Johannesburg - Mega-malls are still making money, while smaller centres are taking a smack, interim results released earlier on Monday by retail-focused property stocks Hyprop Investments and SA Corporate Real Estate Fund showed.
Hyprop - which owns a R7.2bn retail portfolio including large regional centres like Canal Walk at Cape Town's Century City and Hyde Park and the Rosebank Mall in Johannesburg - is still reporting healthy revenue growth at most of its shopping centres, a trend which clearly defies the overall slump in national retail sales.
The group reported growth of 7.3% in income payouts (distributions) to investors for the six months to June 2009 year-on-year (y/y). Net income from five of its shopping centres - excluding new mall Stoneridge at Modderfontein, Johannesburg - was up 10%.
Mike Rodel, newly appointed CEO of Hyprop, said the fact that the fund still delivers high single-digit distribution growth in the midst of a recession is testimony to the resilient quality of its portfolio.
Rodel noted the drop in national retail sales appears to be taking place mainly at smaller shopping centres in outlying and secondary areas, as the tills continue to ring at regional malls.
Vacancies at four of Hyprop's six malls are still at a negligible 2% or less. Stoneridge, which opened to a challenging start in September 2008 at the onset of the downturn, is the biggest contributor to the portfolio's overall vacancy of 4.4%. The latter's vacancy sits at 21%.
Shopper flow (foot count) at Hyprop's malls are down 5% in the six-month period, but spend per head is up 7%. Rodel cited construction activity at Canal Walk, Hyde Park and The Glen (Johannesburg) as a key reason why shopper flow has decreased. However, he expected more shoppers to visit these centres during the summer months as construction activity is nearing completion.
Rodel conceded distribution growth of 7.3% is markedly down on the average 17% per annum delivered by Hyprop between 2004 and 2008, but said single-digit growth is in line with expectations given the present economic climate.
The group's performance is in stark contrast to that of struggling fellow retail-focused property fund SA Corporate, which announced a 0.5% drop in income payouts for the six months to June 2009 y/y.
People prefer one-stop shopping
The bulk of Old Mutual-managed SA Corporate's R5bn shopping centre portfolio is smaller centres sized at less than 35 000 square metres. Its retail vacancies have increased from 6% to 8% in the six months to June 2009.
Management, under the leadership of new MD Len van Niekerk, said the difficult economic environment has influenced demand for retail space, causing a slower take-up of vacancies and placing a damper on rental growth.
Property analysts said the disparity between the results posted by Hyprop and SA Corporate is indicative of SA consumers now favouring the bigger, dominant malls that offer the right critical mass necessary to do comparative shopping.
Kundayi Munzara, head of research at Investec Properties, said regional malls are also apparently finding it easier to replace tenants that have been forced to close shop, as some of the national retailers are using the downturn to increase their footprint in dominant centres while closing underperforming stores in smaller ones.
Zayd Sulaiman, property analyst at Catalyst Fund Managers, said Hyprop's results showed super-regional malls in prime positions are clearly better placed to weather the storm than their smaller counterparts.
He believed Hyprop remains the R95bn listed property sector's best bet for investors looking for exposure to SA's retail consumer spending market.
Hyprop's share price was up 0.6% following the release of its results in early trade on Monday to a four-month high of 4 200c, while SA Corporate's share price was up 5.7% at 275c.
- Fin24.com