South Africa-focused Dipula Income Fund maintained a steady performance in the six months to February 28 and is likely to repeat this in the second half in spite of economic and other headwinds, CEO Izaak Petersen said yesterday.
“This is what you want from a property investment, to be a consistent hedge against inflation,” he said in an online interview yesterday.
He said that in many ways their retail portfolio, with its bias towards convenience, rural and township centres, was less affected by load shedding than large shopping malls, as they did not require as much electricity to operate as large malls, and most of their anchor tenants had their own back-up power.
Nevertheless, Dipula was working on solar, battery storage and back-up power solutions for its buildings, in particular for the line tenants at their shopping centres, he said.
Dipula lowered its “B” share dividend for the six months to February 28 to 25.85 cents from 42.22c at the same time last year. Revenue increased to R691.5 million from R677.4m. Distributable earnings per B ordinary share fell to 28.72 from 42.22 cents.
However the distributable earnings per share was not comparable with last year, as Dipula bought back all its “A” shares last June at a ratio of 2.4 “B” shares for every “A” share held.
“The property sector is facing headwinds related to load shedding, dysfunctional local authorities, increasing interest rates and weak economic fundamentals. We expect these factors will have some impact on the defensive performance that the Dipula portfolio continues to demonstrate.”
He said the near-term growth focus was on reducing vacancies and keeping costs contained. A debt restructuring was expected to be concluded by the financial year end. The balance sheet is strong, he said.
Portfolio optimisation would continue through revamps and refurbishments.
One example was Atrium @ 45 in Johannesburg that was nearing completion and where the exit of a previous tenant created an opportunity to create an inner city mall anchored by Pick n Pay.
Petersen said the redevelopment, near Bank City, surrounded by residential buildings and on the main bus routes, represented an exciting inner city revival.
In the interim period, contractual rental income increased 3% to R556m. Focused cost management saw property-related expenses rise by 3% to R239m.
Despite the solid operational performance, distributable earnings fell 7% to R257m from R276m. This was mainly due to a 3.25% increase in interest rates period on period.
The cost-to-income ratio increased by about 2% to 40.4% due to a higher office vacancy rate.
Petersen said the office vacancies increasingly appeared to be an opportunity considering some long term, return enhancing residential conversions at some offices being planned, a general return to offices by workers due to load shedding, and the consolidations taking place. “Our co-working spaces are fully let with waiting lists,” he said.
The non-residential portfolio vacancy increased to 9.9% from 9.3% due mainly to the office sector which had only recently started recovering from Covid-19-induced structural changes in office space utilisation.
The reduction in the retail vacancy would be driven by re-tenanting of lettable space vacated by Game at Gillwell Mall, completion of the Atrium @ 45 redevelopment and other letting interventions.
The target was to reduce group vacancy to between 6% and 8% in 18 months.
Tenant retention improved nicely, to 84% from 63% in the retail portfolio, to 97% from 93% in the office portfolio, and to 94% from 91% in the industrial properties. Some R120m of new leases were signed, all with blue chip tenants, he said.
On February 28 Dipula’s residential portfolio comprised 712 units valued at R387m. The vacancy was 9% (18%). Palm Springs, Cosmo City had a vacancy of 11%. Occupancies at Urban Village Norwood, Bruma and Midrand were 92%, 94% and 96%, respectively.
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