Hyprop CEO Morné Wilken. Picture: ARNOLD PRONTO
Hyprop CEO Morné Wilken. Picture: ARNOLD PRONTO

Blue-chip shopping centre owner Hyprop Investments’ shares slumped 11.7%, its biggest drop since December 2015, after the real estate investment trust (Reit) warned that distributable income for the 2020 financial year could decline as much as 13%.

Hyprop, the owner of The Mall of Rosebank, the Glen, Hyde Park Corner and Canal Walk, attributed the expected fall in income to underperformance of the South African and East European property portfolios as well as reduced rent from the Edcon Group.

Hyprop has reduced exposure to Edcon by 15,910m2.  By June 30, 2019, 9,636m2 of that space had been relet and the remaining 6,274m2 was expected to be occupied by new tenants in the 2020 financial year, the company said.

Hyprop CEO Morné Wilken said continued weak economic conditions and the full impact of the Edcon rent reduction, would affect distributable income in the 2020 financial year.

However, he said the company’s new three-year strategic plan, meant to help the company cope in a rapidly evolving retail environment with disruptive technologies and market conditions, would eventually pay off.

“We are certain that our new strategy is necessary for the group’s long-term sustainability, and anticipate growth in distributable income in 2021 and beyond,” said Wilken.

“Put simply, we expect short-term pain for long-term gain.  The revised strategy and key initiatives in play should ensure that the drop in distributions is temporary, to be followed by a return to growth in distributions from (the 2021 financial year) onwards.”

Wilken said that by the end of June Hyprop had no significant arrears exposure to any one tenant, “including the Edcon group”. 

Hyprop trimmed full-year distributions to shareholders 1.5% due to the underperformance of the company’s sub-Saharan portfolio, which it wants to dispose of.

The company reported a 6.5% growth in distributable income from the South African portfolio, while distributable income from the Eastern European portfolio increased  13.5%.

The company wants to reduce exposure to Sub-Saharan Africa in order to focus on the South African and Eastern European businesses.

Hyprop and property investment firm AttAfrica have already concluded the sale of their interests in Manda Mall Shopping Centre in Zambia, in line with Hyprop’s strategy to curb exposure to Sub-Saharan Africa.

Hyprop owns a 37.5% equity stake in AttAfrica. Hyprop Investments (Mauritius) and AttAfrica each own 50% of the 42,000m2 mall.

In June, Hyprop announced that AttAfrica had sold its interests in Achimota Retail Centre in Ghana for an undisclosed sum.

Hyprop’s investments in Sub-Saharan Africa include stakes in Accra Mall and West Hills Mall in Accra, Ghana; Kumasi City Mall in Kumasi, Ghana, and Ikeja City Mall in Lagos, Nigeria.

Hyprop, which also released results for the year ended June 30 on Thursday, said its share of the undisclosed disposal proceeds would be used to settle a share of the company’s US Dollar-denominated debt. Hyprop’s US Dollar-denominated debt stands at $244m.

Ratings agency Moody’s Investors Service downgraded Hyprop to junk status in February, citing an increase in debt as a result of debt-funded acquisitions in Eastern Europe.

The ratings agency also said Hyprop would rely on external debt financing to cover debt. At June 30, Hyprop’s net borrowings were R7bn.

In response to Moody’s concerns, Hyprop said it had refinanced R4bn of external debt between March and June 2019. It also raised R500m from the issue of two new corporate bonds in March 2019.