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THE sprawling Canal Walk Shopping Centre at Century City is making a
mint for its new owners Hyprop – who reckon the investment value is up
a whopping R500m already.
In the half year to end June 2005 Canal Walk generated net property
income of R86m, suggesting that full year income (including the
lucrative Christmas trading period) could be in the region of R180m.
This performance from Canal Walk should be seen in context of the
original deal involving a Nedbank group apparently so intent on
refocusing on its core business that it let go of this shopping centre
gem at a bargain basement price.
In mid-2003 property specialists Hyprop Investments doubled the size
of its largely Johannesburg-based investment portfolio by acquiring 80%
of Canal Walk for R1bn from Nedbank (then in the throes of a drastic
restructuring). The remaining 20% of Canal Walk was acquired (for
R116m) by well known and canny businessmen, the Ellerine Brothers –
often referred to as the Bank of Benoni.
To be perfectly frank, CBN (in its August 2003 edition) argued that
Hyprop would have its work cut out to squeeze returns that justified
the R1bn price tag.
At that time there were indications that Canal Walk’s trading
densities had improved markedly, but that the shopping centre (the
biggest in Africa) was still not out of the woods.
In August 2003 most property experts believed Nedcor’s exit from Canal Walk was better than expected under the circumstances.
An earlier deal (from late 2001) was even bandied about by
commentators, where (now defunct) Richway Retail offered Canal Walk’s
then owners BoE R418m for their 58% stake in the property. At this
point (and with the benefit of hindsight) CBN has no doubt Nedbank sold
Canal Walk too early and for too little.
Basically if Canal Walk simply maintains its level of income
generation, Hyprop would have recouped its purchase price to Nedbank
within the next five years.
Scanning the latest Hyprop figures shows just how well poised Canal
Walk is for future growth. The area available for letting is a scant 3
712sq m – or 1.1% of Canal Walk’s 131 320sq m retail space available
for letting.
From what CBN can recall, occupancy rates at Canal Walk were in the region of 90% at the time of the Hyprop/Nedbank deal.
It’s also hard to believe that at the time of the original deal
there were disgruntled rumblings from independent (mainly small)
retailers, fearing Hyprop will hike rentals in a bid to squeeze out
improved returns. This hardly seems to have been the case.
Anchor tenants – Woolworths, Nu-Metro, Edgars, Pick ‘n Pay,
Checkers, Game, Stuttafords, Truworths and Foschini (representing about
40% of total retail space) – have all stayed put. And if any little
’uns have scuppered it seems Canal Walk had no trouble finding new
tenants.
The Canal walk website shows a number of new tenants lined up at
Canal Walk – most notable Ackermans Home and a variety of specialist
restaurant chains. With Canal Walk’s ‘footcount’ topping 19m in 2004,
it’s no wonder new tenants are lining up. Hyprop directors also report
that Canal Walk is expected to benefit from a high number of lease
renewals taking place in the last quarter of this year.
The most telling statistic, however, presented by Hyprop in its
latest results is the revaluation of Canal Walk. Hyprop now puts a
R1.9bn tag on the shopping centre, which means its 80% share is now
worth a cool R1.5bn.
So that’s a R500m gain in just two years on the original purchase
price, and a performance that must make Hyprop’s bankers/funding
institutions feel all the more reassured. The valuation also seems
somewhat conservative from Hyprop, considering that Canal Walk’s half
year profits were already R86m. In other words, in the unlikely event
of Hyprop being open to the sale of Canal Walk there is no doubt a
prospective buyer would be looking at an offer of at least R2.5bn just
to get directors around a table for discussions.
Nedbank, on the other hand, might be looking back in anger… |
