Wrap Text
Summarised consolidated results for the year ended 30 June 2018
HYPROP INVESTMENTS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1987/005284/06)
JSE share code: HYP
ISIN: ZAE000190724
(Approved as a REIT by the JSE)
("Hyprop" or "the company" or "the group")
PROPERTY INVESTMENT EXCELLENCE
Summarised consolidated results for the year ended 30 June 2018
Highlights
- Distributable earnings up 10,5%
- Total dividend per share for the year up 8,8%
- Concluded acquisitions of EUR439 million in EU countries (via Hystead)
- Completion of R276 million of capital projects in SA
Hyprop is a leading specialist shopping centre Real Estate Investment Trust (REIT). We operate a
portfolio of shopping centres in major metropolitan areas across South Africa, sub-Saharan Africa
and South-Eastern Europe.
Summarised consolidated statement of comprehensive income
12 months 12 months
30 June 2018 30 June 2017
R000 R000
Revenue 3 113 713 3 167 649
Investment property income 3 117 560 3 128 062
Straight-line rental income accrual (3 847) 39 587
Property expenses (1 049 892) (1 073 877)
Net property income 2 063 821 2 093 772
Other operating expenses (55 778) (78 232)
Operating income 2 008 043 2 015 540
Net interest (282 273) (336 502)
Received 312 550 294 177
Paid (594 823) (630 679)
Net operating income 1 725 770 1 679 038
Other income 46 671 36 931
Dividends 182 778 146 350
Change in fair value 767 052 973 270
Investment property 646 359 1 181 786
Straight-line rental income accrual 3 847 (39 587)
Financial asset - right to receive dividends 87 761 (163 855)
Derivative instruments 29 085 (5 074)
Profit/(loss) on disposal 2 697 (526)
Investment in subsidiary (2 557)
Investment property 2 697 2 031
Impairment of loan from joint ventures (166 441) (25 377)
Impairment of goodwill (18 134)
(Impairment)/reversal of impairment of joint venture (10 102) 10 102
Derecognition of financial guarantee 11 984
Net income before equity-accounted investments 2 560 409 2 801 654
Share of loss from joint ventures (50 380)
Profit before taxation 2 560 409 2 751 274
Taxation (39 486) (4 340)
Profit for the year 2 520 923 2 746 934
Other comprehensive income
Items that may be reclassified subsequently to profit
or loss (net of taxation)
Exchange differences on translation of foreign operations 15 471 (27 623)
Total comprehensive income for the year 2 536 394 2 719 311
Total profit for the year attributable to:
Shareholders of the company 2 529 466 2 767 652
Non-controlling interests (8 543) (20 718)
Profit for the year 2 520 923 2 746 934
Total comprehensive income attributable to:
Shareholders of the company 2 540 374 2 755 272
Non-controlling interests (3 980) (35 961)
Total comprehensive income for the year 2 536 394 2 719 311
Summarised reconciliation - headline earnings
12 months 12 months
30 June 2018 30 June 2017
R000 R000
Profit for the year 2 529 466 2 767 652
Earnings 2 529 466 2 767 652
Headline earnings adjustments (638 616) (1 173 229)
Change in fair value of: Investment property (646 359) (1 181 786)
Loss/(profit) on disposal: Investment in subsidiary 2 556
Investment property (2 697) (2 031)
Impairment/(reversal of impairment) of joint venture 10 102 (10 102)
Impairment of goodwill 18 134
Non-controlling interest 338
Headline earnings 1 890 850 1 594 423
Total shares in issue 255 894 516 248 441 278
Weighted average shares in issue 249 024 221 247 441 400
Diluted weighted average shares in issue 249 207 302 247 720 531
Total shares in issue for dividend per share (excludes
treasury shares) 255 448 256 247 899 032
Basic earnings per share (cents) 1 015,8 1 118,5
Headline earnings per share (cents) 759,3 644,4
Diluted earnings per share (cents) 1 015,0 1 110,8
Diluted headline earnings per share (cents) 758,7 637,1
Summarised consolidated statement of financial position
30 June 2018 30 June 2017
R000 R000
Assets
Non-current assets 33 951 124 32 854 166
Investment property 30 691 210 29 681 596
South African portfolio 28 621 856 27 711 853
Ikeja City Mall (Lagos, Nigeria) 2 069 354 1 969 743
Building appurtenances and tenant installations 163 068 148 530
Investments in sub-Saharan Africa (excluding SA
and Ikeja City Mall) 2 918 721 3 005 821
Financial asset - right to receive dividends 152 556
Loans receivable 18 723 17 434
Derivative instruments 6 846 785
Current assets 1 015 095 1 366 021
Receivables 258 071 230 741
Loans receivable 40 716
Derivative instruments 815 9 530
Cash and cash equivalents 715 493 1 125 750
Non-current assets held-for-sale 199 257 426 681
Total assets 35 165 476 34 646 868
Equity 26 395 237 24 882 553
Stated capital and reserves 26 304 917 24 788 254
Non-controlling interest 90 320 94 299
Liabilities
Non-current liabilities 8 203 399 5 428 316
Interest-bearing liabilities 7 815 651 5 068 332
Financial guarantee 185 686 163 855
Derivative instruments 24 060 56 530
Deferred taxation 178 002 139 599
Current liabilities 558 683 4 322 925
Payables 487 341 489 681
Interest-bearing liabilities 69 343 3 832 306
Derivative instruments 1 999 938
Liabilities directly associated with non-current
assets held-for-sale 8 157 13 074
Total liabilities 8 770 239 9 764 315
Total equity and liabilities 35 165 476 34 646 868
Net asset value per share (R) 102,98 99,78
Summarised consolidated statement of changes in equity
30 June 2018 30 June 2017
R000 R000
Balance at beginning of year 24 882 553 23 118 856
Total profit for the year attributable to Hyprop shareholders 2 529 467 2 767 652
Non-controlling interest (3 980) (35 961)
Loss on vesting of shares (2 542)
Issue of shares 778 676 695 656
Treasury shares (7 990) 3 422
Dividends (1 795 398) (1 660 316)
Share-based payment reserve 3 542 5 624
Foreign currency translation reserve 10 909 (12 380)
Balance at end of year 26 395 237 24 882 553
Distribution details
Total distribution for the year (cents) 756,5 695,1
Six months ended 30 June (cents) 380,2 347,8
Six months ended 31 December (cents) 376,3 347,3
Summarised consolidated statement of cash flows
30 June 2018 30 June 2017
R000 R000
Cash flows from operating activities 37 689 319 908
Cash generated from operations 2 133 136 2 159 602
Interest received 283 289 266 423
Interest paid and capitalised (580 208) (441 049)
Taxation paid (3 130) (4 751)
Dividends paid (1 795 398) (1 660 317)
Cash flows from investing activities 104 745 669 846
Acquisition of and additions to investment property (263 640) (123 721)
Additions to building appurtenances and tenant installations (52 104) (57 064)
Proceeds on disposal of assets classified as held-for-sale 229 759 874 233
Increase in investment in South-Eastern Europe (30 979)
Advances of loans receivable from joint ventures (59 061) (109 506)
Repayment of loans receivable from joint ventures 157 934
Dividends received 163 551 89 093
Increases in loans receivable (40 715) (3 189)
Cash flows applied to financing activities (510 777) (44 833)
Interest-bearing liabilities repaid (3 871 791) (2 011 393)
Issue of shares 778 676 695 655
Interest-bearing liabilities raised 2 600 502 1 279 879
Purchase of Hyprop shares (long-term staff incentive scheme) (18 164) (8 974)
Net (decrease)/increase in cash and cash equivalents (368 343) 944 921
Cash disposed with subsidiary (4 006)
Translation effects on cash and cash equivalents of foreign entities (41 914) (12 336)
Cash reallocated to assets held-for-sale (1 786)
Cash and cash equivalents at beginning of year 1 125 750 198 957
Cash and cash equivalents at end of year 715 493 1 125 750
Commentary
Introduction
Hyprop is a specialist shopping centre Real Estate Investment Trust (REIT), which operates a portfolio
of shopping centres in South Africa (SA), sub-Saharan Africa (excluding SA) and South-Eastern Europe.
Hyprop's strategy is to own dominant, quality shopping centres in major metropolitan areas, where such
assets can be acquired or developed at attractive yields.
The shopping centre portfolio in South Africa includes super-regional centre Canal Walk, large regional
centres Clearwater, The Glen, Woodlands, CapeGate, Somerset and Rosebank malls, regional centre Hyde
Park Corner and value centre Atterbury Value Mart.
The sub-Saharan African portfolio (excluding SA) includes interests in Accra Mall, West Hills Mall and
Achimota Retail Centre (all in Accra, Ghana); Kumasi City Mall in Kumasi, Ghana; Manda Hill Centre in
Lusaka, Zambia and Ikeja City Mall in Lagos, Nigeria.
Hyprop's investments in South-Eastern Europe, held via a 60% interest in UK-based Hystead Limited
(Hystead), include Delta City Belgrade, Serbia; Delta City Podgorica, Montenegro; Skopje City Mall
in Skopje, Macedonia; The Mall Sofia, Bulgaria (acquired October 2017) and a 90% interest in City
Centre One East and City Centre One West, both in Zagreb, Croatia (acquired in April 2018).
Financial results
Dividend
Hyprop has declared a dividend of 380,24450 cents per share for the six months ended 30 June 2018,
an increase of 9,3% on the corresponding period in 2017. The total dividend for the year of 756,5 cents
per share is an increase of 8,8% on the prior year, reporting a strong performance in difficult market
conditions.
In May 2018, Hyprop completed a bookbuild, raising R778,7 million by way of an issue of 7,5 million new
shares. The dividend per share for the six months ended 30 June 2018 included the new shares and was not
increased by an antecedent dividend (to compensate for the dilution resulting from the additional shares
in issue).
Total investments
Total investments of R37,3 billion (30 June 2017: R35,5 billion) consist of direct property investments
in South Africa of R29,0 billion (30 June 2017: R28,3 billion), investments in sub-Saharan Africa (excluding
SA) of R4,5 billion (30 June 2017: R4,5 billion) and investments in South-Eastern Europe of R3,8 billion
(30 June 2017: R2,7 billion).
The investments in South-Eastern Europe, held via Hystead, are accounted for as an investment in a financial
asset with the gains on the initial recognition of the financial asset being deferred and changes in fair
value recognised through profit and loss. Accordingly, the investment does not appear on the consolidated
statement of financial position, except for the change in the fair value of the financial asset and equity
contributions totalling R152,6 million.
Net asset value
The net asset value per share at 30 June 2018 increased by 3,2% to R102,98 (30 June 2017: R99,78).
The increase was mainly due to an increase in the independent valuation of the South African investment
property portfolio, as well as the increase in the Hystead financial asset, offset by an impairment of
the AttAfrica and Manda Hill shareholder loans.
Distributable earnings statement and reconciliation to dividend declared
Distributable earnings 12 months
30 June 2018 30 June 2017
R000 R000
South African property portfolio 1 937 661 1 916 927
- Continuing operations 1 929 055 1 854 471
- Properties sold 8 606 62 456
Investments in sub-Saharan Africa (excluding SA) 78 368 56 972
Investments in South-Eastern Europe 187 802 101 823
Fund management expenses (65 142) (67 347)
Net interest (280 846) (321 337)
Other income 46 671 36 533
Distributable earnings 1 904 514 1 723 572
Dividend for six months - first half 933 127 861 423
Dividend for six months - second half 971 387 862 149
Total dividend 1 904 514 1 723 572
Total shares in issue - first half 248 441 278 248 441 278
Treasury shares in issue - first half (446 260) (410 659)
Shares in issue for distributable earnings - first half 247 995 018 248 030 619
Additional treasury shares - second half (131 587)
Shares issued - May 2018 7 453 238
Shares in issue for distributable earnings - second half 255 448 256 247 899 032
Dividend per share (cents) - first half 376,3 347,3
Dividend per share (cents) - second half 380,2 347,8
Dividend per share (cents) 756,5 695,1
Dividend per share growth (%) - first half 8,3 16,6
Dividend per share growth (%) - second half 9,3 8,0
Dividend per share growth (%) 8,8 12,1
Total distributable earnings for the year grew by 10,5% (30 June 2017: 13,2%), largely due to income
from the investments in South-Eastern Europe, particularly the new acquisitions in Skopje, Macedonia
(November 2016), Sofia, Bulgaria (October 2017) and the two malls in Zagreb, Croatia (April 2018).
The inclusion of distributable earnings from Ikeja City Mall in Lagos, Nigeria, which were excluded
in the prior year due to US Dollar availability constraints, also contributed to the growth for the
year. Hyprop's international investments contributed 16,4% (30 June 2017: 11,3%) to distributable
earnings.
The net interest cost of R280,8 million (30 June 2017: R321,3 million) was lower compared with the previous
year due to the application of cash from non-core asset sales of R867 million in 2017 and R230 million in
2018, as well as the proceeds of the new share issue in May 2018 of R778,2 million, to the reduction of
debt and to capital expenditure in the South African portfolio. The remaining cash was placed on deposit.
Fund management expenses reduced during the year due mainly to asset management fees received from Hystead
of R17,3 million (2017: R13,6 million).
Other income includes credit enhancement income of R46,7 million (2017: R36,5 million) for the funding
guarantee provided by Hyprop in respect of a portion of the South-Eastern European investments.
Treasury shares are held in respect of an equity settled staff incentive scheme.
Reconciliation from headline earnings to distributable earnings
12 months 12 months
30 June 2018 30 June 2017
R000 R000
Headline earnings 1 890 850 1 594 423
Distributable earnings adjustments 13 664 129 149
Change in fair value: Derivative instruments (29 085) 5 074
Derecognition of financial guarantee (11 984)
Financial asset - right to receive dividends (87 761) 163 855
Investments in sub-Saharan Africa (excluding SA)1 (57 602) (29 928)
South African subsidiaries1 (2 190) 1 212
South-Eastern Europe (44 221)
Impairment of loans from joint ventures 166 441 25 377
Capital items and other items (3 641) 6 154
Deferred and normal taxation 39 486 1 626
Distributable earnings 1 904 514 1 723 572
1 Net effect of converting IFRS earnings to distributable earnings.
South African portfolio
Revenue and distributable earnings
12 months 12 months
30 June 2018 30 June 2017
Distributable Distributable
Revenue earnings Revenue earnings
Business segment R000 R000 R000 R000
Shopping centres 2 684 578 1 792 727 2 580 200 1 723 648
Value centres 151 214 106 796 139 857 102 490
Total retail 2 835 792 1 899 523 2 720 057 1 826 138
Total standalone offices1 47 166 29 532 46 908 28 332
Investment property 2 882 958 1 929 055 2 766 965 1 854 470
(excluding properties sold)
Properties sold2 10 797 8 606 108 637 62 457
Total investment property 2 893 755 1 937 661 2 875 602 1 916 927
1 Consists of Lakefield Office Park (held-for-sale) and Cradock Heights.
2 Willowbridge North was sold during the year. Properties sold in the prior year included Somerset Value
Mart, Willowbridge South, Glenfield and Glenwood office parks.
Growth in distributable earnings (excluding properties sold) for the year was 4,0%. The growth in
distributable earnings in the second half of the year (excluding properties sold) was 6,0% compared
with 2,1% in the first half. Construction work at Rosebank Mall and The Glen, and the Stuttafords
vacancies at Canal Walk, Clearwater Mall and Rosebank Mall, reduced the growth in distributable
earnings, primarily in the first half of the year.
CapeGate and Somerset Mall were the best performers in the portfolio with both recording growth in
distributable earnings of 8,7%. Despite being negatively affected by the Stuttafords vacancy and
construction work in the La Piazza area, Canal Walk recorded distributable earnings growth of 5,4%.
Due to the impact of the weak economic conditions on consumer spend, growth in trading density reduced
to 0,5% (30 June 2017: 1,4%). Good trading density growth was recorded at CapeGate (6,8%) and
Clearwater Mall (4,4%).
Cost-to-income ratios
30 June 2018 30 June 2017
Net basis (%) 15,8 15,7
Gross basis (%) 33,0 33,3
The net cost-to-income ratio increased marginally, mainly due to increases in municipal rates in the
Pretoria portfolio from July 2017 and a slight reduction in recoveries across the portfolio. The
improvement in the gross cost-to-income ratio is due to additional income from completed developments.
Tenant arrears
Tenant arrears were R18,9 million (excluding outstanding deposits) at year-end (30 June 2017: R13,7 million)
or 0,6% of rental income (30 June 2017: 0,4%). Bad debts of R10,3 million (30 June 2017: R8,9 million) were
written off during the year. The provision for bad debts increased to R8,9 million (30 June 2017: R6,5 million).
Although tenant arrears increased during the period, the arrears are a relatively small percentage of rental
income and are within market norms.
Vacancies
Rentable Change in % of total rentable area
area (m2) vacancy during
Sector 30 June 2018 the period (m2) 30 June 2018 30 June 2017
Retail 10 713 (2 132) 1,6 1,9
Office 3 255 (1 459) 5,5 7,9
Total 13 968 (3 591) 1,9 2,4
Despite the tough trading environment for retailers, vacancies in the portfolio reduced from 2,4% to 1,9%.
Canal Walk, Woodlands Boulevard and CapeGate had vacancies of less than 1%. The largest vacancies in the
retail portfolio were at The Glen (4 378m2), Clearwater Mall (1 988m2) and Atterbury Value Mart (1 751m2).
The Glen vacancy included vacancies resulting from the food court development of 1 100m2. Since the
opening in April 2018, positive interest from retailers has been received for this area.
The decrease in office vacancies from 7,9% to 5,5% is mainly due to lettings at the Rosebank Mall and Canal
Walk offices.
Lettings
New leases and renewals of 133 400m2 (18,5% of the total rentable area) with a contract value of
R1,9 billion, were concluded during the year, at a net rental growth of 1,0% (30 June 2017: 4,0%) and
an average escalation of 7,7% (30 June 2017: 7,9%).
Leases of approximately 106 000m2 (15% of total rentable area) will expire in the 2019 financial year.
As at 30 June 2018, the Edcon Group occupied 67 300m2 (30 June 2017: 70 102m2) in Hyprop's shopping centres.
In the 2019 financial year approximately 1 380m2 of the space will not be renewed, while a further 8 600m2
is under review with the objective of finding replacement tenants. We will continue to work with the Edcon
Group to address their space requirements, to the extent possible, as their business develops.
Valuations
Value attributable to Value per
Hyprop rentable area
Rentable area 30 June 2018 30 June 2017 30 June 2018
Business segment (m2) R000 R000 (R/m2)
Shopping centres 653 258 27 351 847 26 490 589 45 965
Value centres 48 848 1 303 000 1 248 000 26 675
Total retail 702 106 28 654 847 27 738 589 44 623
Total standalone offices1 20 354 323 000 310 798 15 869
Total (excluding properties sold) 722 460 28 977 847 28 049 387 43 813
Properties sold2 225 000
Investment property 722 460 28 977 847 28 274 387 43 813
1 Consists of Lakefield Office Park (held-for-sale) and Cradock Heights.
2 Willowbridge North was sold during the year.
Investment property was independently valued by external valuers at 30 June 2018 resulting in a net increase
in value of R646,9 million (30 June 2017: R1 263,8 million). The weighted average capitalisation rate of the
portfolio is 6,6%. (30 June 2017: 6,6%). All discount and capitalisation rates remained largely the same as
the previous year. The sharp increase in municipal rates from July 2018 had a negative impact on the
valuation of the Johannesburg shopping centres. Hyprop has objected to the increase.
In terms of IAS 40 and IFRS 13, investment properties are measured at fair value through profit or loss
using valuation inputs which are categorised as level 3 on the fair value hierarchy. There were no
transfers between levels 1, 2 and 3 during the year.
Capital expenditure
The following major projects were successfully completed during the year:
Shopping centre Project Hyprop's share Completion date
Rosebank Mall Additional 4 300m2 rentable area R127,0 million April 2018
The Glen Food court enclosure and additional retail R90,9 million April 2018
Canal Walk Additional retail in La Piazza area R41,6 million November 2017
Woodlands Mall Nu Metro refurbishment R16,0 million December 2017
The projects were completed on schedule and below budgeted cost. Since the completion, a positive trend
in the number of visitors to the centres has been recorded.
With a focus on improving quality and sustainability in the shopping centres a total of R66,9 million
(30 June 2017: R177,9 million) was spent on refurbishments, new equipment, tenant installations and
sustainable technology.
Smaller projects completed during the year include the refurbishment of the Hyde Park Corner offices
(R14 million) and the facade replacement of the Rosebank Mall offices (R10 million). Opportunities are
currently being explored on the rightsizing of various stores, and creating space for tenants who are not
yet in all of the shopping centres. Also, an upgrade of the food courts at Woodlands Boulevard and
Canal Walk are in planning stage.
The various water-saving initiatives in the Western Cape region (the use of borehole water, capturing of
run-off water, the treatment of effluent grey water) are all in the final stages of commissioning. As a
result of these initiatives, together with the installation of back-up water storage, the exposure of
the Western Cape shopping centres to water outages has been significantly reduced. Other ongoing
water-saving initiatives in the portfolio included the use of grey and borehole water at The Glen,
and the installation of waterless urinals and aerators in the public bathrooms across the portfolio.
Disposals
Willowbridge North was sold during the year for R225 million. Transfer took place in September 2017.
A conditional sale agreement has been concluded for the last remaining non-core property in the portfolio,
Lakefield Office Park.
Investments outside South Africa
The functional and reporting currencies for the investments in sub-Saharan Africa (excluding SA) and
South-Eastern Europe are US Dollar and Euro, respectively.
The exchange rates used to convert to Rand were as follows:
30 June 2018 30 June 2017
Average Year-end Average Year-end
rate spot rate rate spot rate
R R R R
US Dollar 12,53 13,70 13,63 13,04
Euro 15,27 16,00 14,53 14,90
The average rates are a weighted average of the actual exchange rates on the dates that the foreign
currency dividends were received in South Africa. The year-end spot rate is the rate used to translate
balance sheet items at year-end.
Hyprop fixes the exchange rates on US Dollar and Euro income for six months in advance of receipt of
dividends.
Investments in sub-Saharan Africa (excluding SA)
Hyprop share of
distributable earnings
30 June 2018 30 June 2017
R000 R000
Distributions received 254 639 168 241
Interest and expenses (176 271) (111 269)
Net 78 368 56 972
Distributable earnings from the investments in sub-Saharan Africa (excluding SA) increased to R78,4 million
(30 June 2017: R57,0 million), due to the inclusion of distributable earnings from Ikeja City Mall, Lagos,
Nigeria of R24,0 million (30 June 2017: Rnil).
Vacancies
Hyprop's
effective Rentable 30 June 2018 30 June 2017
shareholding area vacancy vacancy
City/Country (%) (m2) (%) (%)
Ikeja City Mall Lagos, Nigeria 75,0 22 223 3,1
Manda Hill Lusaka, Zambia 68,8 42 002 4,1 5,4
Accra Mall Accra, Ghana 17,6 21 311 6,8
West Hills Mall Accra, Ghana 16,8 28 272 10,4 5,3
Achimota Mall Accra, Ghana 28,1 15 534 1,9 6,1
Kumasi City Mall Kumasi, Ghana 28,1 18 604 13,0 26,5
Total portfolio 147 946 6,4 6,5
The financial performance of the portfolio overall was negatively impacted by vacancies and tenant
replacements during the year. Vacancies in Accra Mall and West Hills Mall increased mainly due to the
withdrawal of Truworths and Identity from Ghana, and the downsizing of fashion tenants. Income from
Manda Hill shopping centre (Lusaka, Zambia) reduced due to re-tenanting of shops at lower rentals at
the beginning of the financial year. Game (replacing the previous second food anchor) is due to open
in November 2018 at Achimota and West Hills, which will strengthen the tenant mix.
The economic growth prospects in Ghana have improved and we have seen a general increase in trading
densities in recent months. Demand for shops improved at some centres and vacancies reduced at Manda
Hill, Kumasi and Achimota. At Ikeja City Mall, trading conditions and rent collection have been stable
over recent months while the Nigerian economy has slowly gained momentum, benefiting from higher oil
prices and improved foreign exchange liquidity.
Hyprop share of shareholder loans/investment property
At 30 June 2018 the Hyprop share of the US Dollar value of the AttAfrica portfolio, Manda Hill and
Ikeja City Mall was USD282,9 million (30 June 2017: USD281,8 million) at a weighted average
capitalisation rate of 8,3% (30 June 2017: 8,4%).
Hyprop share
30 June 2018 30 June 2017
R000 R000
AttAfrica and Manda Hill 2 918 721 3 005 821
Ikeja City Mall, Lagos, Nigeria (75%) 1 552 015 1 476 553
Total effective investment in sub-Saharan Africa 4 470 736 4 482 374
The small net reduction in the Rand value over the period was mainly due to the repayment of a portion
of the AttAfrica shareholder loan (R65,6 million) and an impairment of the shareholder loans to AttAfrica
and Manda Hill (R166,4 million), offset by an increase in value due to Rand depreciation against the
US Dollar (R146,9 million) at year-end.
Certain of the properties in the portfolio, have been affected by the economic conditions of recent
years and are producing lower investment returns than what was originally anticipated. As a result
the income received from those properties over the next few years will be lower than previously modelled.
The shareholder loans in AttAfrica and Manda Hill, which reflect Hyprop's share of the value of the
underlying property investments at group level, have therefore been impaired. Should a sale not take
place before maturity of the shareholder loans to AttAfrica in 2020, it is likely that the structure
will be renegotiated and extended.
As disclosed in the interim results announcement, Hyprop is investigating a reduction of its exposure
to the investments in sub-Saharan Africa (excluding SA).
Investments in South-Eastern Europe
Hyprop's investments in South-Eastern Europe are held through a UK company, Hystead, in which Hyprop has a
60% interest. The portfolio consists of six high-quality, dominant shopping centres, located in five capital
cities in South-Eastern Europe. The total rentable area of the portfolio is approximately 230 000m2 with
Hystead's share of the gross asset value being EUR740,6 million.
Hyprop share of Hystead's
distributable earnings
30 June 2018 30 June 2017
R000 R000
Distribution received 276 083 147 059
Interest and expenses (88 281) (45 236)
Net distributable earnings 187 802 101 823
The significant increase in net distributable earnings is mainly due to the inclusion of income from Skopje
City Mall in Skopje, Macedonia (acquired November 2016), The Mall in Sofia, Bulgaria (acquired October 2017)
and City Centre One Zagreb East and City Centre One Zagreb West in Zagreb, Croatia (acquired April 2018).
Distributable earnings also benefited from the depreciation of the Rand against the Euro.
Vacancies
Hyprop's
effective Rentable 30 June 2018 30 June 2017
shareholding area vacancy vacancy
City/country (%) (m2) (%) (%)
Delta City Belgrade Belgrade, Serbia 60 29 850
Delta City Podgorica Podgorica, Montenegro 60 23 718
Skopje City Mall Skopje, Macedonia 60 36 241
The Mall, Sofia Sofia, Bulgaria 60 51 211 0,4 n/a
City Centre One East Zagreb, Croatia 54 47 191 0,3 n/a
City Centre One West Zagreb, Croatia 54 42 373 n/a
Total portfolio 230 584 0,1
At 30 June 2018, apart from small vacancies at The Mall in Sofia and City Centre One East, the Hystead
portfolio was fully let.
Benefiting from strong macro-economic conditions, trading in the South-Eastern European shopping centres
remain positive with the centres reporting good trading density growth. Demand for space remains high
and various extension plans are under consideration.
Hyprop share of investment property
At 30 June 2018 the Hyprop share of the Euro value of the Hystead portfolio was EUR444,4 million
(30 June 2017: EUR179,9 million) at a weighted average capitalisation rate of 7,5% (30 June 2017: 8,7%).
Hyprop share
30 June 2018 30 June 2017
R000 R000
Delta City Belgrade, Belgrade, Serbia (60%) 1 248 250 1 162 200
Delta City Podgorica, Podgorica, Montenegro (60%) 738 388 685 698
Skopje City Mall, Skopje, Macedonia (60%) 894 899 833 208
The Mall, Sofia, Bulgaria (60%) 1 533 427 n/a
City Centre One East, Zagreb, Croatia (54%) 1 296 259 n/a
City Centre One West, Zagreb, Croatia (54%) 1 399 960 n/a
Total effective investment in South-Eastern Europe 7 111 183 2 681 106
The total Rand equivalent value of Hyprop's share of investment property in South-Eastern Europe
increased due to the acquisition of The Mall in Sofia, Bulgaria and the two centres in Zagreb, Croatia.
The Rand equivalent value of the Delta City centres and Skopje City Mall increased marginally due to
the depreciation of the Rand against the Euro.
Acquisitions
Hystead made the following acquisitions during the year:
The Mall, Sofia, Bulgaria
The Mall shopping centre in Sofia, Bulgaria, effective 4 October 2017, for EUR155 million (7,3% yield).
The Mall, with a rentable area of 51 200m2, is one of the dominant shopping centres in Sofia.
In June 2018, Hystead acquired the former Hypermarket premises which is currently vacant and is connected
to The Mall. These premises will be refurbished and integrated with The Mall, at a total cost of EUR23 million,
and will introduce a supermarket of 2 450m2 as well as additional line shops of 9 550m2. The anticipated
starting date is October 2018 and the development will take approximately six months to complete, at an
estimated initial yield of 9%.
City Centre One East and City Centre One West, Zagreb, Croatia
Hystead acquired a 90% interest in two dominant shopping centres situated in Zagreb, Croatia (City Centre
One Zagreb West and City Centre One Zagreb East) with rentable areas of 42 373m2 and 47 191m2, respectively,
effective from 20 April 2018, for EUR283,5 million (7% yield). Hystead entered into a joint venture agreement
with WKB3 (which retains a 10% interest in the centres), an Austrian-based company that developed and
managed the centres.
During the year Hystead established a European-based executive management team, which provides management
support to the onsite property management at each of the shopping centres. The asset management of the
Zagreb shopping centres is undertaken jointly by the Hystead management team and by CC Real, the operating
company of WKB3.
Funding
With effect from June 2018, all of the shopping centres are part funded with non-recourse asset-backed
loans through offshore banks at an average loan to value ratio of 47% (EUR349,9 million). The debt has a
weighted average interest rate of 3,6% and a loan term of 4,5 years, with 45% of the interest rates hedged
for the full term.
Hystead listing
Consideration was given to inwardly listing Hystead separately on the JSE. Given the relatively weak
capital market conditions in South Africa and based on feedback from potential investors, the possible
listing was terminated and Hystead will be held in an unlisted format for the foreseeable future.
Hystead will seek further acquisition opportunities for quality assets in the region at acceptable
yields.
Borrowings
30 June 30 June
2018 2017
Rm Rm
South African debt 2 950 4 114
Bank debt 600 1 814
Corporate bonds 2 350 2 300
USD bank debt (Rand equivalent) 4 513 4 391
EUR bank debt (Rand equivalent) 3 795 2 673
Cash and cash equivalents (715) (1 126)
Net borrowings 10 543 10 052
Loan-to-value (%) 28,1 28,9
Debt at fixed rates (%)
South African debt (%) 113,6 100,9
USD debt (%) 63,5 70,4
Maturity of fixes (years) 3,1 3,4
South African debt (years) 3,8 3,9
USD debt (years) 2,4 2,7
Maturity of facilities (years) 3,1 2,5
South African debt (years) 3,8 2,2
USD debt (years) 2,7 2,6
Cost of funding (%) 5,0 5,7
South African debt (%) 9,4 8,9
USD debt (%) 4,8 4,7
EUR debt (%) 1,7 2,2
Debt capital market (DCM) % of total debt 21 21
South African debt
The South African bank debt is secured against South African investment property, while the DCM funding
is unsecured.
During the period, the following maturing corporate bonds and facilities were repaid:
Type Amount Date repaid
Five-year corporate bond R300 million September 2017
Five-year corporate bond R450 million April 2018
Nedbank debt R1,2 billion June 2018
In March 2018, Hyprop issued two new long-term corporate bonds, a R452 million five-year bond and a
R348 million seven-year bond, at margins of 1,6% and 1,9% respectively, which were used to repay part
of the Nedbank debt. The cash from the equity raised of R778,7 million as well as proceeds from
previous asset sales were utilised to reduce the South African debt.
At 30 June 2018, 113,6% of the interest rate was hedged. This will reduce in the first quarter of the
2019 financial year with the expiry of a R100 million interest rate hedge in August 2018 and the
potential raising of R250 million of new debt to fund capital requirements.
The interest rate on the South African debt increased due to the increase in the maturity profile of the
corporate bonds.
US Dollar-denominated debt
The Rand equivalent of the US Dollar-denominated bank debt increased during the year, largely due to
Rand depreciation against the US Dollar. The US Dollar debt includes debt in Hyprop Mauritius, as well
as 75% of the in-country debt relating to Ikeja City Mall (Lagos, Nigeria).
Two bank loans in Hyprop Mauritius of USD40 million and USD20 million were consolidated and refinanced
with a three-year USD60 million bank facility. During the year a portion of an expiring bank facility
of USD30 million was partly repaid and refinanced with a USD23 million facility, of which only
USD16,7 million was utilised.
In-country debt relating to Ikeja City Mall (Lagos, Nigeria) of USD56,5 million (Hyprop share:
USD42,4 million) was refinanced for three years and converted to an interest only loan.
Euro-denominated debt
Equity funding in Hystead of EUR396 million has been provided through bank loans secured by shareholder
guarantees. As per the shareholders' agreement, Hyprop guarantees 90% of the equity funding and
PDI Investment Holdings Limited (PDI), Hystead's other shareholder, 10%. PDI provides further
back-to-back guarantees to Hyprop for 11,7% of the guaranteed amount and for the remaining 18,3%
that Hyprop guarantees, Hyprop receives 60% of the applicable PDI dividend as credit enhancement
income. This agreement is in place until May 2021.
EUR234 million of the equity funding, provided by way of bridge loans, will be refinanced by October 2018
and replaced with three-year term loans, at an estimated average fixed interest rate of 2,1%. The balance
of the equity funding was previously financed using three-year term loans, due to expire in May 2020.
The Euro debt is not consolidated in the Hyprop statement of financial position. For the purposes of the
above table (including calculation of the loan-to-value ratio), 60% of the debt and 60% of the corresponding
asset values have been included (in line with Hyprop's 60% interest in Hystead).
Euro-denominated debt increased during the period due to the acquisition of The Mall in Sofia, Bulgaria in
October 2017, and the two malls in Zagreb, Croatia, as well as the depreciation of the Rand against the Euro.
Board changes
Laurence Cohen (CFO) resigned from the board effective 1 August 2018. Brett Till has been appointed as the
CFO effective 1 October 2018.
Zuleka Jasper was appointed to the board as an independent non-executive director on 5 July 2018. On the
same date, Wilhelm Nauta joined the board as an executive director.
The board thanks Laurence for his valuable contribution over the last 15 years and welcomes the new
directors to the board.
Prospects
Hyprop expects dividend growth of between 5% and 7% for the year to 30 June 2019. This is lower than has
been the case for a number of years but is reflective of lower growth in the South African property sector
and the effects of the constrained consumer environment in South Africa. We will continue to invest in and
manage our properties to ensure that they remain relevant and attractive to customers through the current
economic cycle.
This guidance is based on the following key assumptions:
- Forecast investment property income is based on contractual rental escalations and market-related
renewals.
- Appropriate allowances for vacancies have been incorporated into the forecast.
- No major corporate and tenant failures will occur.
- Earnings from offshore investments will not be materially impacted by exchange rate volatility or
disruption in the financial markets.
- Exchange rates have been assumed at R13,50 and R15,50 to the US Dollar and Euro, respectively.
The forecast has not been reviewed or reported on by the company's auditors.
Payment of dividend
A dividend of 380,24450 cents per share for the six months ended 30 June 2018 will be paid to shareholders
as follows:
2018
Last day to trade cum dividend Tuesday, 25 September
Shares trade ex dividend Wednesday, 26 September
Record date Friday, 28 September
Payment date Monday, 1 October
Shareholders may not dematerialise or rematerialise their shares between Wednesday, 26 September 2018 and
Friday, 28 September 2018, both days inclusive. Payment of the dividend will be made to shareholders on
Monday, 1 October 2018. In respect of dematerialised shareholders, the dividend will be transferred to
the CSDP accounts/broker accounts on Monday, 1 October 2018. Certificated shareholders' dividend
payments will be deposited on or about Monday, 1 October 2018.
An announcement relating to the tax treatment of the dividend will be released separately.
Basis of preparation
The summarised consolidated financial statements for the year ended 30 June 2018 were prepared in accordance
with the JSE Limited Listings Requirements for summarised consolidated results and the requirements of the
Companies Act of South Africa. The JSE Listings Requirements require summarised consolidated results to be
prepared in accordance with the framework concepts and the measurement and recognition requirements of
International Financial Reporting Standards (IFRS), the SAICA Financial Reporting Guides as issued by the
Accounting Practices Committee and Financial Pronouncements as issued by Financial Reporting Standards
Council, and as a minimum, contain the information required in terms of IAS 34 Interim Financial Reporting.
All amendments to standards that are applicable to Hyprop for its financial year beginning 1 July 2017
have been considered. Based on management's assessment, the amendments did not have a material impact on
the group's financial statements.
All accounting policies applied in the preparation of the group financial statements for the year ended
30 June 2018 are consistent with those applied by Hyprop in its consolidated group financial statements
for the prior financial year.
These summarised consolidated financial statements for the year ended 30 June 2018 have been extracted from
the audited group financial statements, but have not been audited. The directors take full responsibility for
the preparation of the summarised consolidated results and for ensuring that the financial information has
been correctly extracted from the underlying audited group financial statements. The auditor's report does not
necessarily report on all of the information included in this announcement. Shareholders are therefore advised
that, in order to obtain a full understanding of the nature of the auditor's engagement, they should obtain a
copy of the auditor's report, together with the underlying financial information from the registered office of
the company.
KPMG Inc. has audited the group financial statements. Their unqualified audit report is available from the
registered office of the company.
The financial information was prepared by Vasti Booysen CA(SA) and supervised by Pieter Prinsloo in his
capacity as CEO.
On behalf of the board
GR Tipper PG Prinsloo
Chairman CEO
31 August 2018
Corporate information
Directors
GR Tipper*† (Chairman)
PG Prinsloo (CEO)
AW Nauta
KM Ellerine*
L Engelbrecht*†
Z Jasper*†
MJ Lewin*†
N Mandindi*†
TV Mokgatlha*†
L Norval*
S Shaw-Taylor* †
*Non-executive †Independent
Registered office
Second Floor
Cradock Heights
21 Cradock Avenue
Rosebank
(PO Box 52509, Saxonwold, 2132)
Transfer secretaries
Computershare Investor Services Proprietary Limited
Rosebank Towers
15 Biermann Avenue
Rosebank
PO Box 61051, Marshalltown, 2107
Company secretary
CIS Company Secretaries Proprietary Limited
Sponsor
Java Capital
Investor relations
Singular Systems IR
Telephone +27 10 003 0661
Email: michele@singular.co.za
www.hyprop.co.za
Date: 31/08/2018 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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