The share price of blue-chip mall owner Hyprop Investments, which counts Rosebank Mall and Hyde Park Corner in Johannesburg and Canal Walk in Cape Town among its bevy of up-market shopping centres, could soften further over the next few weeks, analysts warn.
The stock, a long-time favourite among property punters and one of the sector’s top performers over the past five years (in terms of share price and dividend growth) is down around 25% over the past three months.
That’s wiped off R10bn of its market cap and is well ahead of the 10% drop recorded by the SA listed property index over the same time. Some suspect that the aggressive sell-down of Hyprop shares has been led by foreign investors who are put off by the rand’s decline.
Avior Capital Markets property analyst Adrian Jardine says: “We think the sell-off has been mostly driven by foreign investors who view Hyprop as a highly liquid, yield-sensitive emerging market counter whose earnings are denominated in a volatile and deteriorating currency.”
He says the share price may come under further pressure in the near term as it will be subject to bond yield volatility.
Hyprop recorded a surge in offshore buying last year, following the counter’s inclusion in a number of global indices such as the MSCI emerging markets index. By September last year, when Hyprop announced its annual results for the year ending June, the company’s foreign ownership had reached 25%, up from 12% a year earlier.
Hyprop CEO Pieter Prinsloo said at the time that large US fund managers, including BlackRock and Vanguard, as well as Singapore’s GIC, were some of the offshore fund managers that had acquired shares in 2015.
Meago Asset Managers director Jay Padayatchi says foreign buying, following Hyprop’s re-weighting in several global indices during the course of last year, may have artificially inflated Hyprop’s share price. The counter outperformed the sector index for much of 2015.
Hyprop’s expansion into the rest of Africa, rather than following most of its peers to the UK, Europe and Australia, may also be counting against it, says Padayatchi.
Though landlords in sub-Saharan African countries typically earn rentals in US dollars, Africa is not widely regarded as a true hard-currency play, given the level of exchange rate risk.
For instance, the Nigerian naira and Zambian kwacha depreciated by some 38% and 45% respectively against the US dollar last year as a result of the oil and commodity price slump, according to global research group Capital Economics.
Hyprop, in partnership with the Atterbury Group and Attacq, owns the majority interest in Manda Hill, Zambia’s largest mall, and has stakes in three malls in Accra, Ghana. A fourth is under construction.
Late last year, Hyprop entered Nigeria for the first time by acquiring 75% of Ikeja City Mall. Attacq acquired the remaining 25%.
At 22,000m², Ikeja City is the largest mall in Lagos.
But it’s not only rand weakness and its African exposure that is weighing on Hyprop’s share price. Padayatchi says while Hyprop fundamentally remains a high-quality regional and super-regional shopping centre play, increased competition from new malls amid weak consumer spending is threatening some of its established shopping centres.
He notes there are also fewer opportunities for Hyprop to tap into yield-enhancing redevelopments, so it is becoming a lot harder for the company’s results to surprise on the upside. “Consequently, a derating may have been on the cards for a while.”
Nevertheless, Padayatchi believes Hyprop has been oversold. Jardine agrees: “Hyprop hasn’t offered this degree of relative value in some time, and at these levels offers a compelling proposition for a long-term buy-and-hold strategy.”
At the R97 share price at the time of writing, Hyprop was trading in line with net asset value and offered income-chasing investors a forward yield of around 7%, up from 5% three months ago.
This article was first published by Financial Mail.