Hyprop Investments: Shopping around for opportunity

In recent years South Africa has seen a plethora of shopping mall developments popping up around the country. Building and project managing such developments is a challenging but ultimately rewarding business when handled by the right approach. At Hyprop Investments, careful and refined strategy has delivered significant reward for over a quarter of a century.

HypropHyprop is South Africa’s largest listed specialised shopping centre fund and it is reported that the fund currently has R22.5 billion of assets under management. Hyprop was listed on the Johannesburg Stock Exchange back in 1988 and has consistently ranked as a top performer with ongoing annual growth in returns ahead of local and international industry averages.

Amongst Hyprop’s existing portfolio are 11 prime shopping centres that encompass in excess of 720,600 square metres of lettable area, classified as regional, large-regional, super regional and lifestyle.

At the end of August, the company announced a strong set of results with dividends increasing by 7.6 per cent to 213 cents a unit. This performance was underpinned by positive rental growth, a reduction in interest costs and improved operating efficiencies.

Commenting on the results, CEO, Pieter Prinsloo stated: “Notwithstanding a challenging economic environment our centres performed well.”

Distributable earnings from shopping centres were reported to be up 7.2 per cent, with Canal Walk and Hyde Park reflecting double digit growth. Prinsloo added: “Our focus will remain on yield-enhancing expansions and refurbishments at existing shopping centres. Taking into account the short-term dilution effect of the Rosebank Mall redevelopment, we expect distribution growth of 6.5 per cent to 8.5 per cent for the year to June 2014.”

One of the key element’s to Hyprop’s growth strategy is full or majority ownership of high quality shopping centres in South Africa. Over the years, Hyprop has developed a strong set of in-house management expertise and has focused on developing a successful tenant mix on each site while paying attention to escalating rental levels and closely monitoring arrears and overheads.

The company’s portfolio includes 1 super regional shopping centre, 4 large regional centres, 2 regional and 3 value/lifestyle centres, with occupancy levels reported to be at 97.3 per cent and vacancies at the shopping centres less than 1 per cent.

Part of Hyprop’s strategy is to redevelop some of the existing sites and Prinsloo comments on some of the present projects: “Extensions to Edgars at The Glen and Canal Walk to accommodate international brand Topshop, totalling 5,400 square metres, are scheduled to open for trading in Q4 2013.”

Additionally, the company owns 5 office parks and buildings encompassing 75,705 square metres of lettable office space, which the company reported was 91.2 per cent let last December.

One of the higher profile developments that Hyprop is involved in is the redevelopment of the Rosebank Mall in Johannesburg. The R920 million redevelopment and extension of Rosebank Mall (formerly The Mall of Rosebank) began in August 2012 and is set to considerably boost the Rosebank node and provide shoppers with a refreshed and modernised retail facility. Construction is scheduled to take 25 months and is expected to complete by September 2014.

The work will almost double the size of the Mall which will continue trading for the duration of the construction work. On completion of the project Rosebank Mall will boast approximately 160 stores to dominate the retail landscape in the busy Rosebank node.

The company has indicated that the programme is progressing well with the new basement parking and level 1 entrance completed and the first new shops set to be opened this coming December.

Commenting on the progress made, Prinsloo said: “The redevelopment is on track for final completion in September 2014 and has seen a positive response from retailers, with 95 per cent of the centre leased.”

The company indicated that including the now enlarged interlinking bridge, the total capital cost of the Rosebank Mall project amounts to R932 million at an anticipated yield of 7 per cent.

Earlier this year the company also announced the R2.3 billion acquisition of the Somerset Mall in the Western Cape, from Sycom Property Fund. The company reported that the purchase consideration is being settled by the transfer of 81,500,000 Sycom units to Sycom, which will clear the way for Hyprop to exit its investment in Sycom.
Following this news, Prinsloo stated: “Not only are we pleased to have acquired a high quality regional shopping centre that complements our existing portfolio,but also that it has provided us the opportunity to convert an indirect investment into a direct property asset.

The transaction allows Hyprop a clean and complete exit from the Sycom investment, in line with our stated objective.” The effective date of the transaction is 1 October 2013.

It must be stated that the acquisition remains conditional on regulatory and Sycom unitholder approval as well as the conclusion of the purchase by Sycom of the remaining 50 per cent stake in Somerset Mall which it does not hold. Sycom has received an offer from AECI Pension Fund to buy the remaining stake for R1.15 billion and has indicated its intention to accept the offer.

The acquisition, once completed, will further enhance Hyprop’s impressive portfolio, as Prinsloo explained: “On conclusion of the acquisition, Somerset Mall will rank as the third largest asset in the portfolio in terms of value behind Canal Walk and Clearwater Mall.”

The shopping mall covers an area of 66,317 square metres and is home to nearly 200 shops, with major brands including Woolworths, Edgars, Dion Wired, Game, Pick n Pay and Dis-Chem and an interesting mix of food, fashion, beauty and specialist stores.

Hyprop has continued to deliver excellent bottom line figures and the company aspires to be a leading listed property fund in Africa. Whilst the bulk of the business’s concerns are located in South Africa, the shopping mall phenomena has now started to spread across the Continent offering new opportunities.

The company has seen the potential throughout Africa and the last financial period saw the first dividend (of R1.4 million), of Hyprop’s 37.5 per cent shareholding in Atterbury Africa, a jointly controlled project with the Atterbury Group.

The partnership is involved in developing quality shopping centres across Africa, including the Accra Mall in Ghana, which covers some 19,000 square metres, and the 26,500 square metres West Hills Mall also in Accra. At the time of writing, the company reportedly has invested just under half of its initial R750 million commitment which is aimed at opening the doors to a bright future for Hyprop.