Dipula Income Fund delivers on its forecast

Izak Petersen, CEO of Dipula Income Fund

Dipula Income Fund today reported its maiden interim results which confirm it is on track to achieve both its forecast results for the year ending 31 August 2012 and its investment growth strategy.

Dipula announced distributions per A-linked unit of 39,685 cents and per B-linked unit of 27,741 cents in its interim results for the six months ended 29 February 2012.

Izak Petersen, CEO of Dipula Income Fund, attributes the positive performance to meeting its rental income target, increased operating expense efficiencies and effective interest rate management.

“The global economic environment remains challenging as does the South African economy with a forecast growth rate of around 2.5% for the year ahead. Tenants, and consequently rentals, will remain under pressure, notes Petersen

Petersen points to fuel price increases, electricity costs and municipal rates increases above inflation and secondary costs pressures throughout the economy that may pose challenges going forward. “Despite these factors we expect Dipula to perform in line with its forecast for 31 August 2012, as reported in the prospectus dated 28 July 2011. We expect the portfolio to deliver growth in 2013 and beyond,” says Petersen.

Dipula was formed through the merger of Mergence Africa Property Fund and Dipula Property Fund, two majority black-owned property funds. It listed on the JSE on 17 August 2011 following a successful capital raising. At listing, each fund introduced approximately R700 million of properties to the company. In addition, Dipula acquired two property portfolios totalling R700 million.

At 29 February 2012, Dipula’s asset value was R2.1 billion and its market capitalisation was approximately R1.5 billion.

Dipula is externally managed by Dipula Asset Management Trust, a company with exceptional BEE credentials. It recently announced a transaction where management and a broad-based consortium will acquire additional Dipula linked units. Following this transaction, black unitholders will own up to 25% of Dipula. The transaction is still subject to certain conditions.

As the JSE listed property company with the highest black ownership and black management control, Dipula hopes to unlock value through partnerships with other companies which may look for partners with its BEE credentials. Dipula may also be in a position to transact in the government space given its 100% black owned management company. “A sizeable stake by management also ensures complete interest alignment between management and other unitholders,” says Petersen.

Although  it is one of the ‘new kids’ on the listed property block, both Dipula’s founding companies have been around since 2005 and the Dipula management team  has a solid seven-year track record.

Dipula owns a sectorally and geographically diversified portfolio of 175 properties, comprising 50% retail, 23% offices and 27% industrial properties, by gross lettable area (GLA). Approximately 75% of the portfolio, by GLA, is situated in Gauteng with properties in all other provinces. 

Since listing, Dipula has acquired Bochum and Blouberg Plaza and Nquthu Plaza for R250 million. These retail properties, which are in the process of being transferred, advance Dipula’s strategy of improving the quality of its portfolio and investing in emerging market retail. These acquisitions also meet Dipula’s objective of increasing the value of its individual properties to between R20 million and R200 million. The transaction came into effect on 1 May 2012 and transfer of the properties is imminent.

Petersen reports that acquisitions of around R800 million are under negotiation.

“Portfolio growth is a priority,” says Petersen. “We aim to acquire existing properties as well as new developments on a turnkey basis when income enhancing opportunities arise”.

Dipula maintained a 95% retention rate on leases renewed during the period. Vacancies increased from 7.9% at listing to 8.9% at 29 February 2012. Much of this is due to the refurbishment of a property known as Arbeid Street in Strydom Park which was substantially let at listing

With rental income of R137,4 million, Dipula achieved a cost-to-income ratio of 24.6%. Petersen notes that management will continue to manage costs in a disciplined manner whilst not compromising on quality management. “Besides acquisitive growth and the disposal of non-performing assets, there is room to optimise rental levels at several properties. We are also looking at increasing the energy efficiency at our buildings to achieve costs savings, as well as environmental benefits,” says Petersen.

Interest rate management is another focus area which Dipula will continue to manage efficiently. To further diversify its sources of funding, Dipula has been exploring opportunities of raising cheaper funding in the debt capital markets During the period Dipula accessed a new line of credit from Nedbank to part fund the Bochum and Blouberg Plaza and Nquthu Plaza acquisition. This facility of R125 million is for a five-year period.

Petersen says he is pleased with Dipula’s first six months’ performance as a listed company. “Our strategy is to continue to prudently grow the portfolio to more than R10 billion in the next four to six years, with specific focus on sustainable income growth”