Financial Director's report

		introduction Overall Hyprop produced a pleasing set of results for the year, with the core shopping centre portfolio continuing to show good growth and operating expenses being well controlled. Integration of the Attfund portfolio was successfully completed during the year, with 100% of the portfolio now being managed seamlessly with a single property management system.
LAURENCE COHEN, FD

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Income from the properties acquired from Attfund Retail was included from 1 September 2011, the effective date of the acquisition. The comparative period therefore only includes income from the Attfund Retail properties for the four months ended December 2011.

On a like-for-like basis (Canal Walk, The Glen, Hyde Park and Stoneridge) revenue and distributable earnings were up 8,3% and 9,6% respectively, while property expenses increased by 5,9%. Rosebank Mall was transferred to development property from 1 September 2012.

The property cost-to-income ratio improved to 35,4% (2011: 37,9%), while the overall cost-to-income ratio at a fund level improved to 35,4% (2011: 37,5%). Implementation of national service contracts has contributed to an improvement in operational efficiencies.

Total arrears at 31 December 2012, comprising normal arrears, legal cases and outstanding tenant deposits, improved to R19,8 million (2011: R41,3 million) and the total allowance for doubtful debts was R10,2 million (2011: R17,4 million).

	Revenue spread				Total net income

Property portfolio

¹ Sold July 2012
² Southern Sun Hyde Park - sold September 2012
³ Rosebank Mall - transferred to development property September 2012

Investment property

Investment property was independently valued by Old Mutual Investment Group South Africa using the discounted cash flow method.

Investment property increased in value to R18,6 billion, after accounting for a fair value adjustment of R1,1 billion.

The valuation increase in the shopping centre portfolio was driven primarily by income growth and strong demand for quality retail space. The stand-alone office buildings, on the other hand, saw reductions in value due to vacancies, with a consequent negative impact on income growth.

Listed property securities

Hyprop’s investment in Sycom was valued at R2,3 billion at 31 December 2012, based on the closing price at that date of R27,55 per unit. Hyprop’s investment represents 33,9% of the Sycom units in issue.

Net asset value

The net asset value per combined unit (“NAV”) at year-end was R53,25, representing a 4,2% increase on the NA V of R51,12 at 31 December 2011.

Excluding deferred taxation, the NAV at year-end was R62,59 (2011: R57,37), a 9,1% increase on the prior year. The closing combined unit price of R73,00 on 31 December 2012 represents a 16,6% premium to the year-end NAV, excluding deferred taxation.

Debt management and gearing

Net borrowings at 31 December 2012 of R4,9 billion equate to a gearing ratio of 23,1%, down from 26,2% in 2011. The company is limited by its MOI to a maximum gearing level of 55%.

The board views the ideal gearing level as being between 30% and 40%. However, increasing gearing is dependent to a large extent on corporate activity, particularly acquisitions. In the absence of significant acquisitions, it is not likely that the gearing ratio will reach these levels.

At year-end interest rates were fixed in respect of 82% of borrowings, at a weighted average rate of 8,4% (2011: 8.2%) and a weighted average maturity in respect of interest rate swaps and fixed interest rate agreements of 4,7 years. The target ratio of fixed debt is 80%.

The maturity profile of debt facilities and fixed interest rate agreements/interest rate swaps is reflected in the graph below:

Maturity

Hyprop made its debut in the debt capital market (“DCM”) during the year, with total DCM issuance to date being R1 billion, or 20% of total debt.

DCM issuance is currently slightly cheaper than conventional bank funding, with the added benefit of being unsecured. The DCM issuance to date comprises the following:

* the CP issuance is being rolled over on a three monthly basis

Provided there is continued demand in the DCM market, the board would consider increasing DCM issuance to 50% of total debt. To assist in achieving this, consideration will be given to the conversion of existing conventional bank facilities to DCM funding as and when the bank facilities expire.

Cash flow

The majority of Hyprop’s income comprises contractual rental income. After the payment of property expenses, fund management expenses and interest on debt, 100% of net income is paid out to unitholders on a semi-annual basis.

Cash collected between distribution payments is paid into floating debt facilities, as opposed to leaving the cash on call, to more effectively utilise the cash and benefit from the interest saving.

Acquisitions, new developments and capital expenditure are funded by debt or by the issuing of new Hyprop combined units. Cash realised from the sale of non-core assets is applied to reduce debt.

Appreciation

I would like to thank my financial team for their hard work, dedication and commitment during the year. I also wish to extend my appreciation to the board of directors for their continued advice, guidance and support.

Laurence Cohen
Financial Director