Dipula Income Fund resilient despite the odds

Dipula Income Fund CEO, Izak Petersen, says the group's defensive retail portfolio performed well despite exogenous constraints.

This was a tough half-year for SA-focused diversified REIT Dipula Income Fund, but resilience prevails across its various portfolios which include offices, retail and industrial buildings.

The group, recently reported results for the financial half year to February 2022 against a backdrop of what it termed “extremely challenging trading conditions,” driven by global factors, slow domestic economic growth and socio-economic uncertainties prevailing in South Africa. 

Izak Petersen, CEO, commented:

“Our defensive retail portfolio performed well despite exogenous constraints. Distributable earnings were up by 0.1% to R275.7 million (2021: R275.5 million). We maintained a 100% pay-out ratio which resulted in an A-share distribution of 61.97 cents per share (2021: 59.02 cents per share), in line with the A-share preferential entitlement of the lower of CPI or 5%. The B-share distribution was consequently  42.22 cents per share, compared to 45.10 cents per share in the comparative period.”

Dipula’s portfolio of convenience retail centres recorded an average growth in turnover of 14% period-on-period.

Contractual rental income across the portfolio increased by 0.6% to R541 million for the period (2021: R538 million). Property related expenses showed an inflationary increase of 5.8% to R232 million (2021: R219 million). Net property income of R441 million (2021: R457 million) was reported.


“Following shareholder’s overwhelming approval to simplify the Group’s capital structure, this will be the last time that the dividend will be paid according to the existing formula. We expect the scheme to be implemented immediately after the dividend payment on 7 June this year,” Petersen added.

On 7 April this year, both classes of Dipula shareholders voted overwhelmingly in favour of the implementation of a scheme of arrangement, in terms of which Dipula will buy back and cancel all its issued DIA shares at a swap ratio of 2.4 DIB shares for every DIA share in issue.

Dipula’s combined net asset value per share decreased slightly by 2% to R20.78 (2021: R21.18). The Group’s portfolio value remained stable at approximately R9 billion and comprised of 186 properties (2021: 189 properties) with a total gross lettable area (“GLA”) of 925 251m2 (2021: 926 648m2).

93 new leases with a total GLA of 35 016m² were concluded during the period, translating to R184 million in lease value at a weighted average escalation of 6.8% and a weighted average lease expiry (“WALE”) of 4.0 years. The Group concluded renewals (excluding residential) with a total GLA of
70 041m². This amounts to gross lease income of R397 million over the lease term, with a WALE of 3.0 years.

A weighted average reversion rate of 1% was recorded for the portfolio, attributable to positive reversions in the retail and industrial portfolios of 2.4% and 12.3% respectively, and a positive renewal rate of 5.4% in the office portfolio.

The portfolio vacancy factor excluding residential increased to 9.3% (2021: 7.6%) driven primarily by the office sector as tenants downsized space due to changing user needs and prevailing challenging economic conditions. Vacancies by sector were retail 10.8% (2021: 9.9%), offices 17.3% (2021: 11.6%) and industrial 3.9% (2021: 3.2%).  

Dipula had a tenant retention ratio of 78% for the period (2021: 77%), with especially the office and industrial portfolios showing strong retentions of 93% (2021: 78%) and 91% (2021: 83%) respectively. Retentions in the retail portfolio of 63% was reported (2021: 74%).  

The above leasing, vacancy and retention information excludes residential. Residential vacancies were 18%, mainly due to vacancies at Palm Springs in Cosmo City, which is still recovering from the impact of Covid-19 related job-losses. Occupancies at Urban Village Midrand, Bruma and Norwood were 92%, 97% and 96% respectively.

Dipula spent approximately R45 million on refurbishments and redevelopments during the period. A further R445 million has been earmarked for planned refurbishments over the next 18 to 24 months.  

Disposals of R21 million were made during the period. An additional R35 million of disposals were awaiting transfer at the end of the period.  

During the year, debt facilities of R1.2 billion were renewed at a weighted average funding rate of 6.0%, for a weighted average period of 3.0 years. On 28 February 2022, Dipula’s all-in weighted average cost of debt was 8.13% (2021: 7.82%). The Company had total debt of R3.5 billion. The weighted average debt expiry profile was 2.17 years, and the aggregate hedge expiry period was 2.23 years. All debt was Rand denominated and 78% (2021: 61%) of the Group’s interest rate exposure was hedged.

Dipula had undrawn facilities of R131 million at period-end. Gearing for the period was 36.7% (2021: 35.7%) and its interest cover ratio was 3.22 times (2021: 3.18 times).

The Group is currently negotiating the renewal of R228 million of debt facilities which expire in the current financial year.  

The violent protest action during July 2021 impacted 12 of Dipula’s properties, 11 of which are now fully operational and trading. Dipula has received partial settlements from its insurers for the damaged properties and is in the final stages of agreeing the final settlement figures with the insurers.

Although Dipula reported no direct loss during the recent floods in KwaZulu-Natal, it expressed concern over the expected knock-on effects and human suffering that may follow from this catastrophe.

"We are saddened by the many lives lost as well as the infrastructure destruction caused by the floods,” said Petersen. “The effects will no doubt increase the burden on an already strained fiscus and negatively impact the economy,” he added.

Going forward, Dipula expects the macro-economic environment to remain extremely challenging in the short- to medium term.

“In addition to uncertainty around the ongoing Covid-19 pandemic and low economic growth, ongoing load shedding and dysfunctional municipalities add to the challenges faced by landlords,” Petersen said.

“We do not expect trading conditions to improve in the short-term, but our team will strive to run the business as efficiently as possible and ‘sweat’ the assets to the very best of our ability,” he added.

Dipula said that management will continue to optimise the balance sheet through sensible disposals of non-core assets and carefully planned refurbishments and upgrades funded from recycled capital.