Hyprop, the owner of dominant retail centres in key economic nodes in South Africa, Eastern Europe (EE) and elsewhere in sub-Saharan Africa, reported a strong operational performance in the 2022 financial year and a robust financial position.
Distributable income for the year ended 30 June 2022 increased to R1.17 billion, from R1.09 billion the year before, despite only including three months of the European portfolio’s income and the loss of income due to the sale of Atterbury Value Mart at the beginning of the financial year. The South African portfolio’s distributable income increased by 9% on a like-for-like basis and the European portfolio delivered R110 million of net operating income for the three months, ahead of our forecast of R98 million.
The Hystead “liquidity event” became effective in the second half of the year. This transaction enabled Hyprop to take 100% control of the four remaining EE shopping centres with effect from 31 March 2022.
The Group’s fully consolidated loan to value (LTV) ratio has decreased to 36.4% in June 2022 from a peak of 51.7% in June 2020, well below the 55% ratio set out in the covenants to the Group’s Domestic Medium-Term Note programme agreed with the banks.
“We are pleased about the good operational performance of all our centres. It is a good indication that our strategy is paying off. Unfortunately, the risk in the current economic environment remains elevated, with the rising inflation and energy cost and therefore we will remain cautious and conservative in our approach and strategy,” says Morné Wilken, Hyprop CEO.
South African portfolio
In the year to June 2022, tenant turnover, one of the key indicators of centre health, increased by 13.6% and it continued to rise by 14.9% in July 2022 and 15.6% in August 2022. All the centres’ tenant turnover increased by double digits.
At period end, retail vacancies across the portfolio were 2% (June 2021: 2.4%) and by August 2022 it had fallen to 1.5%. The independent valuation of the South African portfolio at 30 June 2022 was R22.7 billion, a 2.6% increase compared to 30 June 2021. During the year, Hyprop spent R260 million on the repositioning strategies at its centres.
A number of new tenants and modern new brands have been opened across the Group’s centres including the first Zara, Ted Baker and UNION-DNM stores in our SA portfolio in Canal Walk. Other standouts are improvements to the tenant mix at Rosebank Mall, the successful completion of the revamp of the food court at Clearwater Mall, and the completion of the reconfigured upper level at The Glen.
Eastern Europe portfolio
Total tenant turnover at the EE centres rose 14.5% in 2022 and retail vacancies at end-June 2022 were 0.7%.
Some of the highlights in EE include the completion of a large outdoor playground at Skopje City Mall and the addition of new, diversified offerings in the food court. City Center one East and City Center one West have welcomed new, fresh brands, including a Hoću knjigu bookstore, Xiaomi – Mi, selling electronics, various food offerings and well-known sneaker and streetwear retailer, SNIPES.
At The Mall in Sofia, the first phase of upgrading the bathrooms is expected to be completed by November 2022 and the second phase will begin in Q1 2023.
The Ukraine/Russia war has not directly affected the EE properties, although the higher energy costs have eroded consumers’ spending power and increased tenant occupancy costs. Hyprop will continue to monitor the situation and react appropriately.
The independent valuation of the EE portfolio by CBRE is €573 million at end-June, which is close to the €575 million valuation used for the transaction. €1.9 million was spent during the year on upgrades to and refurbishments of the EE properties.
Sub-Saharan Africa (excluding SA) portfolio
Foot count across the centres in Ghana and Nigeria was 3.5% higher year-on-year at end-June, while retail vacancies have fallen to 10.1% (June 2021: 12.2%). Measured in local currencies, the centres are showing a gratifying improvement in key metrices, since the focus has been on improving the centres’ operating performance pending exit.
In Rands, Hyprop’s attributable share of earnings after tax (before the effect of property evaluations) rose by 22% year-on-year, driven largely by a 4% increase in revenue and lower bad debts. The average US dollar/rand exchange rate had only a marginal effect.
Highlights included the opening of a flagship Nike store at Ikeja City Mall in Lagos, a first of its kind in West Africa. New brands also opened at Accra Mall, West Hills Mall and Kumasi City Mall.
On 8 September Hyprop Mauritius and AIH International (the co-shareholder in AttAfrica) signed a term sheet on the sale of 100% of AttAfrica. This transaction is still subject to final negotiations and further details will be published in due course.
Waste, water and energy
Hyprop has introduced a wet waste strategy across its portfolio from 1 July 2022, with a target of zero wet waste by 2027. In the past year, the volume of recycling rose to 79% from 78% in 2021. Projects to reduce water consumption over the past year include the introduction of low flush volume Propelair toilets at Rosebank Precinct and Hyde Park Corner.
Hyprop has audited the energy usage across all its centres and identified opportunities to reduce carbon emissions. In the current year, additional solar capacity will be installed at Rosebank Mall, Clearwater Mall and Woodlands.
The year ahead
Management has set six strategic priorities for the year ahead: repositioning the South African portfolio; retaining the dominance of the European portfolio; annually reviewing the portfolios to consider recycling assets and growth opportunities; extracting returns from the sub-Saharan portfolio pending exit; further developing non-tangible assets; and maintaining a healthy balance sheet.
“We will continue to focus on generating sustainable total returns for shareholders through optimal capital allocation based on risk-adjusted returns, whilst maintaining a healthy balance sheet,” Wilken says.
