2020 Integrated Annual Report

and Consolidated & Separate
Financial Statements

Risk and opportunity management

The primary objectives of the Hyprop risk management process are to ensure that risk awareness is embedded in strategy discussions at board level, in day-to-day operations and processes, and to minimise uncertainty regarding operational performance by anticipating risks and associated costs and losses.

Risk management forms an integral part of normal operations, processes and activities, and a culture of risk awareness endures. The Group also monitors and reports on industry risk trends. These principles were rigorously applied throughout the Covid-19 pandemic in 2020 and allowed the Group to safely navigate its way through the challenges presented by the global pandemic. Our systematic approach to identifying and analysing risk, and the actions taken to mitigate or counter the risks meant the Group was able to implement preventative risk mitigation procedures swiftly and effectively.


Hyprop views risk management as a core competency critical to sustainability. The Group employs a structured and disciplined approach to group-wide risk management, with the objective of maintaining a balance between risk and value creation.

The foundation of any organisation's risk management framework is its tolerance for risk. By definition, risk tolerance specifies how much risk an organisation is willing to accept in the pursuit of its business objectives. At Hyprop, risk will not be tolerated in instances where, if the risk event occurs, it could cause any one, or more, of the following:

These underlying risk tolerance principles are encoded in Hyprop's formal working documents and processes, for example:


The global property industry is susceptible to changing economic, political and other factors which introduce new risks or change the nature of existing risks for the industry. The following risks emerged or were heightened during the year as a result of the deteriorating economic environments in South Africa and sub-Saharan Africa, as well as the global spread of Covid-19:

Emerging risk event   Group response
Global disruption event or financial market crises

The global spread of Covid-19 in the first quarter of 2020 resulted in national lockdowns in all jurisdictions where the Group operates, forcing most of the Group’s tenants to temporarily close their businesses. The impact on the Group was significant, aff ecting the Group’s ability to charge normal rentals, increasing tenant arrears, reducing property values and increasing the risk of tenant business failures. The additional responsibility of ensuring the health and safety of all employees, shoppers and tenants also arose.

Under the supervision of the Group’s Audit and Risk committee strategies and actions were implemented to ensure compliance with government-imposed health and safety protocols, to assist tenants through rental discounts and deferrals, and to monitor cashfl ow and liquidity.

Refinancing andfinancial liquidity risk

As a result of Covid-19 global financial markets reacted with unprecedented volatility. Risks associated with refinancing maturing debt increased, evidenced by a lack of appetite from bond holders to refinance maturing obligations. Cash collections from tenants reduced as tenants managed their own cashfl ows.

Support from the Group’s lender banks remained strong, allowing the Group to comfortably refinance maturing debt obligations. Cashfl ow and liquidity were continuously monitored to ensure that all financial obligations could be met. The Group has also deferred payment of its interim, and declaration of its final, distributions for the year ended 30 June 2020 to preserve liquidity in light of the uncertain operating environment.

Decrease in the value of investment properties

As a result of the deteriorating economic environment in South Africa prior to, and as a result of, Covid-19, the valuations of the Group’s investment property portfolios came under pressure. The most significant consequence of a decrease in investment property valuations is the impact on LTV ratio covenants in terms of borrowing agreements.

Banking covenants were stress tested for changes in property valuations and other economic variables. Regular discussions were held with the Group’s major lenders to consider strategies to deal with the Covid-19 risks and avoid a breach of banking covenants. This ensured that the Group complied with all of its banking covenants at 30 June 2020.

Multi-currency funding structures used in the Group’s Eastern European operations

The risks arising from the use of Rand denominated assets to guarantee Euro denominated borrowings in the Group’s Eastern European portfolio were highlighted following the rapid depreciation of the Rand against the Euro between March and June 2020. This placed additional pressure on the Group’s LTV ratio.

Subject to an agreement between the Hystead shareholders, the following steps are being taken to address the risks posed by the funding structure:

  • Restructuring the current Hystead funding arrangements between Hyprop and PDI;
  • Withholding distributions by Hystead to Hyprop for the 2020 and 2021 calendar years, and utilising the retained cash to settle Euro denominated equity debt; and
  • Refinancing a portion of the Euro denominated equity debt with Rand denominated debt.
Business failure by a major tenant or tenant group

Due to the national lockdowns imposed as a result of Covid-19, the majority of the Group’s tenants were not able to trade during all or part of the lockdown periods. This had a negative impact on many tenants’ businesses and the Group has assisted tenants by granting rental discounts and/ or deferrals. The recovery from Covid-19 to previous trading levels is anticipated to take some time and we continue to assist tenants, where appropriate, to ensure we have functional malls and maintain occupancy levels.

As a result of the aforegoing, the risk of tenant business failures has increased and has impacted the Group, most notable of these was the Edcon Group which filed for business rescue in April 2020. We continue to monitor tenant concentration risk and identify potential replacement tenants where we are concerned about the financial stability of any tenant group.


Residual risk is the remaining risk exposure after all identified mitigation measures have been applied. The residual risk rating for the Group’s current top 10 risks are outlined in the heat map and tables below. The external factors aff ecting each risk which are beyond management’s control are key contributors to the current high residual risk ratings. Due to the Covid-19 pandemic and the economic consequences thereof, several of these key risks materialised in the 2020 financial year.

Top 10 risks heat map

Key risk Strategic objectives Impact Strategic response/mitigation Changes
to risk
in the
Not in
top 10
Global disruption
or financial market
  • Focus on sustainable distributable income growth and total return to shareholders
  • Closure of shopping centres
  • Reduced rental income if tenants cannot trade
  • Negative effect on liquidity and ability to refinance debt
  • Slowdown in consumer spending
  • Tenant failures
  • Hampers implementation of repositioning strategy
  • Maintain liquidity through available debt facilities and cash balances
  • Diversified portfolio and tenant base which includes income from non-tangible assets
  • Fixed minimum monthly rentals (not only turnover based)
New to top
10 risks
10 Multi-currency risks associated with the Group’s funding structure and gearing
  • Strengthen the Group’s balance sheet
  • Reduce LTV ratio
  • Increased LTV ratio due to devaluation of the Rand
  • Increased cost of borrowing due to currency mismatches
  • Ability to refinance maturing debt
  • Breach of banking covenants
  • Matching currency between borrowings and secured assets/income to service borrowings
  • Optimal capital allocation
  • Maintain unencumbered assets
  • Maintain available bank facilities
  • Maintain strong relationships with lenders
Not in
top 10
Decrease in property valuations
  • Strengthen the Group’s balance sheet
  • Reduce LTV ratio
  • Focus on total return to shareholders
  • Negative impact on LTV ratios and banking covenants
  • Negative returns for shareholders
  • Ongoing monitoring of banking covenants
  • Cash retention from operating profits to reduce debt
  • Maintaining adequate liquidity to refinance short-term debt
  • Maintain conservative gearing levels and high interest cover ratio
  • Maintain strong relationships with lenders
New to top
10 risks
1 Low GDP growth impacts business growth
  • Focus on sustainable distributable income growth and total return to shareholders
  • Slower retail sales growth aff ects retailers’ financial positions and ability to pay rent
  • Rent reversions impact net operating income and property valuations
  • Hyprop shopping centres are well established, in dominant locations and attract fl agship stores
  • Maintain relevance of malls by diversifying and optimising tenant mix, entertainment and other off erings based on market research and demographic studies
  • Improve customer interaction through technology
2 Slowing consumer spend affects retailers’ trading densities and rentto- turnover ratios
  • Focus on sustainable distributable income growth and total return to shareholders
  • Leases not renewed
  • Discounted rentals to retain tenants
  • Tenants more cautious on renewals and new lettings
  • Tenants reduce space
  • Increase in vacancies, slower extension plans
  • Contractual lease income with financially sound tenants (most are reputable national companies with strong balance sheets and proven business models)
  • Model for sustainable rental growth to reduce reversions
  • Manage total cost of occupancy for tenants
6 Inability to refinance maturing debt
  • Strengthen the Group’s balance sheet
  • Reduce LTV ratio
  • Inability to raise funding on competitive terms
  • Increased cost of borrowings
  • Credit default
  • Reduced liquidity
  • Spreading the amount of debt maturing in any financial year
  • Cash retention from operating profits to reduce debt
  • Maintaining adequate liquidity to refinance short-term debt
  • Maintain conservative gearing levels and high interest cover ratio
No change
9 Digital disruption
  • Embrace technology to enhance the profitability of our shopping centres
  • Inefficient business processes through under-utilisation of technology
  • Digital disruption impacts performance of retail tenants’ business
  • Loss of contact with shoppers
  • Embrace digital disruption
  • Optimise business processes through efficient use of technology
  • Develop revenue streams from non-tangible assets
  • Introduce alternative uses for vacant areas of malls
Not in
top 10
Loss of REIT status
  • Focus on sustainable distributable income growth and total return to shareholders
  • Distributions to shareholders not tax deductible
  • Capital Gains Tax payable on disposals
  • Reduced returns for shareholders
  • Identify mechanisms to retain cash while meeting minimum distribution requirements (for example DRIPs)
  • Engage with regulators
  • Reduce distributions to minimum requirements
New to top
10 risks
Not in
top 10
Oversupply of retail space in market
  • Focus on sustainable distributable income growth and total return to shareholders
  • Discounting rentals to attract tenants
  • Increased vacancies
  • Declining foot counts and trading densities
  • Maintain relevance of malls by diversifying and optimising tenant mix, entertainment and other off erings based on market research and demographic studies
  • Improve customer interaction through technology
New to top
10 risks
8 Deterioration of municipal services, electricity and water supplies
  • Reposition malls
  • Improve trading densities
  • Poor service delivery leads to increased operating costs
  • Disruption to operations impacting customer dwell times
  • Industry engagement with local governments and councils through central improvement districts
  • Installation of solar plants and back-up generators
  • Implement alternative water supply systems

One of the perceived material risks to the retail sector is digitalisation and online shopping. Our approach remains to embrace the digital disruption which is transforming many traditional market sectors, including the retail and property sectors.

To this end, the Group’s activities are being expanded to develop relevant non-tangible assets arising from this digital disruption. Our disruptive technology strategy is multifaceted, and includes:

SOKO district innovation project

SOKO District (previously Retail.nxt) is a digital platform that will enable retailers to integrate online and traditional retail strategies.

SOKO means “market” in Swahili and the SOKO District will be a marketplace where retailers can rent space and reusable shopfittings via a flexible digital leasing platform, without the significant financial commitments in the traditional retail environment. The leasing platform is powered by data-driven shopper, product and trend analyses, resulting in location recommendations that will match retailers, products and shoppers, across our portfolio.

Although SOKO will initially target online retailers seeking to promote and market their products, the platform will also be relevant to traditional retailers, particularly emerging and smaller businesses looking to bring their products to market in an affordable manner. The SOKO digital platform will include an online shopping portal, which will facilitate online transactions and distribution via the SOKO District, and will allow traditional retailers to select the most appropriate location from which to launch and market their products.

Development of the SOKO software platform is progressing well, with a pilot SOKO District scheduled to be operational at the Rosebank Mall in the first quarter of 2021.