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Hyprop dividend hit by up-for-sale Nigerian and Ghanaian assets

Impairment costs of just over one billion rand, following downward adjustments in the value of its stakes in sub-Saharan African property assets.
Hyprop, the owner of Canal Walk, Clearwater and Rosebank malls, has the highest exposure of any Reit to Edcon. Picture: Nadine Hutton, Bloomberg

Retail-focused Real Estate Investment Trust (Reit) Hyprop’s poor performing sub-Saharan African property assets (excluding SA) are about the be sold as it looks to exit and focus on its stronger performing properties in SA and the South and Eastern Europe (SEE) region.

Hyprop on Friday reported lower dividend per share (DPS) growth of 2.5% for the half-year ending December 31 2018, on the back of the negative impact of its “rest of Africa” property investments. It was hit by impairment costs of just over a billion rand, following downward adjustments in the value of its stakes in properties in Nigeria and Ghana.

If these assets were excluded from Hyprop’s latest results, the group said it would have delivered DPS growth of 6.6%, in line with its previous guidance.

Speaking at a media briefing, newly-appointed Hyprop CEO Morné Wilken said the group successfully weathered local headwinds to deliver 8.8% growth in distributable income from its South African portfolio and achieved critical mass in the high-performing SEE portfolio. Hyprop’s offshore investments in the SEE market delivered double-digit growth.

“Hyprop’s properties in SA and the SEE region did well, while the value of our properties in sub-Saharan African was down substantially. Our relationship with AttAfrica is coming to an end and ultimately we want to sell our stakes in our sub-Saharan African assets (ex SA),” he said.

Asked by Moneyweb who were the potential buyers, Wilken said he could not comment. However, he said negotiations were underway and the “price must be right”.

Property analysts have previously said that Hyprop and fellow JSE-listed Reit Attacq overpaid for stakes in the properties in sub-Saharan African, known to be a tough operating environment for both SA Reits and retailers.

“The cost of debt in sub-Saharan Africa is a problem… In addition, for Hyprop the amount of energy and time spent on assets here can be better spent on properties in SA and the SEE region,” Wilken told journalists at the briefing.

In its results statement, Hyprop said the sub-Saharan Africa portfolio “remains a challenge” in light of the severe trading conditions for some of the centres.

“Taking into account the consequent weakness in the portfolio and the need to right-size some malls in the future, we have made prudent downward adjustments to the centres’ valuations resulting in a R1.07 billion impairment for the period,” Wilken explained.

“Some of our African malls remain attractive acquisition opportunities, despite the negative trading conditions. For instance, Accra Mall (Ghana) and Ikeja City Mall (Nigeria) managed to grow foot count in the last six months, and the Achimoto and Kumasi malls (in Ghana) successfully cut vacancies, despite the severity of retail conditions,” he added.

On the local front, Wilken said that despite tough times for retailers, Hyprop continued to “enjoy unabated demand” for space at its local malls. “This is reflected in the ongoing trend of declining vacancies, down to 1.6% from 1.9% six months ago.” 

Hyprop was the first to confirm on Friday that it had in principal “agreed to support Edcon’s restructuring proposal, with a reduction in rentals, compensated for by equity participation in Edcon”. Hyprop, the owner of Canal Walk, Clearwater and Rosebank malls, has the highest exposure of any Reit to Edcon, with around 9% of its GLA occupied by the retailer.

Read: Edcon gets lifeline from the public, landlords and lenders

Wilken would not comment on the value of Hyprop’s stake. However, he said Edcon’s overall funding deal was “exciting and positive” news for the property sector.

“Whilst this (rent reductions) will impact distributable earnings in the 2019 and 2020 financial years by 0.8% and 2.3%, respectively, it is considered an acceptable limitation of the risk,” he added.

In terms of future capital spend, Hyprop plans to invest in a revamp at its flagship Canal Walk Shopping Centre, which will see part of Ratanga Junction’s rides move to the centre as well as an upgrade to the food court.

On its offshore investment in the SEE region, he said Hyprop continued to reap the benefits of a favourable macro environment, with ongoing increases in rental rates and trading densities across the portfolio.

Commenting on Hyprop’s half-year results, Garreth Elston, a portfolio manager at Reitway Global, said: “The results were largely as expected. Hyprop’s South African portfolio remains under pressure, but the performance considering local economic realities has been solid.”

He added: “The ex-SA African assets continue to hamper Hyprop, especially considering that the company significantly overpaid for them. Any disposals that the company manages to achieve will be positive, but it is doubtful that they will realise the level of prices that it desires.”

On Edcon’s impact, Elston said Hyprop would see declines in its distributable earnings for 2019 and 2020. “Sadly South African landlords have intrinsically been held hostage by a tenant with a failing business model, and SA Reit shareholders will be paying the price for Edcon’s woes,” he added.

“Landlords have been put in a ‘damned if you, damned if you don’t’ quandary, but it is a suboptimal use of a Reit’s capital to invest it into department stores (this holds in SA and internationally). Global examples show that it is highly unlikely that Edcon will recover from its malaise and go on to financial health,” said Elston.

Keillen Ndlovu, head of Listed Property at Stanlib, said Hyprop’s results were “reasonably good” given the challenging circumstances, especially in the rest of the continent.

“It looks like the new management team is creating a better base to work from going forward. They improved disclosure on the Hystead structure, which is misunderstood and therefore unliked by the market. The distribution growth outlook is not exciting but is expected, more so when one considers Hyprop’s bigger exposure to Edcon relative to the sector,” he added.

On the planned equity deal with Edcon, Ndlovu said: “It’s a tough call for landlords as Edcon anchors most malls and most malls were built around Edcon. Some of the older leases have clauses that attracted other retailers on condition that Edcon is in the mall.”

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The extent to which a board, in an effort to kick the can down the road, is willing to throw good money after bad, never seize to amaze me. If they acted in the best interest of their shareholders they would have taken shareholder interests in winners like MrPrice, Shoprite or Clicks. They have the opportunity to back the winning horses, but they prefer to put their money on the dog, simply because the dog is too sick to run.

Edcon is not competitive in the current environment. The other retailers are ready to serve Edcon’s clients. The size of the market does not shrink if Edcon goes belly-up. The clients and employees will be welcomed by the competition. By taking up shares in Edcon the landlord is putting the rest of his clients at a disadvantage. It is a conflict of interest. The next step is for the landlord to take up shares in every retailer that is under strain. At that rate the landlord will eventually have majority ownership of the retailers. Then it is an investment holding company with assets that cannot afford to pay the rent to itself. This is how the dog eats its own tail.

s-your logic and articles are usually flawless except in this case it should cease to amaze you.

That was a terrible mistake! thank you for correcting me. I apologize

Seems Nigeria is a lost cause and the kiss of death for any business. Ask MTN.

End of comments.

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