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If higher electricity rates and taxes are putting tenants under pressure, South Africa’s dynamic retail property sector remains strong. And with its asset base nearly doubled by the acquisition of Attfund Retail, high-end market leaders Hyprop are looking to the future as Colin Chinery discovers. 2



yprop’s acquisition of unlisted Attfund Retail almost doubles South Africa’s leading JSE retail property fund’s asset base to R20 billion, bringing Clearwater Mall, Johannesburg, Woodlands Boulevard Pretoria, Cape Gate Retail Precinct, and a 25 percent undivided share in Centurion Mall to Hyprop’s shopping centre portfolio. Hyprop also gets Atterbury Value Mart Pretoria and Cape centres Somerset Value Mart, Willow Bridge Lifestyle Centre, plus a 20 percent indirect share in Garden Route Mall. Shopping centres have been the dominant driver in the retail sector of South Africa’s commercial property industry, delivering the best results during the global economic meltdown. While the retail market remains strained as a result of reduced consumer spending and highly indebted households, global research shows that South Africa’s retail sector remains buoyant despite changing market conditions and consumer behaviour. It now accounts for 14 percent of the total GDP, employs almost a million people, and annual retail sales exceed R524-billion.

The alternative for Attfund Retail was to list independently, which in some sense would have meant that Hyprop was no longer in this unique space

EXCELLENT OPPORTUNITY Acquisition was an excellent opportunity, says Hyprop. The alternative for Attfund Retail was to list independently, which in some sense would have meant that Hyprop was no longer in this unique space as the premier specialised retail fund in South



Africa. There would have been one more player on the block, so the opportunity to merge two very compatible portfolios into a fund with an obviously greater substance and scale was very appealing and made business sense. A marriage made in Heaven, as someone put it? Well, yes, but it’s not only in the compatibility of the properties and their quality, but also the compatibility of the 4

Hyprop is a very well managed, often conservative, retail investment fund that has delivered a tremendous investment performance

management team in terms of depth of experience, culture, and retail and management philosophy, which has made this a success.

SPECIALISTS Since inception in 1987 Hyprop has honed its specialist focus on premium regional and super-regional shopping centres, and today six of South Africa’s prime shopping centres account for 94 percent of Hyprop’s direct property investments.

The bulk of this investment activity has been over the last two years and is now complete. The Glen, foremost shopping centre of Johannesburg South, saw a substantial extension open before Christmas 2009, and the impact on shopper flow and turnover growth has been superb. At the same time Hyprop extended its reach at Canal Walk, Greater Century City Cape Town, and the largest shopping venue in Africa – a great product adding a new dimension to a super regional shopping centre. There is major investment too at Rosebank Mall Johannesburg, with construction work starting in June and a planned opening in October 2013. With the R26 billion Gautrain rail project expected to be fully operational at the end of June, Hyprop anticipates quite a renaissance in respect of apartment and office blocks, and wants to expand its shopping centre to cater to the growing market. There is a cautionary ROI note however for the Southern Sun Hyde Park Sandton,

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part of the exclusive Hyde Park Shopping Centre, open and trading for a year. It’s a fantastic four star hotel that’s had excellent reviews. But occupancy is not what Hyprop would like it to be. The hotel industry in South Africa has been under significant pressure over the last 18 months - some people say it’s the worst trend in the industry in the last 40 years - so the timing of the opening was not ideal. That said, the product itself is superb and it will do well in the medium to long term. So what is behind the slump? Well, it is complex, but there have been major cutbacks in corporate travel both in terms of the number of trips people take and the grade of hotel they stay in. At the same time the combination of global recession and the strengthening of the Rand have seen a major reduction in top end international visitors to South Africa, both by reduction in numbers and in the period of stay.


QUICK FACTS Company name: Hyprop

Founded: 1987

Listing: JSE

Web: A third factor is that in anticipation of the World Cup there was a new enthusiasm and investment in hotel

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© 2011 Grant Thornton South Africa. All rights reserved. Grant Thornton South Africa is a member firm of Grant Thornton International Ltd (‘Grant Thornton International’).

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Marsh is proud to be associated with Hyprop Investments Ltd. We wish them every success in their future endeavours. Marsh is the global leader in providing cost effective insurance and risk solutions to clients in the realty and hospitality business sectors and manages such assets in excess of R 120 billion in the South African insurance market alone. For more information please contact Rodney Osborne or Cindy Steyn at the following contact details: Marsh (Pty) limited 4 Sandown Valley Crescent, Sandown, Sandton Private Bag X14, Benmore 2010 +27 (0) 11 506 5000

Marsh is an authorised financial services provider Copyright 2011 Marsh Ltd. All rights reserved.


products, a feeling that the World Cup would be a fantastic money spinner for the hotel business. The result is that there is over-supply in places like Johannesburg and Cape Town, with a lot of competition and rate cutting. Meantime, the South African’s love of big shopping malls is unabated. Big destination modern shopping facilities that have a good combination of convenience, aspirational retail and leisure facilities are successful 8

This has been boosted by the Attfund acquisition and the coming together of these two great portfolios and two great management teams

the world over. In South Africa they have become a social gathering place. People tend not to go to parks or for walks in the High Street, so the community centre almost is within your super regional shopping destination, and this is an added benefit for Hyprop.

PROACTIVE After a decade of extraordinary growth and development in the retail property sector, opportunities are now becoming fewer and fewer. City planners are focussing more on densification as opposed to suburban sprawl.

Portfolio Shopping Malls: The Mall of Rosebank, The Glen Shopping Centre, Canal Walk Shopping Centre, Stonebridge Shopping Centre, Southcoast Mall and Hyd Park Shopping Centre

Offices: Rosebank Gardens and Cradock Heights

Hotels: The Grace and Southern Sun Hyde Park

Hyprop’s strategy of proactive asset management has enabled its shopping centres to adapt their retail offerings to tenant demands and the evolving lifestyle trends of shoppers. And with a track record of consistent growth in distributions, Hyprop has been continually ranked as one of the top-performing listed property funds in the country. Hyprop has managed to maintain a very effective annual distribution growth despite bit of a slowdown over the past couple of years, but prior to that well into the double digits and over the last years high in the single digits. Between both its income growth and the unit price, its property has done very well for its investors. Hyprop is a very well managed, often conservative, retail investment fund that has delivered a tremendous investment performance. This has been boosted by the Attfund acquisition and the coming together of these two great portfolios and two great management teams. END


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SA Mag - Issue 11 - HYPROP FEATURE