The Covid-19 impact on the assets and financial performance of JSE-listed retail property fund Hyprop Investments is diminishing.
Hyprop CEO Morné Wilken said on Wednesday the company obviously had to give more rental relief during the hard lockdown and the extent of the rental relief it is giving tenants now has declined.
However, Wilken said “it’s still not where we want it to be” and that Hyprop will have to continue to give tenants rental relief until the Covid-19 lockdowns are completely lifted or there aren’t any restrictions on how retailers can trade.
Wilken added that it was key for Hyprop to ensure, for example, that the restaurants in its malls do well and indicated there are some tenants that are still struggling under the variations of the lockdowns, such as cinema houses.
Hyprop reported on Wednesday that the Covid-19 impact reduced distributable income by R278 million, or 90 cents per share, in the year to end-June, with R159 million in rental discounts granted to tenants and a R119 million reduction in income from Hystead, the UK-based company housing Hyprop’s European investments.
Retail vacancy rates in the South African portfolio remained constant between June 2020 and June 2021 at 2.4%, which Hyprop says is a sound achievement in the current economic climate.
However, Hyprop reported an increase in office vacancies in the South African portfolio to 24%, which it attributed to an increase in the number of employees working from home and a reluctance by companies to renew office leases.
The vacancy level in Hyprop’s Eastern Europe portfolio was 0.3% at end-June, which it said confirmed the dominance of the malls in their markets.
Hyprop, which has a strategy to exit from sub-Saharan Africa, said its Ikeja City Mall in Nigeria remains fully let and the vacancy rate in its malls in Ghana reduced from 16.7% to 16.1%.
Distributable income reduced from 493.4 cents per share to 336.5 cents per share and a dividend of 336.5 cents per share for the year was declared, with shareholders entitled to elect to reinvest the net cash dividend in return for additional Hyprop shares.
Luister na Ryk van Niekerk se onderhoud met Hyprop uitvoerende hoof Morné Wilken:
Hyprop’s distributable income performance improved by 19% in the second half of its financial year compared to the first half.
This was led by the South African portfolio, which achieved R571 million of distributable income in the second half compared to R470 million in the first half.
The increase in the number of ordinary shares in issue by 21% to R53 million from support for the ‘dividend reinvestment alternative’ in the 2020 financial year, which raised R77 million in equity, and the accelerated book build in April 2021 that raised R358 million, contributed to the decrease in distributable income per share.
Hyprop settled the last $117 million of the US dollar equity debt on the African portfolio in the year while the sale of Atterbury Value Mart in Pretoria, which was implemented July 2 2021, further strengthens the balance sheet and reduces the see-through loan-to-value (LTV) to 34.9%.
Wilken confirmed that people are visiting malls less frequently and other omni channels, such as online shopping, have accelerated because of the Covid-19 lockdowns.
Strategy to keep malls ‘relevant’
Hyprop is in the throes of a multi-year initiative to reposition its South African portfolio with the aim of improving footfall, tenant performance and ultimately rental income.
Wilken said this requires ensuring that Hyprop malls are meeting the needs of its immediate catchment area and remain “fresh and relevant”.
“We are trying to create a community centre and a one-stop shop for our customers. That is why we have been running a pilot Pargo, which is an online shopping centre collection point.
“The intention of that is to get the customer to arrive at our mall, pick up their online shopping and do some stuff at our mall,” he said.
Wilken said Hyprop has recently also opened the first Soko district at the Rosebank Mall.
“A lot of your online retailers are coming into the physical space and that indicates that people still want to feel and touch products before they buy them,” he said.
“That is not just a trend in South Africa, it’s an international trend, which is quite positive.”
Hyprop has also opened its first self-storage facility at the Rosebank Mall and earmarked the development of three more at Clearwater Mall in Roodepoort, The Glen in Johannesburg and Canal Walk in Cape Town.
Wilken said it converted some unutilised parking bays at the Rosebank Mall into storage facilities because of the demand created by the increase in smaller residential units in the surrounding areas.
“It’s [storage] important for us but will only be linked to the malls. We will not start having storage facilities outside our malls,” he said.
Eastern European sale
Hyprop reported that Hystead has accepted an offer to sell Delta City in Belgrade in Serbia for €115 million (R1.9 billion).
Wilken said the rationale for this disposal is that Hyprop needs to ensure the assets on its balance sheet strategically fit the business.
He said Eastern Europe is attractive because not much retail development has happened there compared to South Africa, which is over traded.
“There is a growth opportunity in Eastern Europe. If you can retain your malls as dominant malls you actually prevent competition from opening up and can have nice growth in the longer term,” he said.
Wilken said the emergence of new variants of Covid-19 will impact the economies and trading conditions in most jurisdictions in which Hyprop operates but they are confident the group’s strategy and key priorities remain relevant, even in a prolonged Covid-19 environment.
Evan Jankelowitz, a fund manager at Sesfikile Capital, said the highlight of Hyprop’s financial results was the sale of Delta City Mall in Serbia, which gives “the see-through [LTV] much needed respite”.
However, Jankelowitz said the market is still waiting anxiously for details on the expected acquisition by Hyprop of Hystead minorities.
“Locally it has been unsurprisingly tough, [through] no fault of their own. However, it does put into question the ‘keen’ valuation yields which have held up exceptionally well through these recent rough patches.”
Shares in Hyprop rose 0.77% on Wednesday to close at R27.43.