CHIEF EXECUTIVE OFFICER’S REPORT |
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| 2015 IN PERSPECTIVE |
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Hyprop delivered
excellent investment
returns to shareholders
for the year to 30 June
2015, despite the low GDP
growth in South Africa.
| Pieter Prinsloo, chief executive officer |
|
In line with our guidance to the market of a 12% to 15% increase in distributable earnings, 2015 earnings came in at the upper end at 543 cents a share.
Operational performance
Underpinning this higher return to shareholders was a solid operating performance from the core shopping centre portfolio. The occupancy rate
improved to 98,0% (June 2014: 97,6%), reflecting continued demand for quality retail space. Trading density growth improved to 7,4% (2014: 7,0%), with a
significantly stronger performance in the second half of 7,9%. Despite the slightly weaker rent ratio of 7,1% (2014: 6,9%), contractual rental remains very
affordable across the portfolio.
Trading overview
Contractual lease escalation, which is the support base for annual distributable income growth, was maintained at 8,2%. Rental growth on
new leases and renewals slowed to 7,6% (2014: 8,3%) due to the high vacancy and weak demand for space in the office portfolio. Excluding
the office portfolio, rental growth was 8,1%.
Leasing terms
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Leasing
2015 was a busy period with 576 leases signed in South Africa,
representing 176 350m² (22,6% of total portfolio by rentable area).
Significant focus is placed on the continuous improvement of the
tenant mix, and the high renewal profile gave us the ideal opportunity
to replace weaker tenants. The business failures of the African Bank/Ellerines Group and the LooknListen group enabled us to relet this
space to much stronger and sought-after tenants. We increased the
size of some local national tenants keen to expand their store sizes
while capitalising on the interest from international brands seeking
to establish their presence in South Africa. We concluded leases with
international groups like H&M, River Island, Top Shop and introduced
luxury brands in Hyde Park Corner’s new Cortina Court, including
Versace, Longchamp and Armani.
Much has been reported in the media on the financial stability of
the Edcon Group, which is the largest tenant group in our portfolio. The issues relate mainly to high debt levels in the group
and its ability to provide credit to customers. On closer analysis, the
performance of most of the group’s stores in our portfolio – in terms
of trading density and profitability – ranges from average to good. We
have prepared contingency plans and will closely monitor the situation.
The Platinum Group, with brands Jenni Button, Aca Joe, Hilton Weiner,
Urban Degree and Vertigo, occupied 19 stores or 2 700m² in our
portfolio. This group ran into financial trouble towards the end of the financial year. We have taken legal action to recover unpaid rent
and, depending on the outcome of the court process, this group will
probably be replaced with new tenants. Most of these stores occupy
prime areas and replacing them with new tenants will not be unduly
difficult.
Developments
After a two-year redevelopment period, Rosebank Mall was
successfully relaunched at the end of September 2014, with the
opening of the Woolworths store as the final phase. The shopping
centre has won a number of design awards and has traded successfully
since opening.
Various refurbishment projects were undertaken during the year, including:
| Canal Walk |
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Mr Price relocation and introduction of Forever 21.
Woolworths store extended. |
| Somerset Mall |
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Refurbishment of food court with new tenants.
Extension to the Woolworths store. |
| Hyde Park |
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Relocation of Dion Wired and introduction of new
luxury brands. |
| Willowbridge |
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Relocation of the Dis-Chem store. |
| CapeGate |
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Refurbishment of food court with new tenants. |
Clearwater Mall’s R37 million upgrade and extension is under way
and will house leading global fashion brands H&M, River Island and
Top Shop.
For the financial year 2016, the focus will remain on further
improvement and refurbishments, with R180 million already planned,
while R93 million has been earmarked for equipment replacement.
Security for our customers at our shopping centres remains a priority
and, in line with our security strategies, additional capital will be spent
to ensure we implement up-to-date technology. This cost has been
included in the capital committed for 2016.
We continue to pursue a number of masterplan expansion
opportunities at some of our shopping centres, but implementation
remains subject to planning approvals by local councils and the
commitment of key tenants.
Environmental sustainability
Hyprop is committed to implementing sustainable energy-saving
initiatives, where possible. A number of projects to improve energy
efficiency were completed during the year. To date, these have saved
over 14 million kWh with cost savings of some R16 million, through the
energy-efficient lighting replacement and solar PV projects.
We successfully installed the second phase of the solar photovoltaic
plant at Clearwater Mall in August 2015. The total size of the plant
(phases 1 and 2) is 1 500kW at peak, with generating capacity of 2,5GWh
per annum.
Given the frequent electricity outages, new generators were installed
at Hyde Park Corner for full back-up power. After minor further capital
expenditure, all shopping centres in the portfolio will have sufficient
back-up power.
Sub-Saharan Africa (excluding SA)
The economic environment in Ghana and Zambia deteriorated in 2015,
partly due to falling oil and other commodity prices as well as fiscal
and trade deficits. This resulted in depreciating local currencies and
rising inflation. Both countries also experienced a severe shortage of
electricity, which affected the consumer market. Subsequent to the
implementation of an IMF loan package, the Ghanaian Cedi rebounded
by 25%.
The performance of the dominant malls like Accra Mall and Manda Hill
has remained resilient, despite the negative impact of the economic
downturn.
Development properties
| Achimota Mall (Accra, Ghana) |
14 624 |
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28,1 |
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27 101 |
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Opened in October 2015 |
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| Kumasi City Mall (Kumasi, Ghana) |
18 360 |
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28,1 |
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48 658 |
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Under construction, opening April 2017 |
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| Waterfalls Project (Lusaka, Zambia) |
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9,4 |
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1 031 |
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Land holding |
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Shareholding
With Hyprop having a 100% free-float market capitalisation, trading volumes in our shares increased significantly during the period, especially in the last
quarter. This followed Hyprop’s inclusion in some of the MSCI emerging market indexes. Rising demand fuelled growth in our share price over the year,
resulting in Hyprop significantly outperforming the SAPY index, as shown below.
Share price performance
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A further result was foreign shareholding rising to 25% of total shares in
issue, as at 30 June 2015.
| Government Employees Pension Fund |
|
13.9 |
| STANLIB |
|
5.3 |
| Old Mutual |
|
4.9 |
| Vanguard |
|
3.3 |
| Investec |
|
3.1 |
| MMI Holdings Limited |
|
2.8 |
| Investment Solutions |
|
2.6 |
| Eskom Pension and Provident Fund |
|
2.6 |
| Prudential |
|
2.3 |
| BlackRock |
|
2.3 |
| Government of Singapore Investment Corporation |
|
2.2 |
| Sanlam |
|
2.0 |
| Yerranzano Property Investments Limited |
|
2.0 |
| Absa |
|
1.8 |
| Public Investment Corporation |
|
1.7 |
Outlook
Our focus on owning quality shopping centres, catering for middle
to higher-income consumers, is demonstrating the resilience of our
growth strategies.
Against low forecasts for economic growth in South Africa, trading
conditions are expected to remain constrained in the new financial
year. In line with a proven strategy, Hyprop will maintain its leading
position by focusing on the quality of its core portfolio, disposing of
non-core assets and maintaining our prudent debt management. Given
the maturity of the shopping centre market in South Africa, we will
also continue to explore emerging market opportunities to strengthen
our solid pipeline.
Against this background, we forecast growth in distributions of around
10% for the financial year ahead.
Appreciation
I thank our board members for their wise counsel and support. Equally,
my appreciation goes to our executive team and all our employees for
their dedication and hard work, as well as our loyal service providers
and tenants for their continued support.
Pieter Prinsloo
Chief executive officer
