JSE-listed real estate investment trust (Reit) Hyprop continued to deliver strong growth in a tough economic environment, with a total dividend a share of 756.5c declared for the financial year to June 30.
This growth was 8.8% higher than in the prior financial year, the company said on Friday.
Against this backdrop, the Reit’s distributable earnings increased by 10.5%, which was, in large part, owing to strong organic growth and successful acquisitions in the South East European portfolio, which accounted for 12% of total distributable earnings, and an improvement in the South African portfolio in the second six months of the financial year.
This overall steady performance of the South African portfolio, CEO Pieter Prinsloo said, reflects the underlying centre’s defensiveness.
He explained that, in the second half of the year, distributable earnings increased by 6% following the re-tenanting of the vacated Stuttafords stores and completed upgrade and extension work at The Glen and Rosebank Mall.
“Certain malls continued to record good trading density, for instance, CapeGate and Clearwater Mall. But trading density growth for the portfolio reduced to 0.5% for the year, from 1.4% as declining consumer spend began to impact.”
Prinsloo remains confident in the quality of the local retail portfolio, which was supported by positive trends such as declining vacancies, to 1.9% from 2.4% last year, despite the challenging retail landscape.
R1.9-billion worth of new leases and renewals were signed in the year under review at an average rental escalation of 7.7%, he added, noting that this was on a par with the 2017 financial year.
“Total tenant arrears still make up only 0.6% of total rentals which is well below market norms,” he said at a presentation of the company’s results on Friday.
He added that the group is focussing on rightsizing existing store spaces to assist
tenants in the current retail market, which will also help to accommodate new tenants not yet represented in Hyprop’s malls.
The group continued to strengthen its balance sheet through an oversubscribed equity raise, extending the average loan term and paying off R1.95-billion of debt.
An accelerated bookbuild in May 2018 saw the issue of 7.5-million new shares at R105 a share to raise R782.6-million.
Earlier in the year, in March, Hyprop issued two long-term corporate bonds, a R452-million five-year bond and a R348-million seven-year bond, respectively.
Prinsloo further highlighted that the R276-million capital expenditure (capex) programme in the year was a success, with all four major retail projects completed on time and under budget and showing an improvement in footfall since completion.
In addition, R70-million was spent on new equipment and sustainable technology and smaller projects of R24-million targeted in-centre office refurbishments.
Of particular note is the effectiveness of water-saving initiatives in the Western Cape malls, he said, which are all in the final stages of commissioning and have reduced Hyprop’s exposure to the region’s water outages.
The transfer of noncore property Willowbridge North took place in September 2017 and should be followed in the next few months by Lakefield Office Park, Hyprop’s last remaining noncore asset.
The successful optimisation of the portfolio in line with the group’s strategy enables Hyprop to focus exclusively on its proven core strength of managing prime shopping centres, Prinsloo elaborated.
Meanwhile, in South Eastern Europe, Prinsloo said, Hyprop continued to reap the benefit of well-performing assets, including recent acquisitions.
Distributions, he explained, benefitted substantially from the inclusion of the four acquisitions in Macedonia, Bulgaria and Croatia.
In sub-Saharan Africa, following prior currency constraints in the previous financial year, the re-inclusion of distributable earnings from Ikeja Mall, in Nigeria, boosted distributable earnings growth for the year.
However, Prinsloo lamented that the portfolio remains affected by tenant replacements and vacancies. “The positive economic trends which have started taking effect in Ghana and Nigeria may help to partly alleviate the retail challenges,” he said.
Looking ahead, Prinsloo believes the demand for space remains strong and that Hyprop will continue to assess expansion opportunities “given the healthy retail environment in the region”.
For the 2019 financial year, Hyprop executive director Wilhelm Nauta highlighted that the company’s focus will be on South Africa and the European Union.
“With Hystead’s gross asset value at over €740-million, the South East European portfolio is starting to achieve sizable scale and presents a more favourable growth opportunity for Hyprop than the sub-Saharan Africa investments.”
Hyprop has issued a more cautious dividend growth forecast for the year ahead, of between 5% and 7%, mainly owing to the constrained consumer landscape in South Africa, as well as a lack of economic growth, according to Prinsloo.
This forecast, he added, is conservative for the company, despite being “ahead of the market”.