Total investments of R37,3 billion (2017: R35,5 billion) consist of direct property investments in South Africa of R29,0 billion (2017: R28,3 billion), investments in sub-Saharan Africa (excluding SA) of R4,5 billion (2017: R4,5 billion) and investments in South-Eastern Europe of R3,8 billion (2017: R2,7 billion).
The investments in South-Eastern Europe, held via Hystead, are accounted for as an investment in a financial asset with the gains on the initial recognition of the financial asset being deferred and changes in fair value recognised through profit and loss. Accordingly, the investment does not appear in the consolidated statement of financial position, except for the change in the fair value of the financial asset, and an equity contribution totalling R152,6 million.
Net asset value
The net asset value per share at 30 June 2018 increased by 3,2% to R102,98 (2017: R99,78). The increase was mainly due to an increase in the independent valuation of the South African investment property portfolio, as well as the increase in the Hystead financial asset, offset by an impairment of the AttAfrica and Manda Hill shareholder loans.
Distributable earnings statement and reconciliation to dividend declared
|12 months to
|12 months to
|South African property portfolio||1 937 661||1 916 927|
|Continuing operations||1 929 055||1 854 471|
|Properties sold||8 606||62 456|
|Investments in sub-Saharan Africa (excluding SA)||78 368||56 972|
|Investments in South-Eastern Europe||187 802||101 823|
|Fund management expenses||(65 142)||(67 347)|
|Net interest||(280 846)||(321 337)|
|Other income||46 671||36 533|
|Distributable earnings||1 904 514||1 723 572|
|Dividend for six months – first half||933 127||861 423|
|Dividend for six months – second half||971 387||862 149|
|Total dividend||1 904 514||1 723 572|
|Total shares in issue – first half||248 441 278||248 441 278|
|Treasury shares in issue – first half||(446 260)||(410 659)|
|Shares in issue for distributable earnings – first half||247 995 018||248 030 619|
|Additional treasury shares – second half||(131 587)|
|Shares issued – May 2018||7 453 238|
|Shares in issue for distributable earnings – second half||255 448 256||247 899 032|
|Dividend per share (cents) – first half||376,3||347,3|
|Dividend per share (cents) – second half||380,2||347,8|
|Dividend per share (cents)||756,5||695,1|
|Dividend per share growth (%) – first half||8,3||16,6|
|Dividend per share growth (%) – second half||9,3||8,0|
|Dividend per share growth (%)||8,8||12,1|
Total distributable earnings for the year grew by 10,5% (2017: 13,2%), largely due to income from the investments in South-Eastern Europe, particularly the new acquisitions in Skopje, Macedonia (November 2016), Sofia, Bulgaria (October 2017) and the two malls in Zagreb, Croatia (April 2018). The inclusion of distributable earnings from Ikeja City Mall in Lagos, Nigeria, which were excluded in the prior year due to US Dollar availability constraints, also contributed to the growth for the year. Hyprop's international investments contributed 16,4% (2017: 11,3%) of distributable earnings.
The net interest cost of R280,8 million (2017: R321,3 million) was lower than in the previous year due to the application of cash from non-core asset sales of R867 million in 2017 and R230 million in 2018, as well as the proceeds of the new share issue in May 2018 of R778,2 million, to the reduction of debt and to capital expenditure in the South African portfolio. The remaining cash was placed on deposit.
Fund management expenses reduced during the year due mainly to asset management fees received from Hystead of R17,3 million (2017: R13,6 million).
Other income includes credit enhancement income of R46,7 million (2017: R36,5 million) for the funding guarantee provided by Hyprop in respect of a portion of the South-Eastern European investments.
Treasury shares are held in respect of an equity-settled staff incentive scheme. During the year the share scheme purchased an additional 155 000 shares at an average price of R117,19.
Reconciliation from headline earnings to distributable earnings
|12 months to
|12 months to
|Headline earnings||1 890 850||1 594 424|
|Distributable earnings adjustments||13 664||129 148|
|Change in fair value: derivative instruments||(29 085)||5 074|
|Derecognition of financial guarantee||(11 984)|
|Financial asset – right to receive dividends||(87 761)||163 855|
|Investments in sub-Saharan Africa (excluding SA)(1)||(57 602)||(29 928)|
|South African subsidiaries(1)||(2 190)||1 212|
|South-Eastern Europe||(44 221)|
|Impairment of loans from joint ventures||166 441||25 377|
|Capital items and other items||(3 641)||6 153|
|Deferred and normal taxation||39 486||1 626|
|Distributable earnings||1 904 514||1 723 572|
South African portfolio
|12 months to June 2018||12 months to June 2017|
|Shopping centres||2 684 578||1 792 727||2 580 200||1 723 648|
|Value centres||151 214||106 796||139 857||102 490|
|Total retail||2 835 792||1 899 523||2 720 057||1 826 138|
|Total standalone offices(1)||47 166||29 532||46 908||28 332|
|Investment property (excluding properties sold)||2 882 958||1 929 055||2 766 965||1 854 470|
|Properties sold(2)||10 797||8 606||108 637||62 457|
|Total investment property||2 893 755||1 937 661||2 875 602||1 916 927|
Growth in distributable earnings (excluding properties sold) for the year was 4,0%. The growth in distributable earnings in the second half of the year (excluding properties sold) was 6,0% compared to 2,1% in the first half. Construction work at Rosebank Mall and The Glen, and the Stuttafords vacancies at Canal Walk, Clearwater Mall and Rosebank Mall, reduced the growth in distributable earnings, primarily in the first half of the year.
CapeGate and Somerset Mall were the best performers in the portfolio with both recording growth in distributable earnings of 8,7%. Despite being negatively affected by the Stuttafords vacancy and construction work in the La Piazza area, Canal Walk recorded distributable earnings growth of 5,4%.
Due to the impact of the weak economic conditions on consumer spend, overall growth in trading density reduced to 0,5% (2017: 1,4%). Good trading density growth was recorded at CapeGate (6,8%) and Clearwater Mall (4,4%).
|June 2018||June 2017|
|Net basis (%)||15,8||15,7|
|Gross basis (%)||33,0||33,3|
The net cost-to-income ratio increased marginally, mainly due to increases in municipal rates in the Pretoria portfolio from July 2017 and a slight reduction in recoveries across the portfolio. The improvement in the gross cost-to-income ratio is due to additional income on completed developments.
Tenant arrears were R18,9 million (excluding outstanding deposits) at year-end (2017: R13,7 million) or 0,6% of rental income (2017: 0,4%). Bad debts of R10,3 million (2017: R8,9 million) were written off during the year. The provision for bad debts increased to R8,9 million (2017: R6,5 million).
Although tenant arrears increased during the period, the arrears are a relatively small percentage of rental income and are within market norms.
|% of total rentable area|
|June 2018||June 2017|
|Retail||10 714||(2 132)||1,6||1,9|
|Office||3 255||(1 459)||5,5||7,9|
|Total||13 969||(3 591)||1,9||2,4|
Despite the tough trading environment for retailers, vacancies in the portfolio reduced from 2,4% to 1,9%. Somerset Mall, Canal Walk, Woodlands Boulevard and CapeGate had vacancies of less than 1%. The largest vacancies in the retail portfolio were at The Glen (4 378m2), Clearwater Mall (1 988m2) and Atterbury Value Mart (1 751m2). The Glen vacancy included vacancies resulting from the food court redevelopment of 1 100m2. Since the opening in April 2018, positive interest from retailers has been received for this area.
The decrease in office vacancies from 7,9% to 5,5% is mainly due to lettings at the Rosebank Mall and Canal Walk offices.
New leases and renewals of 133 400m2 (18,5% of the total rentable area) with a contract value of R1,9 billion, were concluded during the year, at a net rental growth of 1,0% (2017: 4,0%) and an average escalation of 7,7% (2017: 7,9%).
Leases of approximately 106 000m2 (15% of total rentable area) will expire in the 2019 financial year. As at 30 June 2018, the Edcon Group occupied 67 300m2 (2017: 70 102m2) in Hyprop's shopping centres. In the 2019 financial year approximately 1 380m2 of the space will not be renewed, while a further 8 600m2 is under review with the objective of finding replacement tenants. We will continue to work with the Edcon Group to address their space requirements, to the extent possible, as their business develops.
|Value attributable to Hyprop||Value per
|Business segment||Rentable area
|Shopping centres||653 258||27 351 847||26 490 589||45 965|
|Value centres||48 848||1 303 000||1 248 000||26 675|
|Total retail||702 106||28 654 847||27 738 589||44 623|
|Total standalone offices(1)||20 354||323 000||310 798||15 869|
|Total (excluding properties sold)||722 460||28 977 847||28 049 387||43 813|
|Properties sold(2)||225 000|
|Investment property||722 460||28 977 847||28 274 387||43 813|
Investment property was independently valued by external registered valuers at 30 June 2018 resulting in a net increase in value of R646,9 million (2017: R1 263,8 million). The weighted average capitalisation rate of the portfolio is 6,6% (2017: 6,6%). All discount and capitalisation rates remained largely the same as in the previous year. The sharp increase in municipal rates from July 2018 had a negative impact on the valuation of the Johannesburg shopping centres. Hyprop has objected to the increase.
In terms of IAS 40: Investment property and IFRS 13: Fair value measurement, investment properties are measured at fair value through profit or loss using valuation inputs which are categorised as level 3 on the fair value hierarchy. There were no transfers between levels 1, 2 and 3 during the year.
The following major projects were successfully completed during the year:
|Shopping centre||Project||Hyprop's share
|Rosebank Mall||Additional 4 300m2 rentable area||127,0||April 2018|
|The Glen||Food court enclosure and additional retail||90,9||April 2018|
|Canal Walk||Additional retail in La Piazza area||41,6||November 2017|
|Woodlands Mall||Nu Metro refurbishment||16,0||December 2017|
The projects were completed on schedule and below budgeted cost. Since the completions, a positive trend in the number of visitors to the centres has been recorded.
With a focus on improving quality and sustainability in the shopping centres a total of R66,9 million (2017: R177,9 million) was spent on refurbishments, new equipment, tenant installations and sustainable technology.
Smaller projects completed during the year included the refurbishment of the Hyde Park Corner offices (R14 million) and the replacement of the façade of the Rosebank Mall offices (R10 million). Opportunities are currently being explored with regard to the rightsizing of various stores, and creating space for tenants who are not yet in all of the shopping centres. Also, an upgrade of the food courts at Woodlands Boulevard and Canal Walk are in the planning stage.
The various water-saving initiatives in the Western Cape region (the use of borehole water, capturing of run-off water and the treatment of effluent grey water) are all in the final stages of commissioning. As a result of these initiatives, together with the installation of back-up water storage, the exposure of the Western Cape shopping centres to water outages has been significantly reduced. Other ongoing water-saving initiatives in the portfolio included the use of grey and borehole water at The Glen, and the installation of waterless urinals and aerators in the public bathrooms across the portfolio.
Willowbridge North was sold during the year for R225 million. Transfer took place in September 2017.
A conditional sale agreement has been concluded for the last non-core property in the portfolio, Lakefield Office Park.
Investments outside South Africa
The functional and reporting currencies for the investments in sub-Saharan Africa (excluding SA) and South-Eastern Europe are the US Dollar and Euro, respectively.
The exchange rates used to convert to Rand were as follows:
The average rates are a weighted average of the actual exchange rates on the dates that the foreign currency dividends were received in South Africa. The year-end spot rate is the rate used to translate balance sheet items at year-end.
Hyprop fixes the exchange rates on US Dollar and Euro income for six months in advance of receipt of dividends.
Investments in sub-Saharan Africa (excluding SA)
|Hyprop share of distributable earnings|
|Distributions received||254 639||168 241|
|Interest and expenses||(176 271)||(111 269)|
|Net||78 368||56 972|
Distributable earnings from the investments in sub-Saharan Africa (excluding SA) increased to R78,4 million (2017: R57,0 million), due to the inclusion of distributable earnings of R24,0 million (2017: Rnil) from Ikeja City Mall, Lagos, Nigeria.
|Ikeja City Mall||Lagos, Nigeria||75,0||22 223||3,1|
|Manda Hill||Lusaka, Zambia||68,8||42 002||4,1||5,4|
|Accra Mall||Accra, Ghana||17,6||21 311||6,8|
|West Hills Mall||Accra, Ghana||16,8||28 272||10,4||5,3|
|Achimota Mall||Accra, Ghana||28,1||15 534||1,9||6,1|
|Kumasi City Mall||Kumasi, Ghana||28,1||18 604||13,0||26,5|
|Total portfolio||147 946||6,4||6,5|
The financial performance of the portfolio overall was negatively impacted by vacancies and tenant replacements during the year. Vacancies in Accra Mall and West Hills Mall increased mainly due to the withdrawal of Truworths and Identity from Ghana, and the downsizing of fashion tenants. Income from Manda Hill shopping centre (Lusaka, Zambia) reduced due to re-tenanting of shops at lower rentals at the beginning of the financial year. Game (replacing the previous second food anchor) is due to open in November 2018 at Achimota and West Hills, which will strengthen the tenant mix.
The economic growth prospects in Ghana have improved and we have seen a general increase in trading densities in recent months. Demand for shops has improved at some centres and vacancies have reduced at Manda Hill, Kumasi and Achimota. At Ikeja City Mall, trading conditions and rent collection have been stable over recent months while the Nigerian economy has slowly gained momentum, benefiting from higher oil prices and improved foreign exchange liquidity.
Hyprop share of shareholder loans/investment property
At 30 June 2018 the Hyprop share of the US Dollar value of the AttAfrica portfolio, Manda Hill and Ikeja City Mall was USD282,9 million (2017: USD281,8 million) at a weighted average capitalisation rate of 8,3% (2017: 8,4%).
|AttAfrica and Manda Hill (joint ventures)||2 918 721||3 005 821|
|Ikeja City Mall, Lagos, Nigeria (75%)||1 552 015||1 476 553|
|Total effective investment in sub-Saharan Africa||4 470 736||4 482 374|
The small net reduction in the Rand value over the period was mainly due to the repayment of a portion of the AttAfrica shareholder loan (R65,6 million) and an impairment of the shareholder loans to AttAfrica and Manda Hill (R166,4 million), offset by an increase in value due to Rand depreciation against the US Dollar (R146,9 million) at year-end.
Certain of the properties in the portfolio have been affected by the economic conditions in recent years and are producing lower investment returns than what was originally anticipated. As a result the income received from those properties over the next few years will be lower than previously modelled. The shareholder loans in AttAfrica and Manda Hill, which reflect Hyprop's share of the value of the underlying property investments at group level, have therefore been impaired. Should a sale not take place before maturity of the shareholder loans to AttAfrica in 2020, it is likely that the structure will be renegotiated and extended.
As disclosed in the interim results announcement, Hyprop is investigating a reduction of its exposure to the investments in sub-Saharan Africa (excluding SA).
Investments in South-Eastern Europe
Hyprop's investments in South-Eastern Europe are held through a UK company, Hystead, in which Hyprop has a 60% interest. The portfolio consists of six high-quality, dominant shopping centres, located in five capital cities in South-Eastern Europe. The total rentable area of the portfolio is approximately 230 000m² with Hystead's share of the gross asset value being EUR740,6 million.
|Hyprop share of Hystead's distributable earnings|
|Distribution received||276 083||147 059|
|Interest and expenses||(88 281)||(45 236)|
|Net distributable earnings||187 802||101 823|
The significant increase in net distributable earnings is mainly due to the inclusion of income from Skopje City Mall in Skopje, Macedonia (acquired November 2016), The Mall in Sofia, Bulgaria (acquired October 2017) and City Center One East and City Center One West in Zagreb, Croatia (acquired April 2018). Distributable earnings also benefited from the depreciation of the Rand against the Euro.
|Delta City Belgrade||Belgrade, Serbia||60||29 850|
|Delta City Podgorica||Podgorica, Montenegro||60||23 718|
|Skopje City Mall||Skopje, Macedonia||60||36 241|
|The Mall, Sofia||Sofia, Bulgaria||60||51 211||0,4||n/a|
|City Center One East||Zagreb, Croatia||54||47 191||0,3||n/a|
|City Center One West||Zagreb, Croatia||54||42 373||n/a|
|Total portfolio||230 584||0,1|
At 30 June 2018, apart from small vacancies at The Mall in Sofia and City Center One East, the Hystead portfolio was fully let.
Benefiting from strong macro-economic conditions, trading in the South-Eastern European shopping centres remains positive with the centres reporting good growth in trading density. Demand for space remains high and various extension plans are under consideration.
Hyprop share of investment property
At 30 June 2018 the Hyprop share of the Euro value of the Hystead portfolio was EUR444,4 million (2017: EUR179,9 million) at a weighted average capitalisation rate of 7,5% (2017: 8,7%).
|Delta City Belgrade, Belgrade, Serbia (60%)||1 248 250||1 162 200|
|Delta City Podgorica, Podgorica, Montenegro (60%)||738 388||685 698|
|Skopje City Mall, Skopje, Macedonia (60%)||894 899||833 208|
|The Mall, Sofia, Bulgaria (60%)||1 533 427||n/a|
|City Center One East, Zagreb, Croatia (54%)||1 296 259||n/a|
|City Center One West, Zagreb, Croatia (54%)||1 399 960||n/a|
|Total effective investment in South-Eastern Europe||7 111 183||2 681 106|
The total Rand equivalent value of Hyprop's share of investment property in South-Eastern Europe increased due to the acquisition of The Mall in Sofia, Bulgaria and the two centres in Zagreb, Croatia. The Rand equivalent value of the Delta City Centres and Skopje City Mall increased marginally due to the depreciation of the Rand against the Euro.
Hystead made the following acquisitions during the year:
The Mall, Sofia, Bulgaria
The Mall shopping centre in Sofia, Bulgaria was acquired effective 4 October 2017 for EUR155 million at a 7,3% yield. The Mall, with a rentable area of 51 200m2, is one of the dominant shopping centres in Sofia.
In June 2018, Hystead acquired the former Hypermarket premises which is currently vacant and is connected to The Mall. These premises will be refurbished and integrated with The Mall, at a total cost of EUR23 million, and will introduce a supermarket of 2 450m2 as well as additional line shops of 9 550m2. The anticipated refurbishment starting date is October 2018 and the development will take approximately six months to complete, at an estimated initial yield of 9%.
City Center One East and City Center One West, Zagreb, Croatia
Hystead acquired a 90% interest in two dominant shopping centres situated in Zagreb, Croatia (City Center One West and City Center One East) with rentable areas of 42 373m2 and 47 191m2, respectively, effective 20 April 2018, for EUR283,5 million (7% yield). Hystead entered into a joint venture agreement with WKB3 (which retains a 10% interest in the centres), an Austrian-based company that developed and managed the centres, for the management of the properties.
During the year Hystead established a European-based executive management team, which provides management support to the onsite property management teams at each of the shopping centres. The asset management of the Zagreb shopping centres is undertaken jointly by the Hystead management team and by CC Real, the operating company of WKB3.
With effect from June 2018, all of the shopping centres are part funded with non-recourse asset-backed loans through offshore banks, at an average loan-to-value ratio of 47% (EUR349,9 million). The debt has a weighted average interest rate of 3,6% and a loan term of 4,5 years, with 45% of the interest rates hedged for the full term.
|South African debt||2 950||4 114|
|Bank debt||600||1 814|
|Corporate bonds||2 350||2 300|
|USD bank debt (Rand equivalent)||4 513||4 391|
|EUR bank debt (Rand equivalent)||3 795||2 673|
|Cash and cash equivalents||(715)||(1 126)|
|Net borrowings||10 543||10 052|
|Debt at fixed rates (%)|
|South African debt (%)||113,6||100,9|
|USD debt (%)||63,5||70,4|
|Maturity of fixes (years)||3,1||3,4|
|South African debt (years)||3,8||3,9|
|USD debt (years)||2,4||2,7|
|Maturity of facilities (years)||3,1||2,5|
|South African debt (years)||3,8||2,2|
|USD debt (years)||2,7||2,6|
|Cost of funding|
|South African debt (%)||9,4||8,9|
|USD debt (%)||4,8||4,7|
|EUR debt (%)||1,7||2,2|
|Debt capital market (DCM) % of total debt||21||21|
South African debt
The South African bank debt is secured against South African investment property, while the DCM funding is unsecured.
During the period, the following maturing corporate bonds and facilities were repaid:
|Five-year corporate bond||300||September 2017|
|Five-year corporate bond||450||April 2018|
|Nedbank debt||1 200||June 2018|
In March 2018, Hyprop issued two new long-term corporate bonds, a R452 million five-year bond and a R348 million seven-year bond, (refer to note 17 – Borrowings) at margins of 1,6% and 1,9%, respectively, which were used to repay part of the Nedbank debt. Equity of R778,7 million was raised in May 2018 (under general authority at an average price of R105) and that cash, as well as proceeds from previous asset sales was utilised to reduce the South African debt.
At 30 June 2018, 113,6% of the interest rate exposure was hedged. This will reduce in the first quarter of the 2019 financial year with the expiry of a R100 million interest rate hedge in August 2018, and the potential raising of R250 million of new debt to fund capital requirements.
The interest rate on the South African debt increased due to the increase in the maturity profile of the corporate bonds.
US Dollar-denominated debt
The Rand equivalent of the US Dollar-denominated bank debt increased during the year, largely due to Rand depreciation against the US Dollar. The US Dollar debt includes debt in Hyprop Mauritius, as well as 75% of the in-country debt relating to Ikeja City Mall (Lagos, Nigeria).
Two bank loans in Hyprop Mauritius of USD40 million and USD20 million were consolidated and refinanced through a three-year USD60 million bank facility. During the year a portion of an expiring bank facility of USD30 million was partly repaid and refinanced through a USD23 million facility, of which only USD16,7 million was utilised.
In-country debt relating to Ikeja City Mall (Lagos, Nigeria) of USD56,5 million (Hyprop share: USD42,4 million) was refinanced for three years and converted to an interest only loan.
Equity funding in Hystead of EUR396 million has been provided through bank loans secured by shareholder guarantees. As per the shareholders' agreement, Hyprop guarantees 90% of the equity funding and PDI, Hystead's other shareholder, 10%. PDI provides further back-to-back guarantees to Hyprop for 11,7% of the total amount and for the remaining 18,3% that Hyprop guarantees, Hyprop receives 60% of the applicable PDI dividend as credit enhancement income. This agreement is in place until May 2021.
EUR234 million of the equity funding, provided by way of bridge loans, will be refinanced by October 2018 and replaced with three-year term loans, at an estimated average fixed interest rate of 2,1%. The balance of the equity funding was previously financed using three-year term loans, due to expire in May 2020.
The Euro debt is not consolidated in the Hyprop statement of financial position. For the purposes of the above table (including calculation of the loan-to-value ratio), 60% of the debt and 60% of the corresponding asset values have been included (in line with Hyprop's 60% interest in Hystead).
Euro-denominated debt increased during the period due to the acquisition of The Mall in Sofia, Bulgaria in October 2017, and the two malls in Zagreb, Croatia, as well as the depreciation of the Rand against the Euro.