CEO's report
 |
| PIETER PRINSLOO, CEO |
| Highlights |
 |
| Acquisition of Somerset Mall for R2,3 billion |
| Rosebank Mall redevelopment progressing well |
| First dividend of R1,4 million from Atterbury
Africa |
| IImproved liquidity in unitholding |
Introduction
Hyprop’s quality shopping centres once again proved their resilience
in an economic environment which saw rising inflation, higher
administrative costs, low GDP growth and declining consumer spend.
Income distribution to unitholders continued to grow strongly with
an increase of 7,6% over the comparative period while the value of
total assets rose by 6,8% to R23 billion. Operating efficiencies further
improved with the total expense to income ratio reducing by 2,3% to
34,6% and total rental arrears down 9,6% to R17,9 million.
Hyprop has made further progress in fulfilling its strategy of investing
in dominant, quality shopping centres with the acquisition of
Somerset Mall in the Western Cape and additional investments in
the rest of Africa through its 37,5% shareholding in Atterbury Africa.
The operating environment
Prime shopping centres offering exciting brands, flagship stores and
an attractive tenant mix in a safe, clean and friendly environment are
continuing to attract successful retailers as well as shoppers. This
is the hallmark of Hyprop’s core retail portfolio. Although interest
from international retailers remains strong in large shopping centres, finding sizable and suitable premises in the short term is challenging.
Nonetheless, H yprop is successfully managing this through extensions
and tenant relocations, which will see international fashion brands
such as Topshop, Dune and Lipsy opening in December 2013.
Trading densities across our shopping centre portfolio grew by 6%
for the six months under review, with strong performances at Hyde
Park (12,8%), Clearwater Mall (8,8%) and Woodlands (8,6%) (see graph
on page 17). Footcount grew by 1% across the portfolio.
Letting activity and vacancies
Occupancy levels were well maintained at 97,3% with vacancies at the
shopping centres notably below 1%. Total retail vacancies increased
slightly compared to December 2012, mainly due to increased
vacancies at the value centres (Stoneridge and Willowbridge). We
continue to experience strong demand from retailers at our shopping
centres with Clearwater Mall, Woodlands Boulevard and Atterbury
Value Mart fully let at 30 June 2013.
Office vacancies reduced from 9,1% to 8,1% with a noticeable
improvement in occupancies at Hyde Park and CapeGate Lifestyle
offices.
Total letting activity, which includes new lettings and lease renewals,
of 59 355 m² (7,7% of total portfolio) or 240 leases were recorded
during the period. Average rental growth in the portfolio was 7,6%
while the average escalation rate is 8,4%. The gross rent to turnover
ratio, which is an indication of tenants’ affordability to pay rent,
remained unchanged at 7,2% compared to June 2012.
Somerset Mall
During the period, Hyprop acquired 100% of Somerset Mall from
Sycom in exchange for 81,5 million Sycom units. The transaction was
concluded on 1 October 2013.
The transaction, valued at R2,3 billion, is based on an income for
income swap with no dilution in distributable earnings expected by Hyprop. As part of the transaction, Hyprop will dispose of its
remaining 2,7 million Sycom units. In May 2013 Hyprop disposed of its
Sycom rights offer nil paid letters for R28 million.
Somerset Mall is an elegant fit to our existing portfolio. The 66 000 m²
regional shopping centre boasts 188 shops. Approximately 44% of
leases, measured in GLA, will expire in the next two years which
provides us with the opportunity to enhance the tenant mix. This
is supported by strong demand from existing retailers to expand as
well as from retailers who are currently not represented in the centre.
TRADING DENSITY |
 |
GROSS RENT TO TURNOVER |
 |
VACANCIES
| |
30 June 2013 |
|
31 December 2012 |
|
| |
(m2) |
|
(%) |
|
(m2) |
|
(%) |
|
| Canal Walk |
875 |
|
0,60 |
|
324 |
|
0,22 |
|
| Super regional |
875 |
|
0,60 |
|
324 |
|
0,22 |
|
| Clearwater Mall |
0 |
|
0,00 |
|
0 |
|
0,00 |
|
| The Glen |
659 |
|
0,90 |
|
345 |
|
0,50 |
|
| Woodlands |
0 |
|
0,00 |
|
0 |
|
0,00 |
|
| CapeGate Regional Mall |
302 |
|
0,50 |
|
254 |
|
0,40 |
|
| Large regional |
961 |
|
0,33 |
|
599 |
|
0,02 |
|
| Hyde Park |
65 |
|
0,20 |
|
0 |
|
0,00 |
|
| Regional |
65 |
|
0,20 |
|
|
|
|
|
| Willowbridge |
2 592 |
|
5,80 |
|
1 536 |
|
3,70 |
|
| Stoneridge |
4 447 |
|
9,20 |
|
3 743 |
|
7,30 |
|
| Somerset Value Mart |
289 |
|
2,30 |
|
289 |
|
2,30 |
|
| CapeGate Value Mart |
4 341 |
|
13,50 |
|
4 864 |
|
14,20 |
|
| Atterbury Value Mart |
0 |
|
0,00 |
|
0 |
|
0,00 |
|
| Value centres |
11 669 |
|
6,38 |
|
10 432 |
|
5,57 |
|
| Shopping centres |
13 570 |
|
2,09 |
|
11 355 |
|
1,73 |
|
| Offices |
6 192 |
|
8,09 |
|
6 923 |
|
9,14 |
|
| Total |
19 762 |
|
2,72 |
|
18 278 |
|
2,50 |
|
Lease renewal profile
| By income |
|
|
2014 |
|
2015 |
|
2016 |
|
2017 |
|
2018+ |
|
| Canal Walk |
|
|
17% |
|
15% |
|
38% |
|
9% |
|
21% |
|
| Clearwater |
|
|
6% |
|
40% |
|
20% |
|
7% |
|
26% |
|
| The Glen |
|
|
22% |
|
29% |
|
10% |
|
16% |
|
24% |
|
| Woodlands |
|
|
10% |
|
28% |
|
17% |
|
6% |
|
39% |
|
| CapeGate |
|
|
22% |
|
43% |
|
15% |
|
15% |
|
5% |
|
| Hyde Park |
|
|
22% |
|
22% |
|
16% |
|
16% |
|
25% |
|
| Willowbridge |
|
|
20% |
|
15% |
|
41% |
|
7% |
|
18% |
|
| Stoneridge |
|
|
38% |
|
11% |
|
14% |
|
5% |
|
32% |
|
| Somerset Value Mart |
|
|
11% |
|
10% |
|
22% |
|
37% |
|
21% |
|
| Atterbury Value Mart |
|
|
22% |
|
19% |
|
22% |
|
17% |
|
19% |
|
| Offices |
|
|
20% |
|
31% |
|
34% |
|
8% |
|
8% |
|
| Total |
|
|
17% |
|
26% |
|
24% |
|
11% |
|
22% |
|
| By area |
Vacancy |
|
2014 |
|
2015 |
|
2016 |
|
2017 |
|
2018 + |
|
| Canal Walk |
1% |
|
10% |
|
10% |
|
39% |
|
8% |
|
32% |
|
| Clearwater |
0% |
|
3% |
|
34% |
|
14% |
|
4% |
|
45% |
|
| The Glen |
1% |
|
26% |
|
23% |
|
8% |
|
15% |
|
27% |
|
| Woodlands |
0% |
|
5% |
|
26% |
|
10% |
|
7% |
|
52% |
|
| CapeGate |
5% |
|
20% |
|
38% |
|
15% |
|
16% |
|
6% |
|
| Hyde Park |
0% |
|
33% |
|
34% |
|
9% |
|
8% |
|
16% |
|
| Willowbridge |
6% |
|
16% |
|
8% |
|
39% |
|
11% |
|
19% |
|
| Stoneridge |
9% |
|
32% |
|
14% |
|
11% |
|
6% |
|
27% |
|
| Somerset Value Mart |
2% |
|
16% |
|
8% |
|
20% |
|
34% |
|
20% |
|
| Atterbury Value Mart |
0% |
|
18% |
|
16% |
|
22% |
|
21% |
|
22% |
|
| Offices |
8% |
|
21% |
|
27% |
|
31% |
|
7% |
|
6% |
|
| Total |
3% |
|
16% |
|
23% |
|
21% |
|
10% |
|
26% |
|
Lease ACTIVITY
| Retail |
Area
(m2) |
|
Rental
growth
(%) |
|
Contractual
escalation
(%) |
|
| New lettings |
25 696 |
|
8,9 |
|
8,5 |
|
| Renewals |
24 812 |
|
6,3 |
|
8,4 |
|
| Total |
50 508 |
|
7,6 |
|
8,5 |
|
| % of total portfolio 6,6% |
|
|
|
|
|
|
| |
|
|
|
|
|
|
| Offices |
|
|
|
|
|
|
| New lettings |
5 692 |
|
2,8 |
|
8,3 |
|
| Renewals |
3 155 |
|
4,1 |
|
8,5 |
|
| Total |
8 847 |
|
3,3 |
|
8,4 |
|
| % of total portfolio 1% |
|
|
|
|
|
|
| |
|
|
|
|
|
|
| Total lease activity |
59 355 |
|
7,0 |
|
8,4 |
|
| % of total portfolio 7,7% |
|
|
|
|
|
|
Tenant profile
Exposure to top 10 retailers
| |
Rank |
|
Tenant |
% of total
GLA |
|
% of total
income |
|
| |
1 |
|
Edcon Group |
7% |
|
5% |
|
| |
2 |
|
Massmart Group |
7% |
|
4% |
|
| |
3 |
|
Pick n Pay Group |
6% |
|
2% |
|
| |
4 |
|
Woolworths Group |
5% |
|
2% |
|
| |
5 |
|
Foschini Group |
4% |
|
5% |
|
| |
6 |
|
Mr Price Group |
3% |
|
4% |
|
| |
7 |
|
Shoprite Holdings |
3% |
|
1% |
|
| |
8 |
|
JD Group |
2% |
|
1% |
|
| |
9 |
|
Nu Metro |
2% |
|
1% |
|
| |
10 |
|
Truworths Group |
2% |
|
2% |
|
Weighted average rental*
| Business segment |
2013
Rental
(R/m2) |
|
2012
Rental
(R/m2) |
|
| Shopping centres |
|
|
|
|
| Hyde Park Corner |
305 |
|
291 |
|
| Canal Walk |
257 |
|
236 |
|
| Clearwater |
193 |
|
182 |
|
| The Glen |
193 |
|
189 |
|
| Woodlands |
156 |
|
148 |
|
| CapeGate - Regional |
133 |
|
126 |
|
| Value/lifestyle |
|
|
|
|
| Atterbury Value Mart |
140 |
|
133 |
|
| Willowbridge |
107 |
|
96 |
|
| Somerset |
105 |
|
101 |
|
| CapeGate - Value |
99 |
|
88 |
|
| Stoneridge |
84 |
|
73 |
|
| Offices |
112 |
|
110 |
|
* Includes basic rent and operating costs.
Tenant profile by grade
| |
Tenant grading by GLA |
|
|
|
Tenant grading by income |
|
| |
 |
|
|
|
 |
|
Tenants in the portfolio have been categorised by grade as follows:
A Grade: Large national tenants, large listed tenants and major franchisees (including all national retailsers and tenants part of large listed groups)
B Grade: Smaller national tenants, medium sized franchisees, medium to large retailers
C Grade: Smaller line stores
Due to the nature of the Hyprop portfolio, the above categorisations
are largely subjective.
Development projects
Construction work on the Rosebank Mall redevelopment is
progressing well. The basement parking and the Bath Avenue
entrance have been completed while a number of newly built shops
are already open. Final completion is scheduled for September 2014.
The total capital cost, including a further extension to the Bath
Avenue bridge, totals R932 million with an anticipated yield of 7%.
The redevelopment is already 95% let.
The store enlargements and relocations at Hyde Park have been
completed. Extensions to Edgars at The Glen and Canal Walk to
accommodate international brand Topshop, totalling 5 400m², are
scheduled to open for trading by December 2013. The total cost of
these projects is R91 million (Hyprop share: R72,3 million) and they are
expected to generate an average yield of 11%.
Sustainability
National retailers are consistently seeking fewer but larger retail units
in dominant, quality shopping centres. As a result Hyprop is planning
expansions to further enhance the quality of our tenant mix. In
addition, attention is also given to upgrades and refurbishments to
modernise the shopping centres in order to remain attractive and
functional while simultaneously improving the sustainability and
greening features of our buildings. In particular, Hyprop has taken
advantage of Eskom’s energy saving initiative. Eskom has established
aggressive goals and targets to support customers in their drive
towards optimised energy consumption. With its understanding of
the fact that reducing energy demand within industry may require
investments in newer technologies, equipment and processes,
Eskom’s Integrated Demand Management (IDM) programme makes
funds available to its clients in support of reduced energy demand
or consumption. Hyprop’s energy initiative savings since inception
to June 2013 total R887 000. Further details are set out on page 42.
We recognise the need to respond to the global realities of energy
and resource depletion and this is encapsulated in our Green Design
and Environmental Sustainability Strategy. Our approach in this
regard is practical and based on a sound business plan taking the
benefit as well as cost and feasibility of retrofitting green design into
account. We have made successful inroads in adopting commercially
and practically viable solutions. More detail on our strategy and
initiatives is available on page 41 of this report.
Investment in Africa
Hyprop received its first dividend of R1,4 million from its 37,5%
shareholding in Atterbury Africa during the period (refer to the
diagram below demonstrating the company structure).
Atterbury Africa, jointly controlled by Hyprop and the Atterbury Group, has made significant progress in developing quality shopping centres in the rest of Africa, having secured additional development
projects in Accra, Ghana. Refer to the table below for the salient
features of our investments.
In addition, the extension to Accra Mall, phase 2 development of
West Hills Mall and the development of a 15 000m² shopping centre
at Achimota are being planned.
Company structure
Salient features
| Property |
Location |
Rentable area
(m2) |
Atterbury Africa
ownership |
Atterbury Africa
attributable value
USD ‘000 |
Comments |
| Accra Mall |
Accra, Ghana |
19 000 |
47% |
35 250 |
Existing centre, currently fully let, financial results ahead of budget |
| West Hills Mall |
Accra, Ghana |
26 500 |
45% |
42 087 |
Construction work on new mall is progressing well and is scheduled for opening in October 2014 |
| Achimota Land |
Accra, Ghana |
|
75% |
41 623 |
Acquisition of land rights concluded. Design finalised and pre-letting commenced |
| Waterfalls Project |
Lusaka, Zambia |
|
25% |
1 374 |
Land holding with development rights for retail and a hotel |
Social media
With more than 8.2 million people in South Africa active on Facebook
and other social media platforms such as Twitter, Instagram, Pinterest
and YouTube, Hyprop has identified this as a key vehicle to stay
in touch with its shoppers. Currently, the Hyprop portfolio has a
total of 233 000 people following the respective shopping centres’
Facebook pages. The remarkable growth in social media use has and
will continue to significantly change the way Hyprop approaches
marketing.
Through Hyprop’s marketing company, Word4Word Marketing, which
has a dedicated specialist team dealing with social media marketing,
social media will remain a priority to connect and communicate with
shoppers and other stakeholders.
Prospects
The size and quality of its assets with strong contractual escalations
and operational efficiencies provide Hyprop with a defensive property
portfolio in a challenging South African economy. In the near term,
Hyprop will continue meeting tenant demand with yield-enhancing
expansions of existing centres while disposing of non-core assets.
In the medium to long-term we intend growing our assets through
our investment in Atterbury Africa and where feasible, through the
acquisition of dominant shopping centres, such as Somerset Mall.
Taking into account the short-term dilution effect of the Rosebank
Mall redevelopment, Hyprop expects distributions to grow between
6,5% and 8,5% for the year ending June 2014.
Appreciation
I wish to extend my gratitude to the board for their wise counsel
and support. I thank the executive team and all our employees for
their dedication and hard work as well as to our tenants for their
continued support in challenging economic times.
Pieter Prinsloo
CEO
|
