Investors ignore solid returns and dim Hyprop’s stocks on doubts

Posted On Monday, 25 January 2016 13:09 Published by
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While most of last year was a pleasing one for Hyprop shareholders, 2016 has begun on a poor note. In fact, 2015 ended with little good news from the marketplace, as the stock plunged after a months-long rally.

Hyprop_Investments_Pieter_Prinsloo

Having begun in high gear, within touching distance of a psychologically significant R100 mark, Hyprop extended its winning streak to eventually break above R130 per share in July.

Investors – including the Government Employees Pension Fund, Stanlib, Old Mutual and Investec – were all smiles as the stock soared an awesome 30%-plus in just months. That sparkle was hard to miss notably in a sluggish market underscored by the Alsi’s narrow range or single-digit oscillation during the same period.

A breather followed for Hyprop, which describes itself as Africa’s leading specialist shopping centre REIT. Soon, it reclaimed the fast lane to retrace its steps as buyers piled – a response to the company pushing its competitiveness notches higher by revamps.

Nevertheless, because not everyone found the REIT’s long-term prospects that convincing, investors put Hyprop stocks in reverse gear, shedding a little more than R40/share, to end 2015 a touch below R90/share. That is right back where it was in October 2014 – 15 months earlier.

For context, this is the same REIT that effortlessly snatched bragging rights when it returned 59% for the year to June, a measure highlighted by Hyprop chairman Gavin Tipper – more than double an already fantastic 27% total return produced by the South African listed property sector over the comparable period.

The FTSE/JSE REIT index delivered a return of 22%, he added, which, solid as it is, pales in comparison to Hyprop’s. CEO Pieter Prinsloo aptly described the REIT’s performance as “excellent investment returns”.

Is it possible that the market is misreading the situation or simply failing to appreciate Hyprop’s prospects?

After all, Hyprop is home to Hyde Park Corner, the grand dame (that lists over 500 of the “world’s foremost international brands”) and whose well-heeled shoppers are least susceptible to the vagaries of a tough economy.

The REIT’s asset base stretches from Canal Walk to CapeGate and, in Gauteng, The Glen in the affluent Oakdene, and Roodepoort’s Clearwater – a premier shopping destination housing 250 shops – among others. The Rosebank Mall, now swankier after a major revamp that “immediately contributed to growth in distributions”, is also worth a mention.

Hyprop’s presence extends to Ghana and Zambia, with assets such as Accra Mall and Lusaka’s imposing Manda Hill Centre that spans 55000m².

Despite what Hyprop observed was a deterioration of economic environment in Ghana and Zambia in 2015, triggering depreciating local currencies and a rise in inflation (none of which support consumer sentiment), those markets performed well. Further investments are underway, especially in especially Ghana, where the recently-completed Achimota Mall has come on board as an income earner and Kumasi City Mall, whose construction is due for completion next year.

The REIT acknowledges that there are limited acquisition opportunities in South Africa, where malls are abundant (if not in oversupply). That said, it will consider investments elsewhere where existing assets can be acquired at attractive yields, or where development opportunities exist. That partly answers questions of prospects.

Hyprop’s track record, and its talented team, under Prinsloo, a 50-year-old quantity surveyor who resumed the reins in 2011, speaks volumes. Still, these qualities couldn’t save the counter from doubting punters. The underlying question seems to be whether the REIT is well-placed to keep churning slick numbers well into the future? In the short-term, it’s a given.

In the medium-term, no doubt. The long-term is a realm of debate if the stock is anything to go by. That is arguably why the stock is in reverse, with analysts calling Hyprop a “sell” not in short supply.

In September, when the REIT’s released its annual results, Meago Asset Management executive director Thabo Ramushu singled out Hyprop’s future growth prospects as a factor worth probing.

“The outlook of 10% for 2016 will be boosted by a higher contribution from Africa, but we are concerned about growth beyond this period,” Ramushu, standing out from other pundits who only sang Hyprop’s praises, said in an interview with Business Day.

“There is no doubt that the quality in the retail offering will continue to prove to be defensive, but the real question is what’s next.

” The losing streak that started in October seems to underscore the sentiment.

For his part, Tipper – who noted that Hyprop’s domestic portfolio performed well during the period, with retail tenants producing “strong results” despite the pressure on consumers and constraints in the macro economy – asserted there was “pleasing demand for space in the malls”.

Given the falling stock, shareholders’ purses are anything but pleasing. 

Now changing hands at R92/share, Hyprop is valued at R23 billion on the bourse, behind Resilient’s R40 billion and market leader Growthpoint’s R60 billion. Hyprop’s market cap puts it in the same league as hotel and casino operator Tsogo Sun, retailer Foschini Group and financial services firm Santam, but more than double the size of Vukile, whose market cap is R9.5 billion.

Prinsloo, counting on the group’s positioning (spanning the middle and higher-income ends of the market), is sanguine about the future growth strategies. “Against low forecasts for economic growth in South Africa, trading conditions are expected to remain constrained in the new financial year,” he reported.

“In line with a proven strategy, Hyprop will maintain its leading position by focusing on the quality of its core portfolio, disposing of non-core assets and maintaining our prudent debt management.”

Acknowledging “the maturity of the shopping centre market” at home, Prinsloo notes that Hyprop will “continue to explore emerging market opportunities to strengthen our solid pipeline”. Setting up in two or three markets, notably in West Africa, could help bolster earnings. If such explorations yield results that meet their expectations, the depressed stock could just return north.

Last modified on Wednesday, 03 February 2016 12:02

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