Low gearing sets up blue-chip to expand

Posted On Friday, 02 March 2007 02:00 Published by eProp Commercial Property News
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Big challenge is to find suitable properties

Pieter PrinslooBlue-chip listed property loan stock company Hyprop Investments, which has arguably the best quality retail property portfolio in the listed property sector, is in an excellent position to expand because of its low borrowings.

But one of its main challenges is finding quality property assets in the market place that suit its portfolio.

The company’s retail portfolio includes such retail gems as Canal Walk Shopping Centre in Cape Town, The Mall of Rosebank, Hyde Park Shopping Centre and The Glen Shopping Centre in Johannesburg.

At the December year-end, Hyprop’s borrowings were 17% of property assets, lower than average in the listed property sector. Investec Listed Property Investments says the average is 24,9%.

Hyprop sold its 46% stake in listed property loan stock company SA Retail Properties for R1,135 billionn in a transaction since year end.

Hyprop MD Pieter Prinsloo says that unless the company concludes another property transaction in the short term it will use the proceeds of the SA Retail sale to repay debt.

“If we were to rebate our debt, we will have minimal borrowings left,” says Prinsloo. This gives Hyprop “big scope” for expansion.

Prinsloo says the low-debt situation strengthens Hyprop’s financial position, and enables it to leverage its R3 billion borrowing capacity for acquisitions and expansion.

The fund will continue its development strategy this year to unlock further value in its shopping centre assets, he says.

“Expansion plans are in line with our strategy of retaining focus on quality retail developments in strategic locations with good demographics.”

But Prinsloo concedes that finding sizeable quality assets such as those it already owns will be a challenge. Hyprop will have to look more to development opportunities within its portfolio as well as outside.

Within the portfolio, Hyprop is trying to obtain more rights for Canal Walk and The Glen to facilitate expansions “because we have a borrowing capacity and a strong yield and we can use those trends to make bids for other quality assets. Everyone is a seller at the right price.”

Catalyst Fund Managers MD Andre Stadler says when Hyprop acquired its stake in SA Retail, it did so via the issue of new Hyprop units. Stadler says this was unfortunate as Hyprop would effectively end up with no debt and extra equity in issue.

Stadler says he would prefer Hyprop in expanding to use debt for acquisitions rather than issuing any new equity because “the equity is too valuable. We would prefer not to have to dilute the return on our equity.”

Catalyst Fund Managers is an investor in Hyprop.

Stadler says a challenge facing Hyprop if it plans to expand is finding quality assets such as those it owns.

“If they can find an asset like Canal Walk, that will be fantastic. But it is not easy to find those assets or secure them,” he says.

Angelique de Rauville, MD of Investec Listed Property Investments, says Hyprop is trading at a low yield of just more than 5%, while other listed property companies are trading in the region of 7%. De Rauville says Hyprop is trading at a premium to the sector, which would imply that it could be “quite aggressive in buying retail assets at current low yields”.

“Hyprop has an advantage over other companies, particularly with the demand there is for listed property script in the current market, with foreign investors and pension and provident funds increasing their investment into the sector.”

De Rauville says there is demand for listed property stock, and Hyprop is in a position to issue units at a lower yield than what they would acquire retail assets at. This would make relatively expensive retail property assets more affordable for Hyprop than for other listed property companies.

But De Rauville agrees it is becoming increasingly difficult to source retail assets similar to those contained within the Hyprop portfolio as there is a shortage of quality retail properties available in the market place.

Last modified on Friday, 25 April 2014 19:08

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