Retail property fund Hyprop Investments has posted a 15.4% increase in distributions to 150 cents for the six months to June 2008, reflecting the defensive quality of its shopping centre assets in a depressed economy.

Net operating income grew to R252.2 million from R183.5 million before. Headline earnings rose to R244.9 million after a pro-forma loss of R301.2 million a year ago. Hyprop's shopping centres boosted earnings by 14.2% while total net income from the portfolio increased 14.4% when compared to the previous financial year on a like-for-like basis, excluding the properties disposed of during the period.

CEO Pieter Prinsloo said the quality, location and scale of the group's shopping centres, ensure that Hyprop is able to sustain growth in an economic downturn, with these factors having driven continued demand for retail space and ensured high occupancy levels at all of Hyprop's centres.

"New leases were concluded during the period for 26,000m² of retail space at an average rental growth of 16% and contractual escalation of 9.75%," said Prinsloo. Total vacancies at June 2008 were 1.2% with the retail portfolio nearing full capacity at 0.71% vacancy.

Hyprop's investment in Sycom Property Fund further boosted distribution growth and the group increased its stake to 37% during the period, which at end June 2008 was valued at R1 billion. Hyprop's expansion programme remains on track to sustain future growth. Hyprop intends to reinvest in the programme the remainder of the R404 million cash-in-hand after paying the interim distribution. This includes the R198 million proceeds from the sale of two non-core office parks during the period.

Stoneridge Centre is due to open in September. The 50 000m² lifestyle development in Greenstone Park, costing R571 million, will be anchored by a Spar Supermarket, a Fruit & Veg Food Lover's Market and a Virgin Active Gym. Further expansion projects underway at Hyprop's centres include the R370 million development at The Glen Shopping Centre, while at Canal Walk the development of six stand-alone retail 'pods' of additional retail space is progressing well. The project is valued at R250 million.

Construction of the four-star Southern Sun hotel at Hyde Park Shopping Centre has also begun with doors to the R176 million establishment expected to open in July 2009.

"All of our developments are in line with strategy of focusing on asset enhancing opportunities in the existing portfolio to sustain growth in a challenging economy," commented Prinsloo. He added that the long-term benefits of the developments will outweigh the effect on earnings growth in the short-term.

Looking ahead he remains cautiously optimistic that the portfolio is well-positioned to withstand declining consumer spend. For the year ending December 2008 Hyprop anticipates continued growth in distributions provided market conditions do not deteriorate further. "We are expecting to post distributions to unitholders in the region of 152 cents to 158 cents per combined unit," Prinsloo concluded.

Source: I-Net Bridge