Rentals still due regardless of sales slump

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