Hyprop’s prime SA portfolio devalued by R4bn

Once the darling of South Africa’s listed retail property sector, Hyprop, has seen its local portfolio of prime shopping centres being devalued by a whopping R4 billion for its full-year ending June 2020.

Hyprop, which owns Rosebank Mall in Johannesburg and Canal Walk in Cape Town, published its worst set of annual results on the JSE after the market closed on Monday as Covid-19 dealt a devastating blow to distributable income and property valuations.

Despite the R4 billion or 13.9% devaluation of its South African portfolio, the group said that its balance sheet remains healthy.

It also noted that all banking covenants were met at 30 June 2020.

To put the devaluation into context, Hyprop’s current market cap is just over R4.6 billion. The group’s share price has lost more than 68% of its value this year and is likely to come under further pressure on Tuesday following the release of its latest full-year results.

“The operating environment in South Africa, which was difficult pre-Covid-19, was exacerbated by the virus outbreak, particularly after a very strict lockdown was imposed on 26 March 2020,” Hyprop said in a media statement.

The group is set to host its results presentation webcast with listed property analysts and media on Tuesday.

Read:

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For its half-year results to the end of December (before Covid-19 broke out in South Africa), Hyprop had reported a R1.1 billion devaluation of its local property portfolio.

“Despite the stalled economy, management made progress towards achieving the group’s strategic objectives, which included growing trading densities by repositioning the South African portfolio and introducing capital-light revenue streams,” it added in its results statement.

Hyprop noted that the impact of Covid-19 saw a reduction in distributable income by R434 million, to 493 cents per share. In line with several of its listed property peers, the group has deferred its decision to declare a dividend to December this year.

“The group’s distributable income before the impact of Covid-19 was in line with guidance provided in September 2019, at 664 cents per share… Revenue lost on the South African portfolio, due to Covid-19 totalled R267 million – mainly R242 million of rental discounts and deferrals granted to tenants between April and June 2020,” Hyprop said.

“An additional estimated R25 million was lost on parking and Non-GLA [gross lettable area] income during the same quarter,” it added.

Morné Wilken, Hyprop’s CEO commented: “This year will be recorded in history as one of the toughest years globally. The safety and wellbeing of our staff, tenants and service providers were our top priorities during all levels of lockdown and we worked very hard with tenants to survive the challenging circumstances as a collective.”

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Hyprop pointed out that significant steps have been taken to strengthen the group’s balance sheet.

“The group’s dollar-denominated debt was reduced by $271 million over the last two years, from the proceeds of the sales of the African assets and refinancing dollar-denominated debt in rands while R1.2 billion of cash was retained from the 2020 financial year to repay debt,” it said.

Hyprop’s loan-to-value (LTV) ratio at 30 June 2020 was 41.4%.

“It [LTV] was negatively impacted by the decrease in the value of investment property as a result of Covid-19, some impairment on the African assets and the devaluation of the rand. The group’s interest cover ratio (ICR) was 3.0 times at period end,” it noted.

Read: Growthpoint’s debt surges to almost R70bn

“Strengthening the group’s balance sheet and its exposure to euro- and dollar-denominated debt secured by rand-denominated assets are high priorities. These objectives will be achieved by lowering cash distributions, the exit strategy from sub-Saharan Africa and recycling assets,” commented Hyprop CFO Brett Till.

In reaction to the performance, senior listed property fund manager at Stanlib, Nesi Chetty said: “These reported results from Hyprop will probably be the worst in the company’s history.”

Chetty noted that Hyprop had rebased its rentals last year a lot earlier than some of the other South Africa property companies.

“While significant steps have been taken to strengthen Hyprop’s balance sheet, including reducing dollar-denominated debt and also retaining cash of R 1.2 billion to pay down debt, the company could not have been able to avoid impairments on their portfolio,” he said.

“Weaker income assumptions in some properties and rising capitalisation rates would have resulted in the devaluation of around R 4 billion… While significant, the company is probably reaching the tail end of these in the current cycle. LTV has increased to 41% post the impairment and the company will look to sell non-core assets as well to bring down LTV,” added Chetty.

Hyprop’s JSE-listed peer and majority owner of Mall of Africa, Attacq, will release its latest results today (Tuesday, September 22).