Rentals still due re­gard­less of sales slump

Financial Mail - Investors Monthly - - Analysis -

Blue-chip shop­ping cen­tre owner Hyprop In­vest­ments, whose port­fo­lio of 13 malls across SA, Ghana and Zam­bia in­cludes Canal Walk in Cape Town, Rose­bank Mall in Jo­han­nes­burg and Clear­wa­ter Mall on the West Rand, re­mains a top pick among an­a­lysts de­spite the stock now trad­ing at one of the low­est yields in the sec­tor.

Hyprop’s share price is up a whop­ping 54% over the past year, which has pushed the for­ward yield on the counter to a record low of less than 5%. That com­pares to an av­er­age 6,2% for­ward yield for the R400bn listed prop­erty sec­tor as a whole.

It seems it is no longer only prop­erty fund man­agers and in­come chasers who are pil­ing into the stock. Hyprop is also lur­ing more gen­eral eq­uity fund man­agers who are ap­par­ently look­ing at mall own­ers as a good al­ter­na­tive to re­tail stocks on the back of lin­ger­ing con­cern over re­tail­ers’ slow­ing growth prospects.

The gen­eral view is that land­lords are more in­su­lated from slower con­sumer spend­ing than re­tail­ers be­cause the lat­ter are obliged to con­tinue pay­ing land­lords fixed an­nual rental es­ca­la­tions ir­re­spec­tive of a down­turn in sales and earn­ings.

More­over, though the en­try of more for­eign re­tail­ers to SA is not nec­es­sar­ily good news for SA re­tail­ers be­cause it cre­ates more com­pe­ti­tion, in­creased de­mand for re­tail space is of course pos­i­tive for mall own­ers.

So the pre­mium at which Hyprop is trad­ing seems en­tirely jus­ti­fied. Not only does the com­pany own some of the best malls in SA, it also con­tin­ues to out­per­form most of its peers on the earn­ings growth front. The stock sur­prised the mar­ket with div­i­dend growth of a healthy 13,7% for the six months to De­cem­ber when it re­ported in­terim re­sults in early March, com­fort­ably ahead of mar­ket ex­pec­ta­tions of 10%-12%.

The strong set of re­sults was sup­ported by most of Hyprop's shop­ping cen­tres per­form­ing ahead of bud­get. The com­ple­tion of the R1bn re­de­vel­op­ment of the Rose­bank Mall in Septem­ber last year pro­vided an ad­di­tional rev­enue kicker.

The com­pany's foray into the rest of Africa through a part­ner­ship with SA de­vel­oper At­ter­bury is also start­ing to pay off. In fact, Hyprop of­fers the largest ex­po­sure to malls in the rest of Africa of all JSE-listed prop­erty funds. It has in­vested around R2bn to date in three prop­er­ties: Ac­cra Mall (19 000m²) and West Hills Mall (27 500m²) in Ac­cra, Ghana, and Manda Hill (44 000m²) in Lusaka, Zam­bia.

The three malls’ con­tri­bu­tion to to­tal dis­tributable earn­ings is still rel­a­tively small at just more than 3% but is ex­pected to grow steadily over the next few years. There was also a cur­rency gain as re­tail ten­ants in Ghana and

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