Hyprop increases interim distribution, mall assets recover

Hypprop Investments CEO Morné Wilken said we are optimistic that trading conditions will return to pre-Covid levels, as evidenced by trading metrics across all of our portfolios.

After visits fell during the height of the COVID-19 crisis, retail-focused Hyprop Investments (JSE:HYP) reported encouraging tenant business performance across its retail portfolio retail, reaching pre-Covid levels.

Shopping center owners including Liberty Two Degrees (L2D), Resilient Reit, Fairvest, Vukile and Attacq have seen strong stock price gains in recent months.

The successful repositioning of Hypprop Investment’s South African portfolio is evident in the recovery of its tenants’ business performance since the lifting of restrictions.

Trading performance has returned to pre-Covid-19 levels, or even higher in some cases, thanks to Hypprop’s repositioning strategy called Golden Thread.

The Sub-Saharan Africa (SSA) portfolio has also recovered well in recent months, while in Eastern Europe (EE) tighter Covid-19 restrictions have delayed the recovery.

Hyprop is a retail-focused REIT, owning various shopping centers with a total value of R42 billion. The Group is committed to creating safe environments and opportunities for people to connect and have authentic and meaningful experiences, which is achieved by owning and managing dominant shopping centers in mixed-use neighborhoods in economic nodes keys in SA and in EE.

“There are signs that the global impact of Covid-19 is diminishing and economies are reopening after two years of Covid-19 restrictions. We are optimistic that trading conditions will return to pre-Covid levels, as evidenced by trading metrics across all of our portfolios over the past six months,” said Morné Wilken, CEO of Hypprop.

Financial performance
In the six months to December 31, 2021, Hyprop increased distributable income by 21% to R501 million on a like-for-like basis. This improvement reflects reduced Covid-19 haircuts, lower expected credit losses on trade receivables and interest expense savings due to a reduction in its debt.

Distributable income per share for the six month period was 146.5c (2020: 160.6c). The reduction compared to the comparative period in 2020 results from the issuance of new shares after strong shareholder support for the dividend reinvestment plan (DRIP) for the year to June 2021. The DRIP was supported by 85 % of shareholders and raised R876 million in equity. Until market conditions stabilize, the board plans to pay an annual dividend at the end of the year.

Over the past two years, Hyprop has strengthened its balance sheet. The consolidated Loan to Value (LTV) improved from a peak of 51.7% in June 2020 to 41.5% as of December 31, 2021, despite a decline in the valuation of its SA portfolio over the same period. This was achieved through the recycling of non-core assets, namely Atterbury Value Mart and Delta City in Belgrade, and successful DRIPs for fiscal 2020 and 2021.

Regional shows
In South Africa, there was a 5.1% year-on-year improvement in visitor numbers across the portfolio and an 8.3% improvement in retail density, reflecting the resilience of the centers and the repositioning strategy of Hyprop. Commercial vacancy was 2.4% as of December 31, 2021, then further decreased to 1.4% as of February 28, 2022.

In EE, access to most centers was limited to buyers with EU green certificates (proof of vaccination, negative antigen test or proof of recovery from Covid-19). This has impacted business metrics, especially in food courts. Total visitors increased by 12.8% year-on-year and retail density improved by 11.2%. The retail vacancy rate was 0.3% in December. These restrictions were subsequently lifted and there has been a marked improvement in attendance in all the centres.

In SSA, the number of steps increased by 9.1% and retail density improved by 6.7%. Retail vacancies were 11.6% in December 2021. While Hyprop plans to exit the SSA portfolio, it is focused on creating value through active asset management until that happens. occur, which is evident in the enhanced bargaining metrics.

Setting up the Hystead Liquidity Event
Hyprop currently owns 60% of Hystead, with PDI Investment Holdings owning the remaining 40%.
In February, the company announced that it had reached an agreement with Hystead to acquire four assets from the Hystead portfolio. These main assets are the Skopje City Mall in North Macedonia; City Center one East and City Center one West in Croatia; and the Sofia shopping center in Bulgaria. Hystead’s fifth property, Delta City Podgorica in Montenegro, is being sold and until the sale is finalized, Hyprop will retain its existing €45 million stake in the asset, representing 60% of the value. .

The Hystead transaction is consistent with Hypprop’s strategy for its EE portfolio to acquire premium commercial properties in their respective jurisdictions that have future growth potential through active asset management and development initiatives, leveraging Hypprop’s South African expertise.

“The transaction is in line with our strategy to further diversify our exposure to Eastern Europe, mitigate the company’s risk to the weaker South African economy, simplify the group structure and will also address certain concerns previously raised by shareholders, particularly Hystead’s financing structure,” Wilken commented.

Outlook
Inflation is reaching high levels in the economies of many of our trading partners and will put pressure on margins. Hypprop’s repositioning strategies are appropriate in a low rental growth environment and are gaining momentum, as evidenced by results released today. We are optimistic that over time trading conditions will return to pre-Covid levels, as evidenced by trading metrics across all of our portfolios over the past six months.

“The main priorities for the next six months will be the implementation of the Hystead liquidity event with the divestiture of Delta City Podgorica and the acquisition of the remaining four centers by Hyprop; continue to strengthen our balance sheet; annual reviews of our portfolio to ensure we retain assets that fit our strategy, continued repositioning of our SA portfolio, reduction of operational costs and implementation of ESG initiatives. We will also closely monitor the impact of the Ukraine invasion on our EE portfolio,” concluded Wilken.


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Peggy P. Gilmore