Blue-chip mall owner Hyprop Investments, once a darling of the listed property sector, is struggling to find its feet as its tenants battle to make profits and pay growing rentals. At the same time the company is trying to sell its stakes in disappointing African assets.
Hyprop co-owns malls in Ghana and Nigeria. As of December 31 2019 this Sub-Saharan Africa portfolio included interests in Accra Mall and West Hills Mall in Accra, Ghana; Kumasi City Mall in Kumasi, Ghana (all held via the group’s 37.5% interest in AttAfrica); and a 75% interest in Ikeja City Mall in Lagos, Nigeria.
The company’s dividend is set to shrink by more than 10% in the year to June, but chief investment officer Wilhelm Nauta says that Hyprop is taking the pain now in order to succeed in the future.
The company released financial results for the six months to December last Thursday, with CEO Morne Wilken saying it had managed to get its debt levels under control.
Hyprop’s loan-to-value (LTV) sits at about 34%, while many funds are struggling to bring theirs below 40%. Fund mangers tend to prefer LTVs to be between 25% and 35%.
“We are positioning ourselves for long-term success. To do this, we have to restructure our balance sheet. This includes exiting Africa and investing more in Eastern Europe,” said Nauta.
Analysts say shareholders have to be patient with Hyprop.
“Nothing really surprising in the results. We continue to see pressure on vacancy levels as well as rentals amid a poor trading environment, which in turn sees tenant affordability ratios tick up,” said Meago Asset Management executive director Jay Padayatchi.
“Further, there is little indication of a turnaround beginning in this trend. The African retail exposure continues to be a thorn in Hyprop’s side as it appears that the ability to offload these assets is considerably more difficult than was originally expected.”
One bright light, however, was the operational performance of the southeastern European assets held by Hystead, of which Hyprop owns half.
“These continue to reflect a largely stable economic backdrop supporting consumer demand in relatively underserviced retail markets,” Padayatchi said.
“The capital structure of Hystead has been a point of contention since inception and is another aspect of the Hyprop balance sheet which requires a restructure. The decision to propose a scrip dividend is very surprising considering the deep discount to net asset value that the company is trading at, further evidence a company is battling to find its feet.”
Old Mutual Investment Group listed property fund manager Evan Robins said Hyprop’s results had been disappointing but that the company could succeed over time.
“We had low expectations for the results. Many of the operating metrics were a testament to the weak consumer environment and there were, not unexpectedly, some further writedowns. Management is aware of many of the issues facing the company and is working to address them,” he said.
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