Chairman’s report
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The global economy is showing
signs of improvement although
areas of concern remain. The
US Federal Reserve’s decision to
steadily reduce and, imminently,
end quantitative easing augurs
well for the state of that
economy. The UK economy is
producing solid growth, Germany
remains the engine behind a
European economy which is
recovering at a slower pace
than expected and China is still
producing strong growth, albeit
at levels lower than those in the
last few years. |
While there is not yet a convincing recovery in all material parts of the global economy, significant progress has been made and we will increasingly be faced with an environment of rising interest rates and central banks taking steps to address the balance sheets created to sustain the recovery.
South Africa remains a tale of two economies. The JSE traded at record levels during the year and there is an abundance of capital for the right opportunities. In contrast, GDP growth is tepid and conditions on the ground for many businesses are difficult with constrained consumer demand, and cost pressure from administered price increases, wage inflation and fuel price increases. The South African Reserve Bank has raised interest rates, albeit cautiously, and over the next year will be challenged to create an environment conducive to the strong growth South Africa needs.
The financial year under review was another vibrant period for listed property in South Africa. The consolidation process in the industry continued, there were several new listings that received enthusiastic responses, a number of major transactions were announced and most listed property entities produced credible growth.
The South African listed property sector produced a total return of 6% for the year to 30 June 2014 and the FTSE/JSE REIT index delivered a return of 8,34%. Hyprop’s return for the same period was 8,75%.
Hyprop’s specialised portfolio of premium shopping centres in South Africa and selected countries in Africa is structured to provide shareholders with income and capital growth. The following were some of the key initiatives undertaken during the year:
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The exchange of the Sycom investment for direct ownership of the Somerset Mall was completed |
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Hyprop acquired an effective majority stake in Manda Hill shopping centre via an investment in African Land |
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A further portion of the capital allocated to the Atterbury Africa venture was invested as the development of the shopping centres owned by Atterbury Africa progressed |
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The targeted limit for investment in sub-Saharan Africa of R750 million was increased to R3 billion |
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Significant progress was made on the R932 million redevelopment of the Rosebank Mall. At the time of writing, the project has been substantially completed and the result is gratifying |
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Limited progress was made on the disposal of non-core assets; however, this is receiving attention |
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Various smaller projects to improve our existing shopping centres were completed and several new projects commenced |
Hyprop will continue to invest in its existing properties to maintain their premier ratings, and to expand them where commercially viable, and will acquire new properties where they meet our investment criteria and are available at prices that provide acceptable, risk-adjusted returns.
Hyprop’s financial performance for the period exceeded the guidance provided to the market at the interim stage with distributions growing by 11,3%. The result for the period was a function of a range of well-managed factors including continued low vacancy rates in the retail portfolio (benefiting from sustained strong demand from retailers for space in prime centres), effective management of the cost-to-income ratio and efficiencies in financing costs.
Hyprop became a REIT on 1 July 2013. The JSE REIT approval process included a requirement to convert Hyprop’s combined unit capital structure to an all-share structure. Accordingly, the appropriate resolutions were put to unitholders, and passed in July 2014. The new capital structure aligns Hyprop with internationally recognised REIT capital structures and the increased transparency and simplicity should further enhance its investment appeal.
At the last annual general meeting, unitholders approved a long-term share incentive plan and the first allocations in terms of the plan were made in December 2013. We are confident that the plan will achieve its objectives.
Outlook
There are no obvious catalysts to produce the levels of economic growth needed to address some of the fundamental issues South Africa faces. Furthermore, our financial markets are increasingly tied to the major international markets and will be affected as interest rates rise and the supply of easy money is restricted.
Demand for space in our premium shopping malls remains strong and these assets should continue to provide strong returns for the foreseeable future, despite constrained economic growth. There is a pipeline of projects to improve or extend the malls, and enhance their returns, which will be implemented in a structured manner over the coming financial years. We will continue to dispose of non-core assets where appropriate.
Manda Hill shopping centre is performing well and we expect that to continue. The Atterbury Africa developments are progressing in line with expectations and the West Hills shopping centre in Accra should open in October 2014. We will look to expand the African portfolio through greenfields developments and purchases of operating shopping malls, where properties that meet our investment criteria can be sourced.
While there are macro factors that support a cautious outlook, we have a high-quality portfolio that is resilient and should produce satisfactory returns over an extended period. Significant effort is devoted to managing and enhancing the portfolio, and to identifying opportunities to grow the portfolio with the right quality assets. All of this informs an optimistic outlook for Hyprop for the next year.
Sustainability
We recognise the importance of sustainability as it applies to the different facets of our business.
We regularly review and refine the manner in which we engage with our various stakeholders; our desire to be a good corporate citizen pervades our approach to business and we endeavour to act in a responsible, balanced and commercially sensible manner. We devote considerable effort to ensuring the sustainability of our business model, we have established a range of objectives related to environmental matters and progress towards these objectives is regularly evaluated.
Transformation is a priority for successful South African companies, and Hyprop is devoting considerable resources to initiatives that result in meaningful, sustainable outcomes.
Corporate governance
Hyprop is committed to the highest standards of corporate governance. This integrated report sets out details of our corporate governance structures and the extent to which we comply with relevant codes of corporate governance and regulatory requirements.
Board changes
As previously reported, Thabo Mokgatlha joined the board as an independent non-executive director, and a member of the audit committee, on 28 August 2013.
Appreciation
On behalf of the board I thank our executives, management and staff for their efforts during the year. I also offer our thanks to our stakeholders for their support, and my thanks to my fellow board members for their contributions.
Gavin Tipper
Chairman
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