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Hyprop Investments Limited
Integrated annual report and consolidated financial statements
2017
15
The properties we owned during the year performed strongly and
exceeded our expectations at the dates we acquired them. As with
the developed world, Serbia, Montenegro, Macedonia and Bulgaria are
low inflation economies and we will invest in the properties to enhance
the returns they provide.
International Financial Reporting Standards require that the properties and
related financing are accounted for in a manner that results in a financial
asset, the recognition of which is deferred, and a financial liability, that
is recognised on balance sheet. This unfortunately does not reflect the
substance of our effective ownership of 60% of each of the properties
and our liability for the debt funding of the properties. Hyprop has
guaranteed 100% of the debt on the properties, holds security for the
debt not attributable to the 60% share of the properties it effectively
owns, and earns a fee for the provision of the guarantee.
Hyprop owns 60% of Hystead, a holding company which owns the
South-Eastern European properties. Our intention is to grow the Hystead
portfolio and we are contemplating further investments in the relevant
geographies. We are also considering a separate listing of Hystead to
provide shareholders with a standalone South-Eastern European
focused portfolio.
Financial performance
Hyprop declared a dividend of 347,8 cents per share for the six months
ended 30 June 2017, an increase of 8,0% on the corresponding period
in 2016. The total distribution for the year of 695,1 cents per share is
an increase of 12,1% on the prior year, in line with our forecast.
Due to constraints on the conversion of Naira to US Dollar, distributable
earnings of R26 million from Ikeja City Mall were excluded from dividends
for the year.
Distributable earnings benefited from the inclusion of R101,8 million
of income from the investments in South-Eastern Europe (30 June 2016:
R24,6 million).
Clearwater Mall, Hyde Park Corner, CapeGate and Somerset Mall
performed well during the year, with weighted average growth in
distributable earnings of 8,6%. The Glen’s income was negatively affected
by construction work and limited rent reductions.
Trading density growth continued to slow in the second half of the
year. Excluding The Glen, trading density growth for the year was 2,0%
(30 June 2016: 6,7%). Trading density growth for the year including
The Glen was 1,4% (30 June 2016: 5,0%). The rent ratio at year-end
was 8,5% compared to 8,0% in the prior year.
Notwithstanding the lower trading density growth, Hyprop’s shopping
centres continue to receive strong demand for space from both national
and international tenants.
Vacancies
The retail vacancy of 1,9% includes the former Stuttafords stores at
Clearwater Mall and Rosebank Mall which were vacated at the end of
May 2017 (6 299m
2
), cinemas at Woodlands Boulevard (2 397m
2
) and the
former HiFi Corporation store at CapeGate (1 358m
2
).
The Stuttafords store at Canal Walk has been re-let to H&M (scheduled to
begin trading in November 2017) and taking other lettings into account,
the retail vacancy rate reduced to 1,7% subsequent to year-end.
The increase in office vacancies relates primarily to The Mall Offices in
Rosebank, where Sasol vacated 8 942m
2
during the year. Good progress
has been made in letting this space, albeit at lower rentals. Other office
vacancies include small areas at Hyde Park Corner and Canal Walk.
Vacancies
30 June
2017
30 June
2016
30 June
2015
Retail (%)
1,9
0,8
1,3
Offices (%)
7,9
4,5
8,3
Total (%)
2,4
1,1
2,0
Ex Stuttafords premises vacancy
m²
Vacant at 1 June 2017
11 082
Let:
Canal Walk (H&M)
(4 628)
Rosebank (various)
(2 802)
Clearwater (Mr Price & other)
(2 003)
Balance (Clearwater Mall)
1 649
Valuations
Investment property was valued at R28,3 billion at 30 June 2017
(30 June 2016: R26,9 billion, excluding the properties sold), an increase
of 5,1%. The weighted average capitalisation rate of the portfolio is 6,6%.
All discount and capitalisation rates remained largely the same as those in
the previous year.
The increase in the value of the portfolio was in line with expectations
given current economic conditions and the pressure on retailers and
consumers.
Leasing
Contractual lease escalations dipped marginally to 7,9% from 8,1% in 2016.
Rental growth on new leases and renewals slowed to 6,1% from 7,3% in
2016, reflecting difficult economic conditions.
Leasing activity
% of total
portfolio
Rentable
area
(m²)
Rental
growth
(%)
Con-
tractual
escalation
(%)
No. of
leases
Retail
15,4 103 286
6,1
7,9
355
Offices
37,6 22 290
(9,7)
8,1
47
Total
17,2 125 576
4,0
7,9
402
We continue to improve our tenant mix by replacing weaker tenants with
stronger retailers.
We perform regular reviews of the financial health of our tenants and,
where appropriate, take actions in that regard. Despite the high quality
of the majority of our tenants we are conscious of the pressure on
retailers in the current environment and the resultant, elevated risk of
financial distress.