Hyprop’s repositioning of South African malls well underway

CEO of Hyprop, Morné Wilken.
CEO of Hyprop, Morné Wilken.

Hyprop has recently reported interim results that demonstrates progress in implementing the Company’s new strategy. As a result, trading density of the South African portfolio increased by 0.6% for the six months ended 31 December 2020 and 1.4% over the past twelve months, while the trading density of the Eastern European portfolio increased by an average of 3% over the reporting period.

The Company currently has interests in a R48 billion portfolio of shopping centres in South Africa, sub-Saharan Africa (excluding SA), and Eastern Europe. Its vision is to create environments and opportunities for people to connect and have authentic and meaningful experiences across its tangible assets, as well as intangible assets by embracing digitisation and technologies in the retail, property and infrastructure spaces. Hyprop’s tangible asset focus is on mixed-use precincts, underpinned by dominant retail centres in key economic nodes in South Africa and Eastern Europe.

Excited about the repositioning of Hyprop within a very competitive and fast changing retail environment, CEO Morné Wilken commented: “We understand the importance of our assets being relevant to tenants within our centres and thereby meeting the needs of our customers. To this end we have adopted a multifaceted approach and completed a full market study and nodal analysis on our portfolio. The profiles and footprints of our tenants are evolving and customers no longer visit malls to purely purchase and transact. Our malls are morphing into community spaces that offer a wider range of social experiences and amenities.

“We have also launched a detailed feasibility study on our new technology-based retail concept, that will allow tenants to source and rent space on a flexible basis, enhancing our non-tangible asset focus.”

Hyprop reduced its Edcon exposure by 18%, from 66 781m² in December 2018 to 54 569m² in February 2020 in line with its strategy. The introduction of the new Checkers FreshX stores at The Glen, opened in November 2019, and Rosebank Mall, to open in December 2020, will enhance the customer experience and choice at those malls. The exposure to Edcon will reduce by a further 4 400m2  as Checkers will take up the space currently occupied by Edgars in Rosebank Mall.

The Company also acquired a stand-alone office, 17 Baker Street in Rosebank, due to its strategic location adjacent to the Rosebank Mall, and in line with its strategy to own and manage vibrant mixed-use precincts underpinned by dominant retail centres in key economic nodes.

SA retail vacancies increased from 0.8% at 30 June 2019 to 1.6% at 31 December 2019.

“The leasing team has worked hard, as tenants seek to right-size stores in the current economic environment. Despite rent reversions, a reality in the current economic environment, our malls have proved to be resilient. 50% of the total portfolio has already been re-let/renewed in the current cycle of reversions and we have retained 98% of our tenants,” said Wilken.

Hyprop’s focus on enhancing the dominance of its malls in Eastern Europe through asset management initiatives, securing new tenants, rightsizing tenants and extending the malls where possible is progressing well. The opening of the Hyper-extension of The Mall in Sofia, Bulgaria was successful and bodes well for trading density at the mall. Hystead also acquired the remaining 10% interest in City Centre one East and West in Zagreb, Croatia, now wholly owned by Hystead. Letting continues to be strong with high demand for space in Hystead’s malls. This is evident in vacancies reported at a low 0.2% as at 31 December 2019.

Brett Till, CFO of Hyprop, is optimistic that the company will restore its investment grade credit rating over time. “Our current LTV is 34,2%, with a healthy level of interest cover at 3.8 times. 78% of the Company’s borrowing costs are hedged. We deal with a variety of South African and overseas banks, as well as the local debt capital markets, and have always had good access to funding. New corporate bonds worth R950 million were issued during the period.”

Distributable income per share was reported in line with guidance given for the year ended 30 June 2020, which remains unchanged.

Confident in the team’s ability to deliver, Wilken said: “We believe that achieving our strategic priorities will create a more defensive business and platform for sustainable growth. The asset management initiatives to reposition our South African malls and improve the dominance of our Eastern Europe portfolio remain at the core of this.

“Together we are working hard to position our malls to provide a world class service and experience to our tenants and shoppers by creating a signature experience from the moment a shopper arrives, throughout their visit, to the time they leave. A uniquely Hyprop experience is one of the ambitious goals that we have set ourselves. We believe this will make our malls the first-choice for shopping, dining, leisure and entertainment experiences.”