Specialist shopping centre real estate investment trust (Reit) Hyprop reported a net profit of about R1.3-billion for the financial year ended June 30, compared with a loss of R837-million incurred for the 2021 financial year. 

The Reit attributed the swing to a net profit primarily to the increase in the fair value of the group’s investment properties of R459-million, compared with a decrease of about R1.5-billion in the prior year, along with goodwill of R433-million written off in 2022. 

Distributable income for the year therefore increased from just over R1-billion last year to R1.17-billion this year and distributable income per share increased from R33.65 to R34.25. 

The main factors that impacted the change in distributable income per share, according to Hyprop, were the sale of Atterbury Value Mart in on July 2 last year; the consolidation of the results of the Eastern Europe portfolio with effect from March 31; the reduction in the impact of Covid-19 on the group’s operations; the inclusion of the net profit from Ikeja City Mall in distributable income; and the effect of an additional 34.4-million shares – equivalent to 11% of the number of shares in issue – issued in October last year. 

The Reit reported a financial year-end market capitalisation of R12.5-billion, with interests in a R40-billion portfolio of shopping centres in South Africa, Eastern Europe and sub-Saharan Africa.

SOUTH AFRICA PERFORMANCE 

Distributable income from the South African portfolio increased by 9% year-on-year. In nominal terms, the distributable income decreased from R1.04-billion in 2021 to R1-billion this year, following the disposal of Atterbury Value Mart.

Retail rent reversions for the year were negative 13.6% on 118 684 m2, down from the negative reversions of 23.6% last year. 

“All indications are that the negative rent reversion cycle of the last four years is coming to an end,” the Reit reported. 

The effort ratio, which is the total tenant occupancy cost divided by the tenant’s turnover, on the portfolio reduced to 9.6% and the Covid-19 rent relief granted to tenants reduced from R149-million in 2021 to R42-million in 2022, as Covid-19 restrictions were lifted. 

Property expenses increased from R1.05-billion last year to R1.18-billion. The main reasons for the increase as cited by Hyprop were a R74-million or 11% increase in municipal and utility costs, a R17-million increase in marketing staff costs owing to a change in accounting allocations and matched by an increase in marketing revenue, Soko district operating costs, and a 7% decrease in the remaining, controllable property expenses, including expected credit losses.

The cost to income ratio increased from 43.4% to 44.4% year-on-year.

PORTFOLIO AND RISKS 

Hyprop’s portfolio in South Africa includes super regional centre Canal Walk, large regional centres Clearwater, The Glen, Woodlands, CapeGate, Somerset Mall and Rosebank Mall, and regional centre Hyde Park Corner. 

Hyprop’s Eastern Europe portfolio comprises The Mall in Sofia, Bulgaria; City Center One East and City Center One West, both in Zagreb, Croatia; and Skopje City Mall in Skopje, North Macedonia. 

The sub-Saharan Africa portfolio includes interests in Ikeja City Mall in Lagos, Nigeria; Accra Mall and West Hills Mall in Accra, Ghana; and Kumasi City Mall in Kumasi, Ghana. 

By June 30, the Covid-19 restrictions in all of the jurisdictions in which Hyprop operates had been lifted, which meant that key trading metrics for all portfolios have returned to pre-Covid-19 levels. 

Despite the waning impact of Covid-19, the global economy has had to adjust rapidly to new challenges stemming from Russia’s invasion of Ukraine in February, along with rising inflation and interest rates. 

The impact of these events in South Africa is compounded by the already weak economy, unreliable power supply, political “noise” and rising tension between organised labour and business, placing more pressure on consumers and businesses alike. 

Russia’s invasion of Ukraine, and rising inflation and interest rates, have heightened global economic risk, increasing the level of risk in the jurisdictions in which Hyprop operates. 

One of the risks is the devaluation of the South African rand, Nigerian naira and Ghanaian cedi against major currencies. 

Further, liquidity constraints in the Nigerian foreign exchange market since January 2020 remain a concern, as well as the failure of municipalities in South Africa to deliver basic services to property owners and of Eskom to meet the country’s energy demands. 

Hyprop also cited increasing energy costs in its Eastern Europe portfolio, along with the increase in number and sophistication of cybersecurity and ransomware attacks globally as being areas of risk for the group.