EXECUTIVES' REPORT
Excerpt from the 2022
Integrated Annual Report
Executives'
report
We deliver on our purpose - to
create spaces and connect people - by owning and managing dominant retail centres in mixed-use precincts in key economic nodes in South Africa and Eastern Europe, positioning the centres to meet community needs and embracing relevant new technologies.
Our executive management team
has been in place for just over three years, and we continue to make strong progress on the key priorities we set in early 2019 - despite the extraordinary challenges posed by the pandemic and its aftereffects. The graphic below provides a headline view of the progress in achieving the priorities set, and further detail follows in this report or elsewhere in the IAR.
Woodlands Mall
Pretoria, South Africa
Integrated Report 2022 // HYPROP 2
At a glance: progress in meeting priorities over three years
Group | South Africa | Eastern Europe | Sub-Saharan Africa | Non-tangible assets | ||||||||||||
Further strengthen | Mixed-use opportunities | Retain dominance - asset | Ensure value creation | SOKO - complete software | ||||||||||||
balance sheet | management initiatives | development and 1st pilot | ||||||||||||||
Implement priorities | and extensions | Exit strategy | ||||||||||||||
Annual review of portfolio | in terms of | Roll-out further | ||||||||||||||
and recycling of assets | repositioning strategy | Leverage SA expertise | SOKO districts | |||||||||||||
Implement Hystead | Implement the | Securing rights for | Pursue 4 new opportunities | |||||||||||||
liquidity event | Golden Thread | extensions | via Innovation JV | |||||||||||||
Improving ESG initiatives | Complete refinance of | |||||||||||||||
in-country debt | ||||||||||||||||
Complete/Acceptable progress and ongoing | Not acceptable progress |
Covid-19 led to loss of life and severe illness for many, and country lockdowns negatively affected global economic activity. The human and economic impact has been further compounded by geopolitical conflict and uncertainty. In South Africa, service delivery failures, rising social tensions, an intermittent energy supply and a struggling economy dampened consumer confidence and spending.
Nevertheless, our focus on brand, place and people, underpinned by a sustainable business model, a commitment to making a positive social impact and a robust governance framework, is creating long-term value for our stakeholders.
Our repositioning strategy in SA in line with our Golden Thread principles, the dominance of our SA portfolio and our focus on the operational performance of the SSA portfolio, helped both our SA and SSA portfolios perform well and recover quickly as Covid-19 restrictions were lifted.
The centres in the EE portfolio have retained their strong market positions and trading levels have recovered to near those of 2019, following the lifting of Covid-19 lockdown restrictions in April 2022.
The Group
The proceeds from the disposals of Atterbury Value Mart (AVM), Delta City, Belgrade and Delta City, Podgorica were applied to reducing debt. In combination with the proceeds from the 2021
dividend reinvestment plan, this strengthened the balance sheet and reduced the fully consolidated LTV from a peak of 51.7% in June 2020 to 36.4% in June 2022.
Loan to value %
45.8% | 9.4% | 14.2% | |
36.4% | 36.9% | ||
22.7% | |||
June 2021 | June 2022 | June 2021 | June 2022 |
Fully consolidated SA REIT LTV
The Hystead liquidity event contemplated in the Hystead shareholders' agreement was implemented in the second half of the year and the Group acquired four retail centres (Skopje City Mall in North Macedonia; City Center one East and City Center one West in Zagreb, Croatia; and The Mall in Sofia, Bulgaria) (the EE portfolio) from Hystead, effectively increasing its shareholding in the centres to 100% with effect from 31 March 2022 (the Hyprop Europe transaction).
The Hyprop Europe transaction:
- increased our interest in the EE portfolio and aligned our economic interest and our exposure to the properties;
- improved the portfolio's capital structure by introducing €176 million of Euro equity and reducing the Euro equity debt from €402 million to €110 million;
- retained the Hystead asset and property management teams, ensuring in-country know how and continuity;
- resolved the uncertainty regarding the Hystead liquidity event and resulted in the EE portfolio being consolidated; and
- created a well-capitalised platform for our EE diversification strategy.
Group financial performance
The EE portfolio was acquired in terms of the Hyprop Europe transaction and consolidated with effect from 31 March 2022.
On 31 May 2022, the Group acquired control of Hystead, which was derecognised as a financial asset, and consolidated from that date.
The Group's distributable income increased from R1.090 billion in June 2021 (before deducting the non-remittable income in Nigeria) to R1.171 billion in June 2022. Group distributable income is calculated in terms of the SA REIT best practice guidelines.
Integrated Report 2022 // HYPROP 3
The main reasons for the change in distributable income are:
- The sale of AVM which contributed R123 million in 2021;
- The consolidation of profits of the EE portfolio for three months of R105 million, less the dividends and management fees received in 2021 of R53 million;
- Savings in interest of R74 million in South Africa and Sub-Saharan Africa from reductions in debt and lower interest rates; and
- An increase of R89 million in operating profit from higher income and costs, and reductions Covid-19 discounts and expected credit losses.
Change in distributable income (R'm)
1 250 | 74 | 1 171 | ||||||||
45 | ||||||||||
1 090 | 112 | 105 | (9) | |||||||
64 | ||||||||||
1 050 | ||||||||||
(123) | (134) | (53) | ||||||||
850 | ||||||||||
650 | ||||||||||
450 | ||||||||||
250 | Atterbury | Covid-19 | Income | Operating | Expected | Hystead | Europe | Net interest | Other | June 2022 |
June 2021 | ||||||||||
Value Mart | loss of | costs | credit | dividends and | ||||||
sale | rental | loss | management | |||||||
fee income |
Increase Decrease
The number of ordinary shares in issue increased by R34 million (11%) as a result of the DRIP for the 2021 dividend declared and paid in 2022, which was supported by 85% of shareholders and raised R876 million of equity. The additional shares in issue negatively impacted distributable income per share, which decreased 3.4% from 354.5 cents in 2021 to 342.5 cents.
The independent valuation of the SA portfolio increased by
R374 million to R22.6 billion at 30 June 2022. The independent valuation of the EE portfolio of €573 million was in line with the valuation of €575 million used for the Hyprop Europe transaction. Ikeja City Mall is carried at the agreed sale value of US$121 million, after adjusting for the 6% escalation in the price in terms of the sale and purchase agreement, which is still below the current independent valuation.
Managing cashflow remains a key focus area for the Group. Net operating cash generated (after deducting net interest paid) for the year was R1.34 billion compared to net operating income of
R1.12 billion. Cash and cash equivalents at 30 June 2022 were R1.39 billion (excluding R320 million of cash held for sale) and included €30 million of cash in Hystead that was distributed to Hystead's shareholders after 30 June 2022. In addition, we have undrawn bank facilities of R2.64 billion.
The cash interest cover ratio is 3.8 times compared to our maximum interest cover ratio with major lenders of 2 times.
SA portfolio
Operating performance and leasing
The SA portfolio's key trading metrics have improved since June 2021 as our repositioning strategy, in line with our Golden Thread principles, is implemented. Most trading metrics across the portfolio ended the year above 2019 pre-Covid-19 levels.
Tenant turnover increased by 13.6%, a growth trend which has continued into the new financial year. All our our centres have shown double digit growth in tenant turnover, with Rosebank Mall (24.6%), Canal Walk (18.5%) and Hyde Park Corner (18.4%) being the strongest performers.
Tenant turnover (R'm)
Distributable income (Cps)/(R'm) | ||||
400 | 6.3 | 3.4% | ||
38.8 | ||||
350 | ||||
40.0 | 29.5 | |||
300 | 308.3 | 313.0 | 381.4 | |
354.5 | ||||
250 | 342.5 | |||
200 | ||||
June 2021 | June 2022 |
Effect of additional shares issued
Effect of Europe income
AVM Group
22 000 | 1.4% | 13.6% | 14.9% | 15.6% | |||
21 000 | 21 525 | ||||||
21 292 | |||||||
20 000 | 20 882 | ||||||
20 527 | |||||||
19 000 | 12.0% | 1.7% | |||||
18 000 | 18 073 | 18 377 | |||||
17 000 | |||||||
16 000 | |||||||
2019 | 2020 | 2021 | 2022 | July | August | ||
June | 2022 | 2022 |
Excluding Atterbury Value Mart
Integrated Report 2022 // HYPROP 4
Trading density (R/m2/month) | ||||||
4 000 | ||||||
3 500 | 0.4% | 10.9% | 12.5% | 13.7% | ||
3 000 | 4.7% | 3.8% | ||||
3 110 | 3 143 | |||||
3 004 | 3 055 | |||||
2 500 | 2 864 | 2 755 | ||||
2 000 | ||||||
2019 | 2020 | 2021 | 2022 | July | August | |
June | 2022 | 2022 |
Excluding Atterbury Value Mart
Average monthly foot count (millions)
8 | 1.5% | |||||
7 | 7.2 | 13.4% | 8.8% | 7.0% | 7.7% | 7.7% |
6 | ||||||
6.2 | 6.1 | 6.2 | 6.2 | |||
5 | 5.7 | |||||
4 | ||||||
3 | ||||||
2 | ||||||
1 | ||||||
0 | 2019 | 2020 | 2021 | 2022 | July | August |
June | 2022 | 2022 |
Excluding Atterbury Value Mart
The trading metrics for the 12 months ended July and August show the growth over the corresponding prior year period.
Receivables and collections (R'm) - 100% of properties
3 840 | 3 217 | |||||||||||||
1 920 | ||||||||||||||
(55) | ||||||||||||||
960 | ||||||||||||||
480 | ||||||||||||||
240 | 61 | |||||||||||||
120 | ||||||||||||||
101% | 26 | |||||||||||||
60 | ||||||||||||||
30 | (3 197) | |||||||||||||
Net | Invoiced | Covid-19 Collected | Net | |||||||||||
receivables | relief and | receivables | ||||||||||||
b/fwd | discounts | c/fwd |
Arrears - June 2021: R114 million
June 2022: R74 million
We are constantly working with existing and new tenants to ensure our centres remain relevant and customer experiences meet expectations.
We welcomed a number of new tenants to Canal Walk. They included the first Zara, Ted Baker and UNION-DNM stores in our SA portfolio, a Woolworths' quick service restaurant NOW NOW, Retail Box, the first brick and mortar store from this online cosmetic retailer, and Vivo Mobile's first experience store in the country. Yuppiechef, Lindy Lin, a local influencer and fashion retailer, and the IV bar moved into the centre in the second half of the financial year. Other new tenants included Bossa, a Nike Flagship Store, Freedom Park, Xiaomi, Pick n Pay Clothing and a Nu Metro 4DX and Kids Cinema. Several stores in Canal Walk were relocated and upgraded, including Birkenstock, Pringle, Exclusive Books, Lacoste, Totalsports, The Body Shop, Kauai and The Golfers Club.
CapeGate welcomed Studio 88 and a Western Cape Blood Services facility, improving the centre's service offering. Checkers was upgraded to the latest FreshX specification, which includes a Starbucks, and Old Khaki was relocated and upgraded making way for a new Roccomamas fast casual restaurant, which is scheduled to commence trading in October 2022. @Home, Baby Boom and Crazy Store moved and upgraded their stores.
Somerset Mall continues to trade well and remains fully let. New and expanded stores included MRP Sport, Krispy Kreme, Fabiani, Starbucks, Brand Collective's first brick and mortar store, Kauai, and Totalsports, which doubled in size. More recently, Birkenstock relocated and opened a new-look store, and the centre will welcome PUMA in October 2022.
Rosebank Mall's tenant mix improved with the addition of an iStore for new products (complementing the pre-owned store) and TechMarkit, which provides a wide range of technology offerings. HiFi Corporation opened with their latest store offering and has transformed Level 3. Footgear took over the previous Adidas space and a new Casa Das Natas opened near the main entrance. The upgrade and relocation of the Exclusive Books, with the in-store Vida E Caffè overlooking the pedestrian walkway in Rosebank, has been positively received.
Hyde Park Corner has benefitted from the addition of George's Grill (a new steakhouse), Skins (a high-end cosmetics brand), Calvin Klein, cigar lounge Copa Habana and Bailey Gallery.
The revamp of Clearwater Mall's food court has been completed, and Senqu and Blades & Triggers have opened.
The reconfiguration of the upper level at The Glen has been completed and has improved the centre's value offering with Crazy Plastics, Crazy Pets, new tenants Dial-a-Bed and G-Star, and a new Cappello restaurant. iStore, @Home Living and Spur completed their revamps and the Truworths revamp is underway. The KFC drive-thru has started trading and Thabootys, owned by actress and media personality Thando Thabethe, opened in September 2022.
West Pack and Pet Zone have taken up most of the Food Lover's Market space at Woodlands and will improve the value offering. Exclusive Books has been upgraded.
Retail vacancies at 30 June 2022 were 2.0%, an improvement from 2.4% at June 2021. Somerset Mall is fully let and the vacancies at Canal Walk and CapeGate are 1% or less. Office vacancies increased to 30% from 24% in June 2021, reflecting the general over-supply of office space post Covid-19. We are looking at ways to repurpose our surplus office space which comprises only 6.82% of our total gross lettable area.
Vacancy | 3.8% | 3.9% | |||||||||||||
30 000 | 3.1% | ||||||||||||||
25 000 | 1.9% | 2.4% | 2.4% | 23.9% | 30.3% | ||||||||||
20 000 | 1.6% | 1.4% | 13.3% | 2.0% | |||||||||||
15 000 | 5.5% | 0.8% | 10.7% | ||||||||||||
10 000 | |||||||||||||||
5 000 | |||||||||||||||
0 |
June 2018 | June 2019 | June 2020 | June 2021 | June 2022 | |||||
Retail | Office | Total | |||||||
Integrated Report 2022 // HYPROP 5
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Hyprop Investments Limited published this content on 27 October 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 28 October 2022 10:49:03 UTC.