Hyprop focuses on opportunities in SA and Eastern Europe

JSE-listed retail property fund Hyprop is pursuing new growth opportunities, which includes repositioning its centres in South Africa and considering some acquisition opportunities in Eastern Europe in line with its diversification strategy in that region.

Hyprop CEO Morné Wilken said on Friday it also would hopefully be able to exit its sub-Saharan Africa assets, excluding South Africa, within the next two years.

He said Hyprop is looking at some opportunities in Eastern Europe, which will involve purchasing completed assets with a good trading record and using their asset management skills and redevelopments to enhance value and revenue from these investments.

“Effectively we would like to focus on specific jurisdictions and it will maybe make more sense to grow in the countries where we are already invested, rather than in new jurisdictions,” he said.

Disposals

Wilken also confirmed that in addition to its Africa assets, some South African and European assets are being considered for sale.

Hyprop concluded the disposal of Atterbury Value Mart in Pretoria; Delta City in Belgrade, Serbia; and Delta City in Podgorica, Montenegro in the year to end-June 2022, with the proceeds applied to reducing debt.

Together with the R876 million in equity raised from the 2021 dividend reinvestment plan, this strengthened Hyprop’s balance sheet and reduced the fully consolidated loan to value (LTV) from a peak of 51.7% in June 2020 to 36.4% in June 2022.

The group also acquired four retail centres in Eastern Europe – Skopje City Mall in North Macedonia, City Center one East and City Center one West in Zagreb in Croatia, and The Mall in Sofia in Bulgaria – from Hystead, to increase its shareholding in these centres to 100%, with effect from end-March 2022.

Wilken stressed that Hyprop will sell assets deemed non-core whether they are in Europe or SA.

Repositioning strategies for SA

He said the group will be driving the repositioning strategies for its South African portfolio and has agreed with Pick n Pay that it will be upgrading four of its stores within Hyprop’s portfolio – those at The Glen, Canal Walk, Cape Gate and Somerset Mall – to their new customer value proposition.

Hyprop chief financial officer Brett Till said R440 million in capital expenditure has been committed to Hyprop’s South African portfolio in the new financial year.

Wilken said the group’s redevelopment projects have started with Somerset Mall, which will take place over about two years and comprise three phases.

He said Hyprop historically has not put sufficient capital expenditure into these assets and needs to catch up and reposition its malls.

Wilken said Hyprop will benefit from this because when its malls start trading better, its tenants perform better and then it can “start pushing rentals”.

Read: Landlords slash rents to sign retail, office tenants

“It is key to make sure that your tenants trade well and … the key thing about mall health is looking at your tenant turnovers.

“If your tenants are doing well, you will do well,” he said.

Exit from Africa

Wilken said another key thing for Hyprop is to drive its exit strategy in Africa.

“There is a lot of money tied up in Africa where I believe the returns we can get are not optimal at this point in time so we hope to get that finalised as soon as possible.

“We wanted to do it the first year in 2019 but unfortunately liquidity has been a problem in Nigeria and hopefully we can finalise that in the next two years,” he said.

This is a reference to the lack of US dollar liquidity in Nigeria, which is delaying the purchaser’s access to the capital required to implement the transaction.

Gruppo Investments, which owns Ikeja City Mall in Lagos in Nigeria, remains classified as an asset held for sale, pending implementation of the disposal of Ikeja City Mall to Actis.

In addition, Hyprop Mauritius and AIH International, the co-shareholder in AttAfrica, on 8 September 2022 signed a term sheet relating to the sale of 100% of AttAfrica.

Wilken said the price and final method of payment is being negotiated and the market will be notified when Hyprop has more finality around these negotiations.

Results

Hyprop last week reported a 7.4% growth in group distributable income, before deducting the non-remittable income in Nigeria, to R1.17 billion in the year to end-June from R1.09 billion in the previous year.

The dividend per share declined 12.7% to 293.6 cents from 336.5 cents.

Tenant turnover for the South African portfolio increased by 13.6% and for the Eastern Europe portfolio by 14.5%.

The retail vacancy rate in the South African portfolio reduced to 2% from 2.4% and was at 0.7% for the Eastern Europe portfolio.

Hyprop reduced borrowings by R5.6 billion, including a reduction of the euro equity debt guaranteed by Hyprop from €365 million in June 2021 to €111 million in June 2022.

The gross value of the group’s assets increased by 39% in the year to R37.3 billion.

Wilken said many of the decisions taken about the business are to ensure that it has a healthy balance sheet, can create sustainable growth in distributable income, and are in line with the focus on the total return on investment and optimal capital allocation.

Comment

Naeem Tilly, a portfolio manager and head of research at Sesfikile Capital, said Hyprop’s operational performance was strong, with vacancies at 2% showing good demand for its assets and rental reversions of -13.6% having recovered from -23.6% last year.

Tilly said management appears confident that positive growth in rentals is on the horizon, having already rebased significantly over the past three years and with retailers achieving above 2019 levels of trading densities.

“However, there is still some risk to earnings growth through higher funding costs on debt refinancing,” he said.

“With rising interest rates and surging inflation, the recovery in spending may also taper off as consumers tighten their belts.”

Shares in Hyprop rose 1.15% on Friday to close at R34.37.