More pain, less gain for shopping centres

Returns from top-notch malls don't impress market watchers - yet. In this recessionary environment, major national tenants are rethinking the way they do business. Mike Rodel, chief executive officer of JSE listed Hyprop Investments Ltd (JSE: HYP) told Realestateweb.co.za that retail sales have declined and there has been an increase in tenants defaulting on rentals.

However, what has really helped Hyprop is its quality of shopping centres which include: The Mall of Rosebank, Hyde Park, The Glen and Canal Walk.

Later, speaking to host Alec Hogg on SAfm Market Update on Moneyweb on Monday, Rodel said Hyprop has a strong portfolio with a good, sustainable lease profile but has seen some failures recently even with this combination.

At the same time, he said, there are still others looking to open new businesses so space is filled in most cases.

Asked whether any of its major tenants are reducing the amount of space they have, he said this happens in isolated cases. As an example, he said Stuttafords has changed its business strategy and is focusing on the bigger footprint stores in the super-regional shopping centres.

Stuttafords in Hyde Park Shopping Centre wanted to get out of its lease and approached Hyprop with a "solution". He said Dion Wired store will replace Stuttafords without any loss in revenue in a straightforward deal.

Some national retailers that might have grown a little bit too fast maybe made a couple of wrong choices in respect of location in these tough times and are obviously looking to scale back, he said.

In its interim results released on Monday, Hyprop reported a 161 cents distribution, an increase of 7.3% from the same period in 2008.

The portfolio's retail sales grew by 1% in absolute terms and shopper flow into shopping centres improved in the second quarter.

David Shapiro, director of Sasfin Securities and market commentator on SAfm Market Update on Moneyweb, said of whether Hyprop is a good buy for stock market investors: "It's a tough one, because it's so tied to the retail industry. That 7.8's fine, because if you look where interest rates are, interest rates are coming down, even likely to come down further. So I think on that yield, as long as they can maintain increase in distribution, I think property trusts are starting to look attractive again. But ... don't like this one."

Shapiro said he does not think the sector is out of the woods yet "as far as retail sales are concerned".

Dawie Roodt, chief economist at the Efficient Group, said retail property is not the kind of investment one would have had three years ago.

Its growth is dependent on rental income and when some tenants suffer, retail owners and landlords also suffer.

Inerest rate cuts, he believes, will help the sector although it will take time. For the next six months, growth in retail income may be moderate, he said.

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