44 / 160
Hyprop Investments Limited
Integrated annual report 2016
42
The JSE-listed property sector in
South Africa continues to grow,
with 37 companies managing assets
of over R572 billion (2015: 27 and
R350 billion, respectively). Following
the influx of capital after the
introduction of REIT legislation
in 2013, the local sector is ranked
among the top 10 REIT markets
globally.
South Africa’s listed property sector has
produced an annualised return of 17,5% over
the past 10 years, well above the return
from other equities. Total returns for the
12 months to June 2016 continued that trend
with only bonds (11,2%) outperforming listed
property (9,6%). Hyprop’s total return for FY16
was 12,5%.
Hyde Park Corner, Johannesburg, Gauteng
THE MARKET IN WHICH WE OPERATE
The outcome of the UK referendum on European Union membership
(commonly referred to as Brexit) had a material impact on property
indices in the immediate aftermath, but volatility in the South
African index has since subsided. Analysts believe South-Eastern
Europe, where local funds (including Hyprop) are most exposed,
will experience only a limited economic impact as these countries
have few direct links to the UK and the associated risks are offset
by recent fiscal improvements.
South Africa
South Africa is recording high population growth and urbanisation, with
a growing middle class stimulating demand for retail space. The country
now has over 2 000 shopping centres, spanning more than 23 million
square metres of retail space. While global peer comparisons suggest
that South Africa has more retail space than demand dictates, data
proves that shopping centres offering a broader tenant mix (including
national and international retailers, entertainment and catering/leisure)
are attracting growing numbers of consumers.
South Africa’s economic growth slowed further in 2016. From 2,2%
in 2013 to 1,3% in 2015, the South African Reserve Bank’s mid-year
projection pegs GDP growth in 2016 at 0%, rising to 1,1% and 1,5% over
the next two years.
Consumer spending is under pressure due to rising interest rates and
inflation, reflected in slowing retail sales growth.
Despite a challenging macro-economic backdrop, the threat of a
sovereign credit downgrade, political uncertainty, Rand depreciation
and rising interest rates, South African listed property funds like-for-
like growth in net property income was 5,7%. Hyprop’s like-for-like net
property income growth for FY16 (from the South African portfolio)
was 7,3%.
Property is a long-term asset class. However, the investor community
generally has a short-term focus, which puts pressure on REITs
to produce short-term dividend growth. To better balance these
short-term needs with long-term sustainability, many SA REITs have
increased their exposure to overseas assets, with some 48% of total
assets now based offshore due to limited domestic opportunities and
relatively low European funding rates.