Condensed consolidated interim results PROPERTY INVESTMENT EXCELLENCE
HIGHLIGHTS Dividend up 16,6% Acquired Skopje City Mall, Skopje, Macedonia Sale of Willowbridge South R460 million Developments of R260 million underway (SA portfolio) HYPROP INVESTMENTS LIMITED (Incorporated in the Republic of South Africa) (Registration number 1987/005284/06) JSE share code: HYP ISIN: ZAE000190724 (Approved as a REIT by the JSE) ( Hyprop or the company or the group ) Front cover image: Skopje City Mall, Skopje, Macedonia
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME six months six months 2015 Audited 12 months Revenue 1 621 331 1 479 642 3 078 221 Investment property income 1 590 208 1 412 254 2 976 420 Straight-line rental income accrual 31 123 67 388 101 801 Property expenses (544 095) (464 865) (993 861) Net property income 1 077 236 1 014 777 2 084 360 Other operating expenses (48 185) (36 644) (76 593) Operating income 1 029 051 978 133 2 007 767 Net interest (172 406) (158 441) (366 176) Received 160 423 124 963 323 759 Paid (332 829) (283 404) (689 935) Net operating income 856 645 819 692 1 641 591 Other income 17 505 Change in fair value 619 973 1 096 427 1 217 049 Investment property 590 391 994 335 1 382 134 Straight-line rental income accrual (31 123) (67 388) (101 801) Investment in joint venture 10 102 (10 102) Derivative instruments 50 603 169 480 (53 182) Loss on disposal (2 934) Investment property (377) Investment in subsidiary (2 557) Impairment of goodwill (18 134) Net income before equity-accounted investments 1 473 055 1 916 119 2 858 640 Share of income/(loss) from joint ventures 30 705 (41 007) Share of income from associate 96 195 457 Dividends received 82 923 Profit before taxation 1 556 074 1 947 019 2 818 090 Taxation (3 710) (857) (50 930) Profit for the period/year 1 552 364 1 946 162 2 767 160 Other comprehensive income Exchange differences on translation of foreign operations (14 771) 63 137 (1 491) Total comprehensive income for the period/year 1 537 593 2 009 299 2 765 669 Total profit for the period/year attributable to: Shareholders of the company 1 577 849 1 946 870 2 750 847 Non-controlling interests (25 485) (708) 16 313 Profit for the period/year 1 552 364 1 946 162 2 767 160 Total comprehensive income attributable to: Shareholders of the company 1 572 409 1 992 234 2 752 041 Non-controlling interests (34 816) 17 065 13 628 Total comprehensive income for the period/year 1 537 593 2 009 299 2 765 669 1
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (continued) six months six months 2015 Audited 12 months Profit for the period/year 1 577 849 1 946 870 2 767 160 Earnings 1 577 849 1 946 870 2 767 160 Headline earnings adjustments (600 144) (994 335) (1 372 032) Change in fair value of investment property (611 110) (994 335) (1 382 134) Change in fair value of investment in joint venture (10 102) 10 102 Loss on disposal: Investment in subsidiary 2 557 Investment property 377 Impairment of goodwill 18 134 Headline earnings 977 705 952 535 1 395 128 Distributable earnings adjustments (116 281) (229 253) 127 093 Change in fair value: Derivative instruments (50 602) (169 480) 53 182 Investments in sub-saharan Africa (excluding SA) (51 221) (65 041) (35 131) Investments in South African subsidiaries 1 118 1 597 1 205 Investments in South-Eastern Europe (24 572) 24 572 Capital items 5 286 2 814 15 632 Taxation 2 734 857 7 371 Deferred taxation 976 43 558 Antecedent dividend 16 704 Distributable earnings 861 424 723 282 1 522 221 Total shares in issue 248 441 278 243 256 092 243 256 092 Weighted average shares in issue 246 931 585 243 256 092 242 921 081 Total shares in issue for dividend per share (excludes treasury shares) 248 030 619 242 845 433 248 030 619 Basic earnings per share (cents) 639,0 800,3 1 139,1 Headline earnings per share (cents) 395,9 392,2 574,3 Diluted earnings per share (cents) 634,0 800,3 1 131,1 Diluted headline earnings per share (cents) 391,2 392,2 567,3 2
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION 2015 Audited Assets Non-current assets 32 512 844 32 022 259 32 227 218 Investment property 29 186 107 28 372 447 28 702 563 South African portfolio 27 110 496 25 965 405 26 380 137 Ikeja City Mall (Lagos, Nigeria) 2 075 611 2 407 042 2 322 426 Building appurtenances and tenant installations 134 155 102 833 126 100 Investments in sub-saharan Africa (excluding SA) 3 141 399 3 326 636 3 315 614 Investment in associate 505 766 Loans receivable 16 991 14 732 Goodwill 18 134 18 134 Derivative instruments 34 192 201 704 49 309 Current assets 985 404 374 796 378 150 Receivables 237 446 147 489 179 193 Loans receivable 51 120 Derivative instruments 3 401 Cash and cash equivalents 744 557 176 187 198 957 Non-current assets held-for-sale 916 798 1 271 301 1 243 591 Investment property 916 798 1 271 301 1 243 591 Total assets 34 415 046 33 668 356 33 848 959 Equity 24 560 294 23 105 429 23 118 856 Stated capital and reserves 24 464 850 22 946 351 22 988 596 Non-controlling interest 95 444 159 078 130 260 Liabilities Non-current liabilities 9 011 418 8 774 245 8 879 743 Interest-bearing liabilities 8 838 496 8 641 487 8 632 036 Derivative instruments 32 789 26 040 101 198 Deferred taxation 140 133 106 718 146 509 Current liabilities 821 149 1 760 499 1 822 492 Payables 521 149 489 340 528 440 Interest-bearing liabilities 300 000 1 267 824 1 294 052 Derivative instruments 3 335 Liabilities directly associated with non-current assets held-for-sale 22 185 28 183 27 868 Total liabilities 9 854 752 10 562 927 10 730 103 Total equity and liabilities 34 415 046 33 668 356 33 848 959 Net asset value per share (R) 98,47 94,33 94,50 3
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 2015 Audited Balance at beginning of period/year 23 118 856 21 658 721 21 658 721 Total profit for the period/year attributable to Hyprop shareholders 1 577 849 1 946 870 2 750 847 Issue of shares 695 655 Non-controlling interest (34 816) 159 078 130 260 Treasury shares (27 898) (27 789) Dividends (798 907) (681 847) (1 404 296) Share-based payment reserve 7 097 5 141 9 919 Foreign currency translation reserve (5 440) 45 364 1 194 Balance at end of period/year 24 560 294 23 105 429 23 118 856 Distribution details Total distribution for the period/year (cents) 347,3 297,8 619,9 Six months ended (cents) 322,1 Six months ended (cents) 347,3 297,8 297,8 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS 2015 Audited Cash flows from operating activities 145 241 80 549 (210 672) Cash generated from operations 1 014 952 945 363 1 709 767 Interest received 272 912 89 945 191 515 Interest paid (343 716) (263 416) (692 192) Taxation paid (9 496) (15 466) Dividends paid (798 907) (681 847) (1 404 296) Cash flows from investing activities 492 721 (1 330 044) (1 716 759) Cash flows from financing activities (83 804) 1 287 866 1 989 143 Net increase in cash and cash equivalents 554 158 38 371 61 712 Cash acquired with subsidiary 48 964 48 964 Translation effects on cash and cash equivalents of foreign entities (5 441) 6 144 5 002 Cash reallocated to assets held-for-sale (3 117) (1 133) (562) Cash and cash equivalents at beginning of period/year 198 957 83 841 83 841 Cash and cash equivalents at end of period/year 744 557 176 187 198 957 4
COMMENTARY INTRODUCTION Hyprop, Africa s leading specialist shopping centre Real Estate Investment Trust (REIT), operates a portfolio of shopping centres in major metropolitan areas across South Africa (SA), sub-saharan Africa (excluding SA) and South-Eastern Europe. Hyprop s strategy is to own dominant, quality shopping centres in emerging markets, where such assets can be acquired or developed at attractive yields. The shopping centre portfolio in South Africa includes super-regional centre Canal Walk, large regional centres Clearwater, The Glen, Woodlands, CapeGate, Somerset and Rosebank Malls, and regional centre Hyde Park Corner. The sub-saharan African portfolio (excluding SA) includes interests in Accra Mall, West Hills Mall and Achimota Retail Centre (all in Accra, Ghana), Manda Hill Centre in Lusaka, Zambia and Ikeja City Mall in Lagos, Nigeria. In early Hyprop expanded into South-Eastern Europe with the acquisition of a 60% interest in Delta City Belgrade, Serbia and Delta City Podgorica, Montenegro. In October, Hyprop acquired a 60% interest in Skopje City Mall, in Skopje, Macedonia. FINANCIAL RESULTS Hyprop has declared a dividend of 347,3 cents per share (the period), an increase of 16,6% on the corresponding period in 2015. Distributable earnings for the period benefited from the inclusion of R58,4 million (23,5 cents) from the investments in South-Eastern Europe. No income from the investments in South-Eastern Europe was included in the prior year interim period. Due to constraints on the conversion of local currency to US Dollars, net distributable earnings from Ikeja City Mall in Lagos, Nigeria, amounting to R15,6 million, was excluded from distributable earnings for the period ( 2015: R6,0 million). 5
COMMENTARY (continued) SOUTH AFRICAN PORTFOLIO Revenue and distributable earnings six months ended Distributable earnings six months ended 2015 Distributable earnings Business segment Revenue Revenue Shopping centres 1 287 100 860 789 1 191 960 806 663 Value centres 119 844 80 215 114 154 76 562 Total retail 1 406 944 941 004 1 306 114 883 225 Standalone offices 28 262 16 496 26 023 15 587 Investment property (excluding properties sold) 1 435 206 957 500 1 332 137 898 812 Properties sold 17 381 10 865 25 213 15 842 Total investment property 1 452 587 968 365 1 357 350 914 654 Revenue and distributable earnings from investment property (excluding properties sold) increased by 7,7% and 6,5%, respectively. Trading density growth slowed during the period, especially among apparel retailers, who were affected by increased competition, a weaker Rand and more restrictive credit-granting regulations. Demand for space in Hyprop s shopping centres remains strong as evidenced by low vacancies and rental arrears, and supports further expansion at Rosebank Mall, Canal Walk and The Glen. Cost-to-income ratios Net basis (%) 15,5 15,0 Gross basis (%) 33,5 33,2 The cost-to-income ratios increased marginally, largely due to higher municipal costs. Tenant arrears Total arrears as a percentage of rental income were 0,5% ( : 0,5%). Vacancies Vacancy by sector % of total rentable area Retail 0,8 0,8 Office 3,9 4,5 Total 1,1 1,1 Total retail vacancies remained at 0,8%, while vacancies in the office portfolio reduced marginally, largely due to new lettings at Lakefield Office Park. Total gross lettable area in the portfolio reduced by a net 21 707m² (2,8%) due to asset sales. As a result, the reduction in office vacancies did not materially impact total vacancies. 6
Valuations Value attributable to Hyprop Business segment Rentable area (m 2 ) Value per rentable area (R/m 2 ) Shopping centres 649 499 25 937 559 25 282 472 43 974 Value centres 91 739 1 861 900 1 755 000 20 296 Total retail 741 238 27 799 459 27 037 472 41 044 Total standalone offices 23 811 347 175 328 075 14 580 Properties sold 365 000 Investment property 765 049 28 146 634 27 730 547 40 220 Investment property was valued at R28,1 billion at ( : R27,4 billion), an increase of 2,9% (excluding assets sold). Developments The installation of H&M at Somerset Mall (R15,8 million) and Checkers at Atterbury Value Mart (R31,0 million) were completed successfully. The following extensions and refurbishments are underway: Shopping centre Project Amount (Hyprop s share) Completion date Rosebank Mall Additional 4 300m 2 rentable area R127,0 million April 2018 The Glen Food court enclosure and additional 1 200m 2 rentable area R90,9 million April 2018 Canal Walk Additional retail in La Piazza area R41,6 million November 2017 During the period, R73,1 million was spent on capital projects, new equipment and tenant installations. Disposals Somerset Value Mart and Glenfield Office Park were sold for R185 million and R180 million, respectively. Somerset Value Mart was transferred in September, and Glenfield Office Park in December. Willowbridge South was sold for R460 million and was transferred in March 2017. Agreement has also been reached for the disposal of Willowbridge North for R225 million. The transaction is still subject to approval by the competition authorities as well as approval for the assignment of the leasehold rights to the purchaser. Efforts to dispose of the remaining standalone office buildings are continuing. 7
COMMENTARY (continued) INVESTMENTS IN SUB-SAHARAN AFRICA (EXCLUDING SA) City/Country Hyprop s effective shareholding (%) Rentable area (m 2 ) vacancy (%) vacancy (%) Ikeja City Mall Lagos, Nigeria 75,0 22 349 2,3 Manda Hill Lusaka, Zambia 68,8 40 561 6,1 4,4 Accra Mall Accra, Ghana 17,6 21 240 West Hills Mall Accra, Ghana 16,8 27 923 6,0 Achimota Mall Accra, Ghana 28,1 15 006 11,9 18,0 Total portfolio 127 079 4,7 4,0 The exclusion of distributable earnings from Ikeja City Mall in Lagos, Nigeria, resulted in a reduction in distributable earnings from the investments in sub-saharan Africa (excluding SA) to R30,9 million ( 2015: R35,3 million). The Central Bank of Nigeria issued a statement on 20 February 2017, undertaking to clear all unfilled foreign exchange orders. Future distributable earnings from Ikeja City Mall will be included when the foreign exchange market becomes operational again. Average growth in distributable earnings from Manda Hill Centre (Lusaka, Zambia), West Hills Mall and Accra Mall (both in Accra, Ghana) was 5,4%. Despite continued challenging trading conditions in certain of the countries in which the investments are held, the centres displayed resilience and vacancies were maintained at reasonable levels. Apart from Manda Hill, the centres reported better trading numbers for December than for December 2015. Manda Hill has been affected by the opening of additional retail centres in Lusaka, however its position remains dominant and efforts are being made to improve its tenant mix. Kumasi City Mall, in Kumasi, Ghana is currently under construction and is scheduled to open in April 2017. Investments in sub-saharan Africa (excluding SA) at, primarily via shareholder loan funding to AttAfrica Limited, were R3,1 billion ( : R3,3 billion). The net reduction over the period was largely due to Rand appreciation against the US Dollar. Hyprop s share of its investment in Ikeja City Mall, in Lagos, Nigeria, reduced to R1,6 billion ( : R1,7 billion). The reduction in value was due to a reduction in the directors valuation of Ikeja City Mall, as well as due to Rand appreciation against the US Dollar. 8
INVESTMENTS IN SOUTH-EASTERN EUROPE City/Country Hyprop s effective shareholding (%) Rentable area (m 2 ) vacancy (%) vacancy (%) Delta City Belgrade Belgrade, Serbia 60,0 29 876 Delta City Podgorica Podgorica, Montenegro 60,0 23 729 Skopje City Mall Skopje, Macedonia 60,0 36 128 1,7 Total portfolio 89 733 0,7 Delta City Podgorica (Montenegro) was purchased in February, and Delta City Belgrade (Serbia) in April. The final instalment of EUR49,3 million for Delta City Belgrade was paid in September. The purchase of Skopje City Mall, in Skopje, Macedonia, for a total consideration of EUR92 million, was effective in October. All of the acquisitions in South-Eastern Europe have been funded with Euro-denominated bridge funding, supported by a guarantee from Hyprop. The bridge funding will be re-financed with term funding, which will be at a higher interest rate than the bridge funding and will be implemented in tranches during 2017. It is anticipated that once the re-financing is complete, the weighted average interest rate for the Euro funding will be between 3% and 4%. Trading conditions continue to be positive, with like-for-like foot count growth as well as turnover growth in excess of the Eurostat inflation rate. Demand for additional rentable area remains strong from the fashion anchor tenants and further extensions to the centres are planned. The accounting treatment of the investments in South-Eastern Europe require them to be accounted for as an investment in a financial asset. Accordingly, the investments do not currently appear on the consolidated statement of financial position. NET ASSET VALUE The net asset value (NAV) per share at increased by 4,2% to R98,47 ( : R94,50). The increase was due to an increase in the value of the investment property portfolio, as well as the issue of new shares at a premium to NAV per share, in July. At, the closing share price of R117,31 represented a premium of 19,1% to the NAV per share. 9
COMMENTARY (continued) BORROWINGS Rm Rm Bank debt 8 968 9 344 South Africa 1 830 2 992 USD (Rand equivalent) 1 4 580 4 842 EUR (Rand equivalent) 2 2 558 1 510 Debt capital market funding (South Africa only) 2 300 1 640 Corporate bonds 2 300 1 200 Commercial paper 440 Cash and cash equivalents (743) (239) Net borrowings 10 525 10 745 Loan-to-value (%) 29,7 30,8 Debt at fixed rates (%) South African debt (%) 100,5 89,6 USD debt (%) 70,9 72,4 Maturity of fixes (years) South African debt (years) 4,4 4,9 USD debt (years) 3,2 3,7 Cost of funding (%) South African debt (%) 8,9 8,9 USD debt (%) 4,6 4,6 EUR debt (%) 1,7 1,7 Debt capital market (DCM) % of total debt 20 15 1 The USD debt includes 75% of the in-country debt relating to Ikeja City Mall (Lagos, Nigeria) 2 The Euro debt, which relates to Hyprop s effective 60% interest in the South-Eastern European shopping malls, is not consolidated on the Hyprop statement of financial position During the period, a maturing South African bank loan amounting to R1,2 billion was refinanced with DCM funding (three, four and five-year corporate bonds). As a consequence, the ratio of DCM funding to total debt increased to 20%. All DCM funding is unsecured. The Rand equivalent of the US Dollar-denominated bank debt reduced during the period, largely due to Rand appreciation against the US Dollar. Euro-denominated debt increased during the period, due to the final payment of EUR49,3 million in September in respect of Delta City Belgrade, as well as EUR92 million in October for Skopje City Mall in Macedonia. The Euro debt is short-term bridge funding and the interest rate has not been fixed. The increase in cash is largely due to cash inflows from the issue of new shares in July (R700 million) and the sale of Somerset Value Mart and Glenfield Office Park in September and December, respectively. 10
DISTRIBUTABLE EARNINGS STATEMENT AND RECONCILIATION TO DIVIDEND DECLARED Distributable earnings six months 2015 South African property portfolio 968 198 914 655 Investments in sub-saharan Africa (excluding SA) 30 884 35 277 Investments in South-Eastern Europe 58 351 Fund management expenses (32 826) (31 559) Net interest (180 688) (195 091) Other income 17 505 Total distributable earnings 861 424 723 282 Total shares in issue at period end 248 441 278 243 256 092 Treasury shares in issue (410 659) (410 659) Shares in issue for distributable earnings 248 030 619 242 845 433 Dividend per share (cents) 347,3 297,8 Dividend per share growth (%) 16,6 13,4 Other income, amounting to R17,5 million, comprises a credit enhancement fee received for the funding guarantee provided by Hyprop in respect of the South-Eastern European investments. Net interest costs of R180,7 million ( 2015: R195,1 million) reduced due to non-core asset sales of R365 million (Somerset Value Mart and Glenfield Office Park), and a cash inflow of R700 million in July from the issue of new shares. The proceeds from non-core asset sales and the issue of new shares were applied in part to the reduction of debt and to capital expenditure in the South African portfolio. PROSPECTS Hyprop expects dividend growth of approximately 12% for the full year to 2017. This guidance is based on the following key assumptions: Forecast investment property income is based on contractual rental escalations and market-related renewals; Appropriate allowances for vacancies have been incorporated into the forecast; No major corporate and tenant failures will occur; Earnings from offshore investments will not be materially impacted by exchange rate volatility. Exchange rates have been assumed at R12,75 and R13,80 to the US Dollar and Euro, respectively; and No income from Ikeja City Mall (Lagos, Nigeria) has been included in the forecast. The forecast has not been reviewed or reported on by the company s auditors. 11
COMMENTARY (continued) PAYMENT OF DIVIDEND All rental income earned by the company, less property expenses and interest on debt, is distributed to shareholders semi annually. A dividend of 347,3 cents per share will be paid to shareholders as follows: Last day to trade cum dividend Shares trade ex dividend Record date Payment date 2017 Tuesday, 28 March Wednesday, 29 March Friday, 31 March Monday, 3 April Shareholders may not dematerialise or rematerialise their shares between Wednesday, 29 March 2017 and Friday, 31 March 2017, both days inclusive. The dividend will be transferred to dematerialised shareholders CSDP accounts/ broker accounts and paid to certificated shareholders bank accounts on Monday, 3 April 2017. An announcement relating to the tax treatment of the dividend will be released separately on SENS. BASIS OF PREPARATION The condensed consolidated interim financial statements were prepared in accordance with International Financial Reporting Standards, IAS 34 Interim Financial Reporting, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by the Financial Reporting Standards Council and the requirements of the Companies Act of South Africa. All amendments to standards that are applicable to Hyprop for its financial year beginning 1 July have been considered. Based on management s assessment, the amendments do not have a material impact on the group s condensed consolidated interim financial statements. All accounting policies applied in the preparation of the condensed consolidated interim financial statements are consistent with those applied by Hyprop in its consolidated group annual financial statements for the prior financial year. These condensed consolidated interim financial statements have not been reviewed or audited by Hyprop s independent external auditors. Preparation of the interim financial information was supervised by Laurence Cohen CA(SA) in his capacity as Financial Director. On behalf of the board GR Tipper Chairman PG Prinsloo CEO 3 March 2017 12
CORPORATE INFORMATION Directors GR Tipper * (Chairman) PG Prinsloo (CEO) LR Cohen (FD) KM Ellerine * L Engelbrecht * MJ Lewin * TV Mokgatlha * L Norval * S Shaw-Taylor * * Non-executive Independent Independent non-executive director Ethan Dube resigned from the board on 1 December. Registered office 2nd Floor, Cradock Heights, 21 Cradock Avenue, Rosebank (PO Box 52509, Saxonwold, 2132) Transfer secretaries Computershare Investor Services Proprietary Limited Rosebank Towers 15 Biermann Avenue Rosebank (PO Box 61051, Marshalltown, 2107) Company secretary CIS Company Secretaries Proprietary Limited Sponsor Java Capital Investor relations Viki-Jane Watson (Telephone: +27 11 447 0090) Email: investorrelations@hyprop.co.za or viki@hyprop.co.za www.hyprop.co.za 13
Hyprop Investments Limited 2nd Floor, Cradock Heights, 21 Cradock Avenue, Rosebank 2196 PO Box 52509, Saxonwold, 2132 Tel: +27 11 447 0090 Fax: +27 11 447 0092 Email: investorrelations@hyprop.co.za www.hyprop.co.za