Hyprop, the owner of blue chip malls including Rosebank Mall, Hyde Park Corner, Canal Walk and Clearwater, is primed for recovery, analysts said after the company released an update which suggested the Covid-19 pandemic had been less brutal with the group than it had been with other companies.
Shopping centre landlords, especially those who cater to SA's middle- and upper-income earners, are being hit by reduced consumer spend. This was compounded by the coronavirus threat sending the economy into lockdown and stopping stores from trading from late March until June except when selling essential goods.
The real estate investment trust's (Reit's) share price closed 0.38% higher on Wednesday at R23.91, but remains down about 58% in the year to date. The FTSE/JSE South African Listed Property Index (Sapy) is down 34.6% so far in 2020.
Evan Robins, portfolio manager at Old Mutual Investment Group, said South African institutional investors believed Hyprop's future was bright because it owns high-quality assets which were unlikely to run into unfixable problems in the long term.
“Hyprop is one of the best-rated property companies on the JSE even if it has been through a tough period. It’s a buy, especially for investors who believe large malls are not dead. Ordinarily it would be a clear takeover target at these levels, in these times less so,” he said.
Keillen Ndlovu, head of listed property at Stanlib, said it had “not been a smooth ride for Hyprop, but management has made concerted efforts to fix some of the biggest concerns which include their debt levels and/or structure, as well as rest of Africa exposure”.
Hyprop said on Wednesday that it had completed more than a third of rental relief talks with its South African tenants, with the goal being to retain them.
“We are now negotiating rent relief packages with 86 of our national and larger retailer groups, and have concluded 37% of the negotiations with 63% in process” the group said.
The group collected 43.6% of rent for April and 54.6% of rent for May.
Hyprop also updated the market about concerns around Edcon, the struggling national retailer which is one of its tenants.
Edcon is in a business rescue process with its creditors, including landlords and suppliers desperate to get their money owed by the iconic South African retailer.
Hyprop’s Edcon exposure has reduced from 50,199m² to 47,762m² due to the sale of CNA. The reduced exposure equates to 6.7% of Hyprop’s local gross lettable area (GLA).
Of the total Edcon exposure by GLA, only 976m2 has been identified by Edcon's business rescue practitioners as onerous and 1,360m2 has been identified as nonviable space.
“We have leasing strategies in place for this space as well as for any additional vacancies resulting from the business rescue process. The vacancies will create an opportunity for Hyprop to introduce other uses and or new retailers into our malls,” Hyprop said.
Hyprop, said it was confident its balance sheet could withstand the effects of Covid-19.
The company said it would have R1.6bn in cash available, having recently secured at R500m revolving credit facility from a local bank, which is in the final stages of implementation. The group had also raised R100m through privately placing a bond.
The percentage of tenants trading in the first week of June 2020 at the malls, ranged from 67% at Hyde Park Corner to 97% at Atterbury Value Mart.
Ndlovu said the number of tenants trading in June was much better than first thought.
Hyprop's malls “are not as easy to administer in this environment as they have exposure to more tenants as well as food courts, cinemas and entertainment in general”, he said.
Community and neighbourhood shopping centres, including township and rural centres, are seen as more defensive in this environment.
Update: June 10 2020
This article has been updated to include analysts' comment.
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