CHAIRMAN’S REPORT |
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| 2015 IN PERSPECTIVE |
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The South African listed
property sector produced
a total return of 27% for
the year to 30 June 2015
and the FTSE/JSE REIT index
delivered a return of 22%.
Hyprop’s return for the
same period was
59%
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We live in interesting times. As we anticipate interest rate rises in
the UK and US, Chinese stock markets have fallen, economic news
flow from that country is largely negative and its currency has been
devalued to support the economy. The devaluation was limited, but
conclusions on the impact of lower Chinese demand on world markets
have impacted global growth projections and, more specifically,
emerging market currencies. Some progress has been made in
addressing the issues Europe faces, but it is likely to be some time
before certain of the more troubled economies in the European Union
are stabilised and interest rates can return to more normal levels.
The South African economy is stuttering. Growth is too low to address
the chronic unemployment problem. Load shedding and unionised
labour hinder business’ ability to create jobs and there is an absence
of leadership from government. The economy depends heavily on a
relatively small tax base and unless we are able to develop and grow
that tax base, the consequent lack of available funding will erode
even more aspects of what are perceived as normal attributes of
a functioning economy.
Despite uncertainties in the global economy and the obvious
difficulties locally, the domestic property sector has performed
strongly over an extended period. Many of the listed counters
produce significant real returns and the sector has seen some of the
consolidation we expected, as well as new listings. The South African
listed property sector produced a total return of 27% for the year to
30 June 2015 and the FTSE/JSE REIT index delivered a return of 22%.
Hyprop’s return for the same period was 59%.
Hyprop’s domestic portfolio performed well during the period. Despite
the pressure on South African consumers, retailers in our centres
produced strong results and we see pleasing demand for space in the
malls. As reported elsewhere, we were able to accommodate some of
this demand through a series of developments in our centres.
The financial state of certain South African retailers featured
extensively in the press during the year; we have replaced some tenants
with stronger covenants who were waiting for space, and will continue
to work with those who have not defaulted.
The redevelopment of Rosebank Mall was completed early in the
period and the mall has traded well since opening. We made various
investments in the remainder of our properties and there is an exciting
pipeline of opportunities that will be completed as appropriate to the
properties and our tenants.
The South African market for properties that suit our portfolio is
limited, with few sales and transactions at high prices where they take
place. We disposed of a number of non-core assets during the period
and are considering approaches on some remaining non-core assets.
The non-South African portfolio performed in line with expectations.
Manda Hill and the Accra Mall traded well; West Hills Mall in Accra
opened during the period with strong footfall, but lower trading
densities than targeted, and the remaining developments are
proceeding. Although the current weakness in the Ghanaian economy
has had a minimal effect on our trading malls, we have elected to delay
further developments on existing properties.
We will continue to consider acquisitions in Africa and other emerging
markets where assets of appropriate quality become available at
acceptable yields.
Hyprop produced a strong financial performance for the year, with
the distribution for the second six-month period increasing by 16,3%
over the comparable period in 2014 and the annual distribution rising
by 15,0%. Results for the year benefited from increased income from
Rosebank Mall, the net benefit of income from the Somerset Mall
over the lost Sycom income, tight control of operating expenses and
effective management of the interest expense.
The level of foreign shareholding in Hyprop increased substantially
during the period. While this was common to many South African
REITs, it was also influenced by Hyprop’s inclusion in the Morgan
Stanley Capital International MSCI emerging market index from end-May 2015.
Outlook
Although certain international economic agencies are forecasting
slightly higher levels of growth for South Africa in the medium term,
current growth levels are concerning and predicted improvements are
well short of what is required to address the fundamental problems in
the economy.
We will continue to invest in our portfolio to ensure our properties
remain destinations of choice for consumers. We have an enviable mix
of retailers and work hard to support their growth in our properties.
Demand for space in our malls remains strong and, with the right
investment, these assets should provide attractive returns for the
foreseeable future, despite constraints in the macro-economy.
We expect the African portfolio to perform solidly, particularly as
the West Hills Mall gains traction and trading densities improve. We
continue to investigate appropriate opportunities in Africa and other
emerging markets.
The macro-economic context in which we operate dictates a cautious
outlook and a number of commentators on the listed property sector
are arguing for substantially more muted growth in future than in
recent years. Despite this, we believe our portfolio is well structured
with sufficient tenant depth to produce satisfactory returns over the
medium term.
Sustainability
We recognise the importance of a sustainable business and of
sustainability in the different facets of our business.
Our commitment to being a good corporate citizen pervades our
approach to business and we endeavour to act in a responsible,
balanced and commercially sensible manner. As such, we ensure our
business model is sustainable and that it remains relevant to the
economies we operate in.
We are conscious of our impact on the environment and have been
measuring and mitigating that impact for a number of years. We have
made meaningful progress and our process has become increasingly
sophisticated, with demanding goals and tight accountability for
outcomes.
Transformation is a priority for successful South African businesses.
Hyprop has demonstrated regular improvement in this area and while
our rating will be affected by the new codes and their impact on the
property charter, we will continue to implement initiatives that yield
sensible and sustainable outcomes.
Corporate governance
Hyprop is committed to the highest standards of corporate
governance. This integrated report sets out details of our governance
structures and the extent to which we comply with relevant codes of
corporate governance and regulatory requirements.
Board changes
There were no changes to the board or to its committees during the
review period, other than Mike Lewin taking the chair of the social and
ethics committee.
Appreciation
On behalf of the board, I thank our executives, management and staff
for their efforts during the year. I also thank our stakeholders for their
support, and my fellow board members for their contributions.
Gavin Tipper
Chairman
