Retail centre owner Hyprop has reported distributable income of 370.4c a share for the financial year ended June 30, a reduction of 8.6% year-on-year, but better than previously anticipated.

In March, management warned shareholders there would be a 15% to 20% decrease in distributable income, owing to higher interest costs for longer, an increase in issued shares owing to the dividend reinvestment plan, further foreign exchange losses on its Nigerian properties and the acquisition of Table Bay Mall in South Africa.

Hyprop attributed the better-than-expected strong operational performance from the South African and Eastern European portfolios, as well as improved cash management, lower hedging costs and reduced margins on refinanced borrowings, the impact of withholding the interim dividend and timing delays in capital projects, which all offset the higher interest costs.

Management is bullish that the group is set for future growth as it delivers on a number of strategic priorities and anticipates an easing of the recent tough trading environment in the year ahead.

A final dividend of 280c apiece was declared in line with the dividend policy being 75% of the distributable income from the South African and Eastern European portfolios.

In the year under review, Hyprop acquired Table Bay Mall for R1.68-billion. The centre is said to be trading well while being integrated into the portfolio.

Meanwhile, since the financial year-end, the group has signed binding legal agreements to dispose of its sub-Saharan Africa portfolio (centres in Nigeria and Ghana) to Lango Real Estate, in exchange for Lango shares. This will free Hyprop’s management to focus on the core portfolios in South Africa and Eastern Europe.

Over the past five years, a number of steps have been taken to reinforce Hyprop’s balance sheet.

The loan-to-value ratio was maintained at 36.4% in June, despite the debt-funded acquisition of Table Bay Mall and impairment of the sub-Saharan Africa portfolio in line with the sale transaction.

At end-June, Hyprop was in a strong liquidity position, with R803-million of cash and R2-billion of available bank facilities. At present, 80% of the interest rate exposure is hedged.

PORTFOLIO PERFORMANCES
For the South African portfolio, despite a challenging domestic economic environment, the group’s nine centres (four in the Western Cape and five in Gauteng), achieved higher tenant turnover, foot count and trading density.

The overall rent reversion rate improved to 5.8% compared with -7% in the prior financial year.

The independent valuation of the South African property portfolio was R25.4-billion as at June 30, compared with R23.03-billion as at June 30, 2023.

The revaluation includes the costs of acquiring Table Bay Mall and shows the result of higher net operating income.

The Eastern European properties delivered very good results, as they benefited from wage escalations in Europe, as well as lower inflation and electricity prices across the region.

Across the portfolio, trading density rose by 8.9% year-on-year and retail vacancies at period end were 0.1%, an improvement from 0.3% a year earlier.

The valuation of the portfolio increased from €574.7-million (R11.8-billion) in June 2023 to €610-million (R11.9-billion) at the end of the 2024 financial year.

For the sub-Saharan Africa portfolio, weak economic conditions in West Africa, particularly in Nigeria, affected the trading performance of the centres, as did the marked depreciation of local currencies against the dollar.

The transaction to dispose of the portfolio to Lango is expected to be completed before December 31.

Hyprop spent R81-million on energy projects in the year, including the installation of solar PV systems at Woodlands, Rosebank Mall and Clearwater Mall, but excluding Table Bay Mall.

This year, work will begin on installing new solar PV systems at The Glen and CapeGate.

Various projects to conserve water are also under way, and the installation of potable water storage at several centres is about to start.

The group has also spent R21.7-million on various initiatives to minimise waste and increase recycling.

OUTLOOK
“More positive sentiment is evident in businesses, consumers and retailers in South Africa as a result of the formation of the Government of National Unity and more stable electricity supply.

“Globally, interest rate cuts are anticipated from the US Federal Reserve, which should encourage the South African Reserve Bank to cut rates also, giving much-needed relief to consumers, in turn having a positive impact on our operations,” CEO Morné Wilken posits.

Hyprop anticipates that it will achieve a 4% to 7% increase in distributable income a share for the financial year to end in June 2025.

This increase is conditional on, among other factors, contractual rental escalations and market-related lease renewals, no further deterioration in South African electricity supply or the economy, and no other regional or global disruptions.