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Hyprop Investments Limited
Integrated annual report and consolidated financial statements
2017
19
The shopping centres in our South African portfolio have proved to be
resilient in difficult economic conditions. We will continue to invest in
the properties to ensure that they remain attractive to shoppers and
will continue to optimise the yields from the centres through careful
management of revenue, costs and tenant covenants. Our ability to
generate strong growth from the portfolio will, however, be constrained
by the weak economic environment in which we operate.
Ghana, Nigeria and Zambia all benefited from the recent rise in
commodity prices and while there are still fundamental issues in each
of the economies, the outlook for all of the countries is more favourable
than it was a year ago.
We expect to be able to distribute the earnings from Ikeja City Mall in
the 2018 financial year which will bolster the absolute distribution from
the portfolio. Considerable attention will be focused on the properties
that have been developed in order to reduce vacancies, improve the key
operating metrics, and in due course, manage rental levels upwards.
After a number of years of careful management and significant levels of
quantitative easing, the greater European economy is looking increasingly
healthy and is producing encouraging growth. While only one of our
South-Eastern European properties is in a European Union country, the
economies in the remaining countries demonstrate similar levels of growth
and will be positively affected by the greater European recovery.
Rental growth in low inflation economies is lower than what we are
accustomed to domestically and, in addition to careful tenant
management, we will invest in the properties we have acquired in order
to enhance growth levels.
We are contemplating a separate listing of Hystead in the first half of 2018
and should that occur, Hyprop’s shareholding in the company is likely to
decline to below 50%. We are working on refinancing the portfolio which
will have the effect of reducing or eliminating the Hyprop guarantee, once
implemented this will also reduce or eliminate the guarantee fee.
We will make further acquisitions in South Africa and South-Eastern
Europe where properties become available that meet our investment
criteria and the related returns justify the price. The South Africa market
is restricted with very limited availability of high quality properties and
pricing often being an issue when properties do become available. We are
investigating a number of opportunities in South-Eastern Europe and
believe that there is a greater likelihood of acquisitions in those
geographies, than domestically, in the next year.
We forecast growth in distributions of between 7% and 9% for the year
to 30 June 2018. This forecast, which has not been reviewed by Hyprop’s
auditors, is based on the following key assumptions:
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Forecast investment property income is based on contractual rental
escalations and market-related renewals
■■
Appropriate allowances for vacancies have been incorporated
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No major corporate or tenant failures
■■
Earnings from offshore investments will not be materially impacted by
exchange rate volatility. Exchange rates have been assumed at R13,00
and R15,00 to the US Dollar and Euro, respectively
■■
Loss of income due to developments in the South African portfolio
of R9,3 million
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The Hystead listing taking place in the first half of calendar year 2018.
Appreciation
On behalf of the board we thank our executives, management and staff
for their considerable efforts during the year. We also thank our
stakeholders for their support and our fellow board members for their
guidance and support.
Gavin Tipper
Pieter Prinsloo
Chairman
Chief executive officer
1 September 2017