909)   
Unutilised borrowing capacity  9 525 476  12 863 342  10 868 086     13 095 855