Retail-focused REIT, Hyprop, has reported their annual results. The company’s management made progress towards achieving the group’s strategic objectives which included growing trading densities by repositioning the South African portfolio and introducing capital-light revenue streams.
Hyprop’s distributable income (before the impact of Covid-19) was in line with guidance provided in September 2019 at 664 cents per share. The impact of the pandemic reduced distributable income by R434 million to 493.4 cents per share. Revenue lost on the South African portfolio totalled R267 million, mainly R242 million of rental discounts and deferrals granted to tenants between April and June 2020. An additional estimated R25 million was lost on parking and non-Gross Lettable Area (GLA) income during the same quarter.
Morné Wilken, CEO of Hyprop, says this year will be recorded in history as one of the toughest years globally and the safety and wellbeing of their staff, tenants and service providers were their top priorities during all levels of lockdown: “We worked very hard with tenants to survive the challenging circumstances as a collective. I am very proud of our team and deeply grateful to all our frontline workers who continued to work hard during unprecedented times.”
Significant steps were taken to strengthen the company’s balance sheet. Hyprop’s Dollar-denominated debt was reduced by $271 million over the last two years from the proceeds of the sales of the African assets and refinancing Dollar-denominated debt in Rands while R1.2 billion of cash was retained from the 2020 financial year to repay debt.
“Strengthening the group’s balance sheet and its exposure to Euro and Dollar-denominated debt secured by Rand-denominated assets are high priorities” comments Brett Till, CFO of Hyprop Investments. “These objectives will be achieved by lowering cash distributions, the exit strategy from Sub-Saharan Africa and recycling assets.”
The group’s Loan to Value (LTV) as of the 30th of June 2020 was 41.4%. It was negatively impacted by the decrease in the value of investment of property due to Covid-19, some impairment on the African assets and the devaluation of the Rand. Hyprop’s interest cover ratio (ICR) was 3.0 times at period end.
Progress was made on the repositioning of the South African portfolio. During the reporting period, exposure to the Edcon Group was reduced successfully and three new Checkers FreshX stores were secured as anchor tenants at The Glen, Rosebank Mall and Woodlands. Hyprop made good progress in completing three of the six solar projects in Gauteng, while Canal Walk secured a 5-Star Green Rating.
The portfolio deal with Massmart was successfully concluded and agreed on new seven-year leases on the Game stores, combined with upgrades to the new Game concept store and new ten-year leases as well as upgrades to the latest specification for the Builders Warehouse stores at Atterbury Value Mart and Woodlands. The space vacated by the closure of Dion Wired has been re-let at Somerset Mall to Toys R Us, Hyde Park Corner to PNA and Canal Walk to anew look flagship store for PEP.
The first SOKO District, which is part of Hyprop’s non-tangible asset strategy, is scheduled to open in the Rosebank Mall during the first quarter of 2021. SOKO means ‘market’ and the SOKO District will serve as a marketplace where retailers can rent space and reusable shop fittings via a flexible digital leasing platform without the significant financial commitments in the traditional retail environment. The leasing platform is powered by data driven shopper, product, and trend analyses, resulting in location recommendations that will match retailers, products, and shoppers across Hyprop’s portfolio.
“As the stringent Covid-19 lockdown levels are relaxed, we are seeing an increase in foot counts at our malls, and more activity and enquiries from potential new tenants. After months of lockdown, we are reaffirming that we are social beings who like to interact and experience life, justifying our strategy of creating safe environments and opportunities for people to connect and have authentic and meaningful experiences.” said Wilken.
Retail vacancies were 2.4% at the end of the reporting period with annual rental escalations maintained at 7.1% and tenant retention at 91%.
Hyprop made progress in increasing the dominance of its centres in the Eastern European portfolio. It acquired the remaining 10% interest in City Center One East and City enter One West in Zagreb, Croatia.
Inditex recently announced its plans to close certain stores and to increase its focus on online trading. Seven of Hystead’s 32 Inditex stores, which include the smaller brands Oysho, Pull and Bear, Stradivarius and Bershka, are earmarked for potential closure in Delta City, Podgorica, Delta City Begrade and The Mall in Sofia. The leading Zara and Massimo Dutti stores will remain open at these malls. Hyprop have identified several potential replacement tenants and the company is in discussions with Defacto, Sportisimo, Nike, Terranova, Pandora, Tiffany, Cropp and House (part of the LPP Group).
“We are on track with the repositioning of Skopje City Mall. The Hyper extension in The Mall in Sofia, Bulgaria, has been opened successfully. Our strategic target is to increase the dominance of our malls in this region through asset management initiatives, upgrading facilities, securing new tenants, rightsizing existing tenants and extending malls, where appropriate” comments Wilken.
Hyprop’s Board of directors has deferred the decision on the settlement of the interim dividend and the declaration of a final dividend until December 2020.
“We will continue to focus on implementing our revised strategy, preserving cash, and strengthening the balance sheet. Unprecedented times also present unique opportunities and we will continuously consider ways to unlock value and identify growth opportunities.
“While the future remains uncertain, the focus on our tenant relationships remains imperative as we weather the storm together and ensure we retain the loyalty of our tenants and visitors whilst positioning ourselves to trade more strongly in the long-term,” concludes Wilken.