HYPROP RISES ABOVE COVID-19 CHALLENGES
Constructive progress with the implementation of the revised strategy
|▪||Distributable income, excluding the impact of Covid-19, of 664 cents per share, in line with guidance provided in September 2019|
|▪||Covid-19 impact reduced distributable income by R434 million, to 493 cents per share|
|▪||Balance sheet remains healthy despite a reduction of R4 billion (13.9%) in the value of the SA portfolio|
|▪||All banking covenants met at 30 June 2020|
|▪||Steps taken to strengthen the balance sheet:|
|–||US dollar denominated debt reduced by $271 million; and|
|–||Cash of R1.2 billion retained to repay debt|
|▪||Good progress on the repositioning of the SA Portfolio:|
|–||Relet 15 640m² of the Edcon exposure and agreed terms with the new owners of the CNA, Edgars and Jet stores (48 369m²);:|
|–||Three new Checkers FreshX stores secured; and|
|–||Solar projects completed at Woodlands, The Glen and Atterbury Value Mart|
|▪||Hystead acquired the remaining 10% interest in City Center One East and City Center One West in Zagreb, Croatia|
|▪||Positive progress made in exiting the sub-Saharan Africa investments:|
|–||Achimota and Manda Hill malls sold; and|
|–||Key terms agreed for the sale of Ikeja City Mall|
Monday, 21 September 2020 – Hyprop, a retail-focused REIT listed on the JSE, today reported annual results demonstrating management is navigating successfully through very uncertain times.
The operating environment in South Africa, which was difficult pre-Covid-19, was exacerbated by the virus outbreak, particularly after a very strict lockdown was imposed on 26 March 2020. Despite the stalled economy, management made progress towards achieving the Group’s strategic objectives, which included growing trading densities by repositioning the South African portfolio and introducing capital-light revenue streams.
The Group’s distributable income before the impact of Covid-19 was in line with guidance provided in September 2019, at 664 cents per share. The impact of Covid-19 reduced distributable income by R434 million to 493.4 cents per share. Revenue lost, on the South African portfolio, due to Covid-19 totaled R267 million, mainly R242 million of rental discounts and deferrals granted to tenants between April and June 2020. An additional estimated R25 million was lost on parking and Non-GLA income during the same quarter.
"This year will be recorded in history as one of the toughest years globally. The safety and wellbeing of our staff, tenants and service providers were our top priorities during all levels of lockdown and we worked very hard with tenants to survive the challenging circumstances as a collective. I am very proud of our team and deeply grateful to all our frontline workers, who continued to work hard during unprecedented times," noted Morné Wilken, CEO of Hyprop Investments.
Significant steps have been taken to strengthen the Group’s balance sheet. The Group’s Dollardenominated debt was reduced by $271 million over the last two years, from the proceeds of the sales of the African assets and refinancing Dollar-denominated debt in Rands while R1.2 billion of cash was retained from the 2020 financial year to repay debt.
"Strengthening the group’s balance sheet and its exposure to Euro- and Dollar-denominated debt secured by Rand-denominated assets are high priorities. These objectives will be achieved by lowering cash distributions, the exit strategy from sub-Saharan Africa and recycling assets," commented Brett Till, CFO of Hyprop Investments.
The Group’s LTV at 30 June 2020 was 41.4%. It was negatively impacted by the decrease in the value of investment property as a result of Covid-19, some impairment on the African assets and the devaluation of the Rand. The Group’s interest cover ratio (ICR) was 3.0 times at period end.
The South African portfolio
Good progress was made on the repositioning of the South African Portfolio. During the reporting period, exposure to the Edcon Group was reduced successfully and three new Checkers FreshX stores were secured as anchor tenants at The Glen, Rosebank Mall and Woodlands. The Group made good progress in completing three of the six solar projects in Gauteng, while Canal Walk secured a 5-Star Green rating.
We successfully concluded a portfolio deal with Massmart and agreed new 7-year leases on the Game stores, combined with upgrades to the new Game concept store, and new 10-year leases as well as upgrades to the latest specification for the Builders Warehouse stores at Atterbury Value Mart and Woodlands. The space vacated by the closure of Dion Wired has been relet, at Somerset Mall to Toys R Us, Hyde Park Corner to PNA, and Canal Walk to a new look flagship store for PEP.
The first SOKO District, which is part of the Group’s non-tangible asset strategy, is scheduled to open in the Rosebank Mall in the first quarter of 2021. SOKO means "market", and the SOKO District will serve as a marketplace where retailers can rent space and reusable shopfittings via a flexible digital leasing platform, without the significant financial commitments in the traditional retail environment. The leasing platform is powered by data driven shopper, product and trend analyses, resulting in location recommendations that will match retailers, products and shoppers, across our portfolio.
"As the stringent Covid-19 lockdown levels are relaxed, we are seeing an increase in foot counts at our malls, and more activity and enquiries from potential new tenants. After months of lockdown, we are reaffirming that we are social beings who like to interact and experience life, justifying our strategy of creating safe environments and opportunities for people to connect and have authentic and meaningful experiences." said Wilken.
Retail vacancies were 2.4% at the end of the reporting period, with annual rental escalations maintained at a promising 7.1% and tenant retention at 91%.
The Hystead portfolio, Eastern Europe
The Group made significant progress in increasing the dominance of its centres in the Eastern European portfolio. It acquired the remaining 10% interest in City Center One East and City Center One West in Zagreb, Croatia.
Heartened by the performance of the Eastern European portfolio despite tough circumstances, Wilken commented: "We are on track with the repositioning of Skopje City Mall. The Hyper extension in The Mall in Sofia, Bulgaria, has been opened successfully. Our strategic target is to increase the dominance of our malls in this region through asset management initiatives, upgrading facilities, securing new tenants, rightsizing existing tenants and extending malls, where appropriate."
The Board of directors has deferred the decision on the settlement of the interim dividend and the declaration of a final dividend until December 2020.
"We will continue to focus on implementing our revised strategy, preserving cash and strengthening the balance sheet. Unprecedented times also present unique opportunities and we will continuously consider ways to unlock value and identify growth opportunities.
"While the future remains uncertain, the focus on our tenant relationships remains imperative as we weather the storm together and ensure we retain the loyalty of our tenants and visitors whilst positioning ourselves to trade more strongly in the long-term," said Wilken.