Hyprop Investments is one company that is showing positive signs as we move into a 2016 that is set to be a difficult year for financial organisations. The shopping centre heavyweight is investing in its portfolio, bringing down vacancies, and it is also growing its presence in sub-Saharan Africa.
Expanding into Africa is now not only attractive to South African companies of a certain size; in many cases it has become essential.
Spreading risk and accessing high-growth markets is not just desirable, it is required for companies that have grand ambitions.
The South African economy is showing no sign of shaking its sluggish performance and Finance Minister Nhlanhla Nene recently revised the National Treasury’s economic growth outlook down from 2% to just 1.5%. Adding to the negativity, the IMF announced in October that it projected SA’s GDP to grow by only 1.3% in 2016 – the slowest rate of growth since the crippling global recession of 2009.
Because of this weak performance, SA companies that are expanding into Africa have to make sure they have their local operations in check before they cross the borders with hopes and dreams. Often, similar problems will be found in other African countries and it’s important to know how to deal with these issues.
One company that has accelerated its growth into Africa in recent times is Hyprop Investments. Importantly, Hyprop has a hugely successful business model in operation in SA and this has provided the springboard for the company’s movement into foreign markets.
Hyprop describes itself as ‘Africa’s leading specialist shopping centre Real Estate Investment Trust (REIT), which operates an internally managed portfolio of shopping centres in major metropolitan areas across South Africa’.
At home in South Africa, Hyprop owns some of the country’s most recognisable shopping destinations including super regional centre Canal Walk, large regional centres Clearwater Mall, The Glen Shopping Centre, Woodlands Boulevard, CapeGate Shopping Centre, Somerset and Rosebank Malls, and regional centre Hyde Park Corner.
The company is now growing its presence in sub-Saharan Africa, in part through a joint venture with Attacq Limited (Attacq) and the Atterbury Group.
NIGERIA
Just last month, Hyprop made its first move into Nigeria. In a deal that cost the company a reported $68 million, Hyprop purchased a 75% stake in the Ikeja City Mall with partner Attacq taking the remaining 25% for a reported $23 million.
The Ikeja City Mall fits into Hyprop’s portfolio and is the biggest shopping mall in Lagos. It is anchored by South African multinationals such as Shoprite, Mr Price, Spur, MTN and Markham. The 22,000 m2 centre was purchased from Actis, RMB Westport and Paragon Holdings and attracts 800,000 visitors each month.
Hyprop CEO Pieter Prinsloo said: “Hyprop is well‐placed to capitalise on opportunities across sub-Saharan Africa, due to its partnership with the Atterbury Group and Attacq, whose combined expertise facilitates exploiting opportunities as they arise.”
Morné Wilken, CEO of Attacq, said: “Our strategic investment in Ikeja City Mall forms part of Attacq’s larger African investment strategy and was executed with the assistance of the experienced AttAfrica team. It is our first investment in Nigeria, an African market with fantastic growth prospects. It adds to our investment in the growing portfolio of dominant, quality retail malls in sub-Saharan Africa.”
David Morley, Head of Real Estate at Actis, commented: “This sale reflects the strong retail opportunity in West Africa and the interest of quality institutional investors in sub-Saharan real estate assets.”
Prior to the announcement of the Ikeja acquisition, African business accounted for around 8% of the Hyprop portfolio and Prinsloo is reported to be keen to grow this to 20% in the future according to IOL’s Business Report.
“In Africa, it (acquisitions) can take a long time. If we find the right asset, we will do an acquisition,” he said.
“There are nice centres being built at the moment that are under construction in Lagos and Abuja. We will only go to the major centres.
“It must be logical. We’re not going to go into Russia or China. If we can find a good opportunity and we can establish a base there then we will look at it,” he added.
Hyprop’s other investments in Africa include: Accra Mall, West Hills Mall and the Achimoto Centre in Ghana and Manda Hill in Zambia.
ADDING VALUE
With the aforementioned economic challenges reducing the amount of investment in South Africa’s commercial property sector, there are now limited opportunities for acquisition in the Rainbow Nation and this has resulted in Hyprop looking at increasing revenues from its existing portfolio to back up growth in its revenues from new investments.
Revamps and extensions to larger malls, including Rose Bank, over the past couple of years have seen improved performance with BDlive reporting a 15% growth in distributions for the year to June.
“We spent about R900m on the revamp of The Mall of Rosebank and we believe this was money well spent,” Prinsloo told Business Day. “Now valued at R2.4bn, it is our third-largest after Clearwater Mall and Canal Walk. It immediately contributed to distribution growth.”
Upgrades to Clearwater Mall and Hyde Park, with its Cortina Court development, will see Hyprop’s performance boosted further – not only financially but also in terms of reliance on SA’s unpredictable power grid. Hyprop completed Phase 2 of Clearwater Mall’s solar photovoltaic plant in August and the system now has a generating capacity of 2,5GWh per annum. The group also installed additional back-up generators at Hyde Park Corner.
“Our portfolio has substantial back-up power and the effect of load shedding has not been material,” Prinsloo commented. “The additional 1000kWp at Clearwater from Phase 2 will help mitigate the impact of continuously rising electricity costs, as well as shrinking Hyprop’s carbon footprint, in line with the primary objectives of our environmental strategy.”
The fact that Hyprop has the ability to make investments like this is promising for investors. In September, Hyprop reported ‘exceptional returns for shareholders’ and the Integrated Annual Report for the year ending 30 June 2015, which was released in October, confirmed this success.
“Hyprop delivered excellent investment returns to shareholders for the year to 30 June 2015, despite the low GDP growth in South Africa.
“In line with our guidance to the market of a 12% to 15% increase in distributable earnings, 2015 earnings came in at the upper end at 543 cents a share.
“Underpinning this higher return to shareholders was a solid operating performance from the core shopping centre portfolio.
“Ongoing strong demand for retail space in our shopping malls is reflected in our low vacancies of 1.3%,” said Prinsloo.
Looking to the future, the CEO is optimistic and says that distributions will likely increase despite the grim economic outlook.
“Our focus on owning quality shopping centres, catering for middle to higher-income consumers, is demonstrating the resilience of our growth strategies.
“Against low forecasts for economic growth in South Africa, trading conditions are expected to remain constrained in the new financial year. In line with a proven strategy, Hyprop will maintain its leading position by focusing on the quality of its core portfolio, disposing of non-core assets and maintaining our prudent debt management. Given the maturity of the shopping centre market in South Africa, we will also continue to explore emerging market opportunities to strengthen our solid pipeline.
“Against this background, we forecast growth in distributions of around 10% for the financial year ahead,” he said.