Johannesburg - Retail-focused real estate fund Hyprop Investments declared a robust 14.1% growth in distributions for the year to end-December 2008 on Monday, making it one of the listed property sector's top performers in terms of income growth.
Hyprop owns regional shopping centres such as Hyde Park, the Mall of Rosebank and the Glen in Johannesburg as well as Canal Walk at Century City in Cape Town. The latter is regarded as the biggest mall in Africa.
Revenue at Hyprop's six shopping centres rose 13.9% in 2008, with net income up 13.1% on a like-for-like basis. Outgoing CEO Pieter Prinsloo attributes the positive set of results to strong demand for retail space at most of its regional malls, regardless of weaker trading conditions.
Says Prinsloo: "The quality of the shopping centres which dominate in their respective areas along with low vacancies and good rental growth make up the defensive qualities of our retail portfolio. These qualities allow Hyprop to continue to perform despite pressured consumer spend and the depressed local economy."
Vacancies at Hyprop's shopping malls (excluding Stoneridge centre, which opened near Modderfontein in September 2008) remained below the industry average at a marginal 1.5%. However, if the sizeable vacancy of 15% at the new 50 000 square meters Stoneridge centre is taken into account, Hyprop's overall vacancy rose to 3.3% in 2008.
Prinsloo says despite the slowing economy, Hyprop intends to grow its R9.3bn portfolio through internal expansion with the completion of an R662m development programme in 2009. This programme includes six stand-alone pods at Canal Walk at the cost of R206m, adding 15 500 square meters of retail space; a R278m expansion programme adding 19 400 square meters retail space and 1 100 parking bays to the Glen; and a R179m four-star hotel at Hyde Park shopping centre.
Stoneridge vacancies cause concern
Hyprop also reported a considerable increase in net income from its 37% stake in fellow retail-focused listing Sycom Property Fund, valued at R1.4 billion. The same investment was included in 2007 for only three months from the purchase of the Sycom units in October 2007.
Although Hyprop was able to deliver double-digit growth in income payouts in 2008, management doesn't expect a repeat performance in 2009. "We foresee a slowdown in turnover, with more line shops coming under pressure as consumer spend continues to slow. There are likely to be tenant replacements and rental collections are becoming more difficult," says Prinsloo.
Management expects a distribution of between 328c and 332c/unit for 2009, which means that income growth will slow to 7% to 8% in 2009, down from 14.1% in 2008.
Property analysts reacted favourably to Hyprop's latest set of results, although the relatively high vacancy at Stoneride appears to be cause for some concern.
Coronation Fund Managers property portfolio manager Anton de Goede says Hyprop delivered a good performance in 2008, showing the resilience of well-positioned, dominant shopping centres. However, the vacancy level at Stoneridge illustrates the risk in development pipelines which will need to be "carefully managed", says De Goede.
The Hyprop board have yet to announce a replacement for Prinsloo but chairperson Micheal Aitken says they are in the process of identifying an "appropriate" candidate. Asked whether Hyprop would renew its management contract with Madison Property Fund Managers when the contract expires at end-2009, Aitken said that is highly unlikely.
However, he added that Madison founders Wolf Cesman and Marc Wainer will probably continue to play a role in strategic decision-making.
"Madison has in the past [added] and continues to add considerable strategic value. In the interim, the day-to-day operations of Hyprop will not be affected. Hyprop is a very well-resourced company with competent, experienced teams."
- Fin24.com