Directors' report
The directors have pleasure in submitting their report, which forms part of the group annual financial statements, for the year ended 30 June 2016.
Responsibility statement
The directors are responsible for the preparation and fair presentation of the group annual financial statements of Hyprop Investments Limited, comprising the statement of financial position at 30 June 2016, and the statements of profit or loss and other comprehensive income, changes in equity and cash flows for the year then ended, and the notes to the financial statements, which include a summary of significant accounting policies and other explanatory notes, in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa, and the directors’ report.
The directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and for maintaining adequate accounting records and an effective system of risk management, as well as the preparation of the supplementary schedules included in these group annual financial statements.
Introduction
Hyprop, Africa’s leading specialist shopping centre Real Estate Investment Trust (REIT), operates a portfolio of shopping centres in major metropolitan areas across South Africa (SA), sub-Saharan Africa (excluding SA) and South-Eastern Europe.
Hyprop’s strategy is to own dominant, quality shopping centres in emerging markets, where such assets can be acquired or developed at attractive yields.
The core portfolio in South Africa includes super-regional centre Canal Walk, large regional centres, Clearwater Mall, The Glen Shopping Centre, Woodlands Boulevard, CapeGate Shopping Centre, Somerset and Rosebank Malls, and regional centre, Hyde Park Corner.
The sub-Saharan African portfolio (excluding SA) includes interests in Accra Mall, West Hills and Achimota Mall (all in Accra, Ghana), Manda Hill Centre in Lusaka, Zambia and Ikeja City Mall in Lagos, Nigeria.
In February 2016, Hyprop expanded into South-Eastern Europe, with the acquisition of 60% interests in Delta City Belgrade, Serbia and Delta City Podgorica, Montenegro.
Strategy
Hyprop’s focus remains to invest in high-quality shopping centres in emerging markets, with a particular focus on shopping centres in primary cities which dominate their chosen markets.
Directors’ interests
The interests of directors in the shares of the company at 30 June 2016 were:
| Direct | June 2016
beneficial Indirect |
June 2016 non-beneficial Indirect |
Direct | June 2015
beneficial Indirect |
June 2015
non-beneficial Indirect |
|
|---|---|---|---|---|---|---|
| Non-executive | ||||||
| Gavin Tipper | 4 000 | 4 000 | ||||
| Louis Norval | 3 500 000 | 3 789 869 | ||||
| Stewart Shaw-Taylor | 21 500 | 21 500 | ||||
| Kevin Ellerine | 378 000 | 42 666 | ||||
| Executive | ||||||
| Pieter Prinsloo | 305 049 | 305 049 | ||||
| Laurence Cohen | 160 154 | 160 154 | ||||
| 25 500 | 843 203 | 3 500 000 | 25 500 | 507 869 | 3 789 869 |
There were no changes to the interests of the directors between year-end and the date of approval of the group annual financial statements.
Disposals
Agreements have been reached for the disposal of Somerset Value Mart and Glenfield Office Park for R185 million and R180 million respectively. Transfer of Somerset Value Mart is imminent, while transfer of Glenfield Office Park is subject to approval from competition authorities.
Efforts to dispose of Willowbridge Centre and the remaining standalone office buildings are continuing.
Capital structure
Hyprop is a REIT and therefore all rental income earned by the group, less property expenses and interest on debt, is distributed to shareholders semi-annually.
Review of activities
The results of the group are commented on in the chairman, chief executive officer and financial director’s reports and, are set out in the group annual financial statements.
Directorate
Independent non-executive director Louis van der Watt resigned from the board on 4 May 2016.
Directors retiring by rotation at the upcoming annual general meeting are Pieter Prinsloo, Lindie Engelbrecht and Mike Lewin, and being eligible, they offer themselves for re-election.
Independent non-executive director, Ethan Dube, will retire from the board at the upcoming annual general meeting.
| Directors who served during the financial year are as follows: | |
| GR Tipper(1) | MJ Lewin(1) |
| PG Prinsloo(3) | L Norval(2) |
| LR Cohen(3) | S Shaw-Taylor(2) |
| EG Dube(1) | TV Mokgatlha(1) |
| KM Ellerine(2) | LLS van der Watt (resigned 4 May 2016)(1) |
| L Engelbrecht(1) | |
| (1) Independent non-executive (2) Non-executive (3) Executive |
|
An abridged curriculum vitae for each director is set out in the board of directors.
Subsidiaries, joint arrangements and associates
Disclosure of the company’s investments in subsidiaries, joint arrangements and associate is included in notes 4 to 7 in the group annual financial statements.
Investments in South-Eastern Europe
The group’s investments in South-Eastern Europe are held by a joint venture investment holding company, Hystead Limited (Hystead), a United Kingdom registered company, in which the group has a 60% equity interest. In terms of the Hystead shareholder agreement (the shareholder agreement), Hyprop has joint control of Hystead.
The shareholder agreement also includes, to the extent that Hystead has distributable earnings from its property investments, a contractual right by the Hystead shareholders to receive dividends from Hystead. This contractual right to receive dividends results in the investment in Hystead being accounted for as an investment in a financial asset (in terms of IFRS). Refer to note 6.3 – Investment in joint ventures.
Hystead’s initial investments in South-Eastern Europe (in Serbia and Montenegro) were funded with a funding structure in the Netherlands (the Netherlands funding structure). The Netherlands funding structure includes third-party bank funding for the majority (ie 99%) of the South-Eastern European funding requirements.
The funding structure also includes loans by Hyprop to two companies in the Netherlands funding structure, Vondelvlag Holding and Vondelvlag Stichting, for Hyprop’s share of the remaining 1% of the funding requirements, refer to note 10 – Loans receivable.
Administration and management
Property management and asset management in Hyprop’s South African operations are fully internalised. No property management or asset management fees were paid during the year in South Africa.
Audit committee report
The audit committee fulfilled its responsibilities during the year (refer to its report for full details). The committee has further satisfied itself as to the independence of the external auditors and their suitability for reappointment for the ensuing year.
Auditors
The auditor is responsible for reporting on whether the group financial statements are fairly presented in accordance with the applicable financial reporting framework.
KPMG Inc. was appointed as auditors in accordance with part C of section 90 of the Companies Act of South Africa.
The auditors of the company were formerly Grant Thornton (until 3 May 2016). KPMG Inc. were appointed in part to assist with global co-ordination of the external audit process and in order to increase the likelihood of engagement with a single firm in most of the jurisdictions that Hyprop operates in.
Directors’ interest in contracts
No material contracts in which the directors have an interest were entered into during the year, other than the transactions detailed in note 34 – Related parties and related-party transactions to the group annual financial statements.
The directors have satisfied themselves that the company and its subsidiaries are in a sound financial position and that they have access to sufficient borrowing facilities to meet their foreseeable cash requirements.
Going concern
The directors consider that the company and its subsidiaries have adequate resources to continue operating for the foreseeable future and that it is appropriate to adopt the going concern basis in preparing the group annual financial statements.
Trading statements
Hyprop uses dividend per share as the relevant measure of financial results for trading statement purposes.
Approval of group annual financial statements
The group annual financial statements of Hyprop Investments Limited, as identified in the first paragraph, were approved by the board of directors on 2 September 2016.
Company annual financial statements
The integrated report includes the audited group annual financial statements. The audited annual financial statements of the company are available for review and inspection at the registered office of the company.
| GR Tipper Chairman Johannesburg 2 September 2016 |
Pieter Prinsloo Chief executive officer |