HYPROP SHOWS STRONG DIVIDEND GROWTH IN TOUGH ECONOMY
|•||Total dividend up 12,1%|
|•||Disposal of non-core properties for R867 million|
|•||Agreement to acquire The Mall in Sofia, Bulgaria post year-end|
JSE specialist shopping centre REIT, Hyprop Investments (“Hyprop”), continued meeting strong distribution growth forecasts despite a tough economy, with a total dividend of 695,1 cents per share for the year to June 2017, up 12,1% on the prior year. Hyprop owns a R36,8 billion portfolio of premium quality shopping centres in South Africa, sub-Saharan Africa and South-Eastern Europe. The company’s balance sheet further strengthened with a 5,6% increase in net asset value to R99,78 per share and a 6,1% decrease in loan to value to 28,1%. The first-time full year inclusion of the European portfolio helped drive distributable earnings up to R1,7 billion from R1,5 billion at June 2016.
Hyprop’s South African portfolio continued performing well to withstand the recessionary economy. CEO Pieter Prinsloo says despite slowing growth in trading densities, Hyprop centres continued to enjoy good rental growth and above inflation rental escalations with low rental arrears. Vacancies increased to 1,9% for the year, still within the market average, and dropped to 1,7% post year-end. “This reflects continued strong demand for space at Hyprop‘s centres,” says Prinsloo. Hyprop has successfully identified replacement tenants for major spaces vacated by Stuttafords at Canal Walk, Clearwater Mall and Rosebank Mall, which will in future improve trading densities in these stores. Leading international fashion retailer H&M will start trading at Canal Walk in November 2017. Clearwater Mall, Hyde Park Corner, CapeGate and Somerset Mall performed well, with an average weighted growth in net income of 8,6% for the year.
Hyprop continued focusing in the year on improving the quality and sustainability of its shopping centres. R178 million was spent on refurbishments, tenant installations, new equipment and technology, of which R15 million went towards Phase 3 of Clearwater’s Solar PV project expected to generate around 15% of the centre’s electricity requirements from September 2017. Extensions and refurbishments are currently underway at Rosebank Mall, The Glen and Canal Walk, at a total cost of R260 million, to accommodate key retailers and strengthen the retail offering, while achieving an estimated combined average forward yield of 7%.
The company disposed of R867 million worth of non-core assets in the year. “Our business strategy is focussed on the quality of our retail portfolio, with assets distinguished by the right location and strong tenant mix, as well as continuously improving the customer experience.”
Improved macro conditions in sub-Saharan Africa should start filtering through on an operational level and an improvement in rental collections is already evident. Prinsloo says: “Stronger oil and commodities pricing benefitted countries such as Zambia and Ghana and US Dollar liquidity improved in Nigeria, in all of which Hyprop has ownership in the dominant malls.
The South-Eastern Europe portfolio contributed R101,8 million to Hyprop’s distributable earnings, benefitting from positive trading conditions and healthy consumer spend. “Our expansion into the emerging market of South-Eastern Europe has proven successful,” says Prinsloo. “In the first year of inclusion, net income from the quality portfolio exceeded budget, we maintained zero vacancies and both trading density and footcount grew on average by 6%.”
Post year-end Hystead, the company housing the European investments, has acquired Sofia’s dominant mall in Bulgaria for EUR155 million. “This is Hystead’s first entry into the European Union and The Mall boasts 52 000 m² of quality retail and entertainment areas with the opportunity to expand by a further 12 000 m².” Hyprop owns a 60% stake in Hystead.
Looking ahead Prinsloo remains confident that Hyprop’s investment strategy positions the company for continued growth. Locally the REIT will continue focussing on organic growth in the retail portfolio and improving the quality to continue attracting superior retailers, while in sub-Saharan Africa the aim is to improve net income and cash flow from the existing portfolio. “There are no expansion plans for sub-Saharan Africa currently. Planning is also underway for a possible listing of Hystead in 2018 to become a standalone fund, in which Hyprop will retain a significant interest, to position it for further portfolio growth in the future.”
Despite the challenging local consumer environment, Hyprop is forecasting dividend growth of 7 to 9% for the full year to 30 June 2018.
The share closed yesterday at R114.13.