Hyprop Investments Limited Integrated annual report 2016

Hyprop Investments Limited

Integrated annual report 2016

Developments

We continued to enhance our existing portfolio, spending R178 million

during the period on capital projects, replacing equipment and

tenant installations. Included in our equipment spend was the cost

of upgrading security systems at all our malls, installing additional

generators at some malls, and installing smart-metering systems across

our retail portfolio.

Completed projects are summarised below, while extensions are

planned for Canal Walk and Rosebank Mall at an estimated project

cost of R167 million. Key projects during the year included:

Extensions and developments completed

Somerset Mall

Woolworths extension, food court

upgrade, tenant relocations

Clearwater Mall

H&M extension

Under construction

Somerset Mall

Extension to accommodate a large H&M

store – opening October 2016

Atterbury Value Mart Checkers – opening November 2016

Customer security at our shopping centres remains a priority and,

in line with our security strategy, we have installed up-to-date

technology with improved results.

There are a number of masterplan expansion opportunities at some

of our shopping centres, although implementation depends on

planning approvals by local councils and the commitment of key

tenants.

Sub-Saharan Africa

Our sub-Saharan Africa portfolio excludes South Africa. The

review period was characterised by lower economic growth in

Ghana, Zambia and Nigeria – our principal operating territories –

accompanied by weakening local currencies.

Sep

2013

Jun

2016

Mar

Dec

Jun

2015

Mar

Sep

Dec

Sep

Jun

2014

Mar

Dec

■

Ghana

■

Nigeria

■

Zambia

■

South Africa

Exchange rate volatility

0,0

0,5

1,0

1,5

2,0

2,5

Trading density growth slowed during the period, primarily reflecting

the impact of increased competition for The Glen. Excluding this

centre, trading density growth for the rest of the portfolio was 6,4%.

Similarly, excluding The Glen from the rent ratio leaves it unchanged

year-on-year at 7,1%. The Glen remains a popular centre, and the

impact of new competition is already subsiding. Initiatives are under

way to stabilise trading densities and return The Glen to growth.

Leasing

Contractual lease escalations, the basis of growth in annual

distributable income, dipped marginally to 8,1%. Rental growth on new

leases and renewals slowed to 7,3%, primarily reflecting weak demand

for space in our office portfolio, although vacancies improved to 4,5%

from 8,3% in 2015.

7,3% 8,1%

2016

7,6% 8,2%

2015

8,3% 8,2%

2014

6,3% 7,4%

2013

■

Rental growth

■

Contractual escalation

Leasing terms

It was another busy period, with 568 leases signed in South Africa,

representing 153 664m

(19,6% of our total portfolio by rentable

area). Our focus remains on continuously improving the tenant mix

by replacing weaker tenants with much stronger and sought-after

retailers. We again accommodated the aims of local national tenants,

for example Woolworths, to expand their store sizes, and capitalised

on demand from international brands establishing a presence in South

Africa. Notably, the first Starbucks outlet in South Africa opened

in Rosebank in April 2016 and the first H&M in Hyprop’s portfolio

opened at Clearwater Mall in the same month.

Edcon

We continue to monitor the financial stability of the Edcon Group.

This remains a risk, as Edcon is the largest tenant group in our

portfolio, occupying 9% of our portfolio by rentable area and

contributing almost 7% of our income. Edcon’s issues relate mainly

to high debt and its ability to provide credit to customers. During

the year, Edcon restructured its debt to improve its financial position

and strengthen its balance sheet. Analysed by trading density and

profitability, most Edcon stores in our portfolio range from average

to good, and we have appropriate contingency plans in place.

Platinum Group

Platinum Group stores were vacated and the space was relet.