HYPROP MAINTAINS GROWTH AGAINST TOUGH MACRO BACKDROP
- Total annual dividend per share up 8,8% (H2: up 9,3%)
- Distributable earnings up 10,5%
- EUR439 million acquisitions concluded in South-East European portfolio
- R276 million capital projects completed under budget in SA portfolio
31 August 2018 - JSE specialist shopping centre REIT, Hyprop, continued delivering strong growth in a tough economy with a total dividend per share of 756,5 cents for the year to June 2018, which was 8,8% higher than last year. Against the backdrop of a pressured consumer environment, distributable earnings increased substantially by 10,5%, in large part due to strong organic growth and successful acquisitions in the South East-European portfolio - accounting for 12% of total distributable earnings - and the improvement in the second six months of the South African portfolio.
CEO Pieter Prinsloo says the overall steady performance of the South African portfolio reflects the underlying centres’ defensiveness. In the second half of the year distributable earnings increased by 6% following the re-tenanting of the vacated Stuttafords stores and completed upgrade and extension work at The Glen and Rosebank Mall. Certain malls continued to record good trading density, for instance CapeGate and Clearwater Mall, but trading density growth for the portfolio reduced to 0,5% for the year from 1,4% as declining consumer spend began to impact.
Prinsloo remains confident in the quality of the local retail portfolio, supported by positive trends such as declining vacancies – to 1,9% from 2,4% last year – despite the challenging retail landscape. R1,9 billion worth of new leases and renewals were signed in the year at an average rental escalation of 7,7%, on a par with FY17. “Total tenant arrears still make up only 0,6% of total rentals which is well below market norms,” he says. He adds that the group is focussing on rightsizing existing store spaces to assist tenants in the current retail market, which will also help to accommodate new tenants not yet represented in Hyprop’s malls.
The group continued to strengthen its balance sheet through an oversubscribed equity raise, extending the average loan term and paying off R1,95 billion of debt. The accelerated bookbuild in May 2018 saw the issue of 7,5 million new shares at R105 a share to raise R782,6 million. Earlier in the year in March, Hyprop issued two long-term corporate bonds – a R452 million 5-year bond and a R348 million 7-year bond, respectively.
Prinsloo highlights that the R276 million capex programme in the year was a success, with all four major retail projects completed on time and under budget and showing improvement in footfall since completion. In addition R70 million was spent on new equipment and sustainable technology, and smaller projects of R24 million targeted in-centre office refurbishments. Prinsloo says of particular note is the effectiveness of water-saving initiatives in the Western Cape malls, which are all in the final stages of commissioning and have reduced Hyprop’s exposure to the region’s water outages.
Transfer of non-core property Willowbridge North took place in September 2017 and should be followed in the next few months by Lakefield Office Park, Hyprop’s last remaining non-core asset. He says the successful optimisation of the portfolio in line with the group’s strategy enables Hyprop to focus exclusively on its proven core strength of managing prime shopping centres.
In South Eastern-Europe Hyprop continued to reap the benefit of well-performing assets including recent acquisitions. Distributions benefitted substantially from the inclusion of the four acquisitions in Macedonia, Bulgaria and Croatia. All centres in the portfolio improved trading and maintained nearly-full occupancy during the year. Looking ahead Prinsloo says demand for space remains strong and Hyprop will continue to assess expansion opportunities given the healthy retail environment in the region. Hyprop has established a European-based executive management team to assist the on-site property teams.
In sub-Saharan Africa the re-inclusion of distributable earnings from Ikeja Mall in Nigeria (following prior currency constraints in FY17) boosted distributable earnings growth for the year. However, the portfolio remains affected by tenant replacements and vacancies. The positive economic trends which have started taking effect in Ghana and Nigeria may help to partly alleviate the retail challenges.
Looking to FY19 Prinsloo says Hyprop’s focus is South Africa and the EU. “With Hystead’s gross asset value at over EUR740 million, the South East-European portfolio is starting to achieve sizable scale and presents a more favourable growth opportunity for Hyprop than the sub-Saharan Africa investments.”
Hyprop has issued a more cautious dividend growth forecast for the year ahead of 5% - 7%, mainly due to the constrained consumer landscape in South Africa.
Hyprop’s share closed yesterday at R104.00