South Africa’s largest retail-focused real estate investment trust (Reit) Hyprop may have to wait at least a year before it regains its Moody’s investment grade rating as it looks to reduce its debt with the sale of its ‘rest of Africa’ properties.
It confirmed the sale of its first assets as part of the AttAfrica portfolio in a pre-close statement on Friday but is only expecting to finalise the sale of all its sub-Saharan Africa assets (excluding SA) by mid-2020. The portfolio includes five retail properties within AttAfrica and a stake in Ikeja Mall in Nigeria, which in total it values at around R4 billion.
This comes as its investments in the rest of Africa have not paid off, resulting in an impairment of more than R1 billion in the value of these assets.
It also follows ratings agency Moody’s Investors Service downgrading Hyprop’s long-term ratings to Ba1/Aa3.za from Baa3/Aa1.za in February.
At the time Moody’s said the downgrade was “driven by the company’s increased leverage stemming from debt funded acquisitions across Eastern Europe through majority owned Hystead as well as increasing reliance on external financing to cover debt coming due in the next 18 months”.
Exposure in countries with low ratings
Moody’s also cited Hyprop’s “growing exposure to retail properties across countries with low ratings in the rest of Africa and Central and Eastern Europe” as one of the other factors in its rating decision.
Hyprop has the largest stake in AttAfrica at 37.5%, while fellow JSE-listed Reit Attacq has a 31.8% stake with the balance owned by minority shareholders.
All properties within the AttAfrica portfolio were developed by SA-based development and investment group Atterbury. The portfolio includes Manda Hill Shopping Centre in Zambia as well as four retail centres in Ghana (Accra Mall, Achimota Retail Centre, West Hills Mall and Kumasi City Mall).
Moneyweb revealed last Thursday that Growthpoint Investec African Properties (Giap) was the buyer of the first two properties within the AttAfrica portfolio. Hyprop and Attacq confirmed on Friday that it had disposed of its interests in Achimota Retail Centre for an undisclosed sum, while the sale of another property is impending.
Giap, a joint venture between Growthpoint Properties and Investec Asset Management, confirmed the deal yesterday (Monday) saying it had acquired 97.5% of the 15 000m2 Achimota Retail Centre.
It has agreed to buy another AttAfrica property, although conditions precedent need to be met for the deal to be finalised. Moneyweb understands that the second property is the Manda Hill Shopping Centre in Zambia.
‘We did lose some money’
Responding to a Moneyweb question during its pre-close broadcast about its failed foray into the rest of Africa, Hyprop CEO Morné Wilken conceded that “based on the valuations we communicated to the market we said there were impairment costs of around R1.1 billion, so effectively we did lose some money”.
However, he says Hyprop has now begun the process to reduce its exposure to sub-Saharan Africa with the sale of these assets. Hyprop’s share of the proceeds has been earmarked to reduce its US dollar debt.
Wilken says Hyprop is looking to restore its Moody’s investment grade rating by bringing down its loan-to-value (LTV) ratio, which according to the ratings agency is around 43%. He says according to Hyprop’s own calculations its LTV was 34%, nevertheless it was “reducing its debt to get in line with what Moody’s wants”.
Three-phase disposal plan
Wilhelm Nauta, Hyprop’s chief investment officer, says the disposal of its sub-Saharan Africa assets will be done in three phases. “The first phase includes the sale of Achimota Retail Centre and one other property within the AttAfrica portfolio, which we hope to finalise by the end of July.”
Phase two will include the disposal of its stake in Ikeja Mall in Nigeria, which is targeted to be complete by March 2020, while the rest of the assets are planned to be sold by June 2020. The sale of all its rest-of-Africa assets is expected to bring Hyprop’s LTV down by as much as 5%.
Wilken noted: “We are now focusing our attention and capital on our South African and Eastern European businesses; however, we also want to exit the rest of Africa in an orderly way … We believe that we are on the right track to getting Hyprop back to where it needs to be.”
Following Hyprop’s first AttAfrica disposal, its sub-Saharan Africa portfolio will now comprise 7.5% of Hyprop’s global property portfolio, down from 8.3%. In March 2019, Hyprop also successfully refinanced R4 billion in debt.
“Our focus areas include continuing to improve trading densities, minimising the impact of reversions, and identifying new potential revenue streams in South Africa, while in Eastern Europe we will increase value through asset management initiatives and improved clarity on financial reporting,” says Wilken.
Hyprop’s share price was up 1.67% yesterday (Monday), closing at R71.04. However it is still down -13.24% year to date and -31.73% over the past year.