It will be increasingly difficult for listed property companies to continue to deliver investor-pleasing earnings, but those with diversified income streams are likely to soar.
Hyprop Investments, the owner of blue chip malls such as Johannesburg’s Rosebank Mall, Hyde Park Corner and Canal Walk in Cape Town, continues to defy SA’s worrying state of the economy.
A long-time favourite among property punters, Hyprop posted a 13.4% dividend growth to 297.8 cents to income-chasing investors for the six months to December 31 2015. This was well above market expectations, as the company’s peers are downgrading their dividend outlook.
Even Hyprop’s forecast is on the upside, as it expects dividend pay outs for next year to grow between 13% and 15% – an upward revision from the 10% mooted last year. Its bullish outlook has been driven by its shopping mall investments in sub-Saharan Africa, which continue to put it in good stead.
Although most players on the JSE’s more than R350 billion real estate sector have shifted investments from SA to the UK and Australia, Hyprop has been expanding into the rest of Africa.
It owns the 44 000-square metre Manda Hill in Zambia in partnership with Atterbury and Attacq and has stakes in Ghana’s 27 500-square metre West Hills Mall, the 13 400-square metre Achimota Centre and 20 300-square metre the Accra Mall.
CEO Pieter Prinsloo says its Africa malls boosted its performance, with distributable earnings from investments in the region increasing by 68.2% to R35.3 million. Because tenant leases at its malls are dollar-denominated, Hyprop saw exchange rate gains of R8.1 million due to the weakness of the rand.
Hyprop has a fourth shopping centre, Kumasi City Mall in Ghana that is under construction and will be completed in 2017. It has also made a foray into Nigeria in acquiring 75% of the 22 000-square metre Ikeja City Mall.
With the decline of oil prices to 12-year lows and the devaluation of the dollar, most African economies Hyprop has exposure to are likely to be under pressure. Despite this, Prinsloo says its shopping centres are trading well. “The income from the malls is in line with our budgets. They are well located and sizable. The performance of the portfolio is still solid,” he says.
Another game changer for Hyprop has been its inroads in Eastern Europe with the recent acquisition of a 60% stake in two malls: Delta City in Serbia and Delta City Podgorica in Montenegro, with Homestead Group acquiring the remaining 40%.
The malls are collectively valued at €209 million (R3.6 billion). More acquisitions in the region are in the pipeline, as Hyprop is planning to grow its Eastern Europe property portfolio to €1 billion (R17 billion) over time. “Our focus will be on dominant shopping centres and in large cities,” he says.
Once Hyprop’s Europe and Africa (excl SA) assets are accounted for, they comprise 18% of the counter’s property portfolio value. During the period under review, Hyprop’s direct property portfolio was valued at R28.4 billion. It might grow its international exposure to 30%, but a lot of the deals are opportunity-driven in European emerging markets, says Prinsloo.
Hyprop joins its counterparts Redefine Properties and Attacq which find value in Europe, owing to the region’s decent economic growth and yields on properties that are higher than the cost of debt. Given these dynamics, Grindrod Asset Management chief investment officer Ian Anderson says Hyprop’s Africa and Eastern Europe acquisitions are highly accretive.
Listed property manager for Old Mutual Investment Group’s MacroSolutions Evan Robins says Hyprop’s African and Eastern European strategy still needs to be proven.
Although the SA retail market is becoming saturated with many malls already trading, Hyprop will refurbish its shopping centres Canal Walk and Somerset Mall by allocating more tenant space and sprucing up food courts to make them more competitive.
Retail vacancies reduced to 0.9% from 1.3%. Hyprop’s property portfolio saw a 7.7% like-for-like growth in net property income and 60% of leases were renewed.