GCR reaffirms Hyprop Investments Limited long-term international and national issuer ratings

Key highlights outlined in the announcement

✅ Strengthening Hyprop’s portfolio: The repositioning and re-tenanting strategy across South Africa and Eastern Europe has enhanced Hyprop’s portfolio’s quality and growth potential and ensured high occupancy rates – 98.2% in South Africa and an impressive 99.9% in Eastern Europe.

✅ Strong liquidity: With R2.8 billion in available cash and committed facilities, maintaining a strong liquidity position.

✅ Well-Structured Debt Profile: Hyprop’s debt is spread out over the medium to long term, providing financial stability and supporting our long-term vision.

✅ Stable outlook: GCR’s stable outlook reflects confidence in Hyprop’s operational performance and disciplined approach to managing debt within our target range of 35%-40%

The recent rating affirmation and stable outlook for Hyprop reflect the company’s ongoing efforts to enhance its portfolio quality and maintain stable leverage. Hyprop has made significant strides in repositioning and re-tenanting its South African (SA) and Eastern European (EE) retail property portfolios, which has bolstered its performance post-pandemic. Despite concentrating on large metropolitan malls—typically more susceptible to economic fluctuations—the REIT has shown robust growth, with a high occupancy rate of 98.2% in SA and 99.9% in EE for the fiscal year ending June 2024. Positive leasing, driven by strong demand and beneficial redevelopment, should facilitate rent growth and maintain high occupancy. Additionally, Hyprop’s emphasis on solar power projects in SA is anticipated to curb rising property expenses and safeguard profit margins.

Hyprop’s extensive property portfolio, valued at approximately ZAR38 billion ($2.2 billion) as of June 2024, benefits from geographical diversification, with EE contributing over a third to its assets and income. While the company has some investments in the Rest of Africa, these are deemed non-core and negligible, with recent sales finalizing. Despite a notable local acquisition worth ZAR1.7 billion, the portfolio remains concentrated compared to peers, comprising 13 retail assets, with the top 10 centers representing 76% of portfolio value.

Leverage has been maintained in the 35%-38% range since the EE consolidation in 2022, with expectations to remain below 40%, aligning with management’s gearing policy. The sale of non-core RoA assets underscores a commitment to strengthening the balance sheet and reducing currency risk. Although interest coverage was reported at a lower 2.5x for fiscal 2024, GCR anticipates stability with ample cushion above the covenant level. Hyprop’s strong debt market access locally and internationally is positively regarded.

Hyprop’s liquidity is considered strong, with a 1.6x ratio of liquidity sources to uses projected for the 12 months to June 2025. Liquidity sources include ZAR2.8 billion in cash and committed facilities. While most facilities mature medium to long term, ZAR738 million in debt will mature in financial 2025, with capex slated at around ZAR750 million for strategic redevelopment. High asset encumbrances (>80%), typical among REIT peers, are seen as somewhat limiting financial flexibility.