23 May 2019, Johannesburg: JSE diversified REIT, Dipula Income Fund (Dipula), yesterday announced steady interim results for the six months to February 2019. Acquisitions of R1.5 billion concluded in the latter part of the 2018 financial year resulted in a 23% increase in the value of the group’s property portfolio and a significant enhancement in the quality of its assets.
Driven primarily by acquisitions, revenue increased 23% and distributable earnings were up 19% period-on-period.
The half year distributable earnings increased to R258 million resulting in a combined dividend per share of 97.34 cents (2018: 96.75 cents), flat on the prior year, which was in line with market guidance. This translated into a 4.1% growth in A-share dividends per share period-on-period and a 3.6% decrease in B-share dividends per share. CEO Izak Petersen explains that the focus on enhancing the quality of the portfolio through strategic acquisitions, redevelopments and good management resulted in this steady performance and a credit rating upgrade to BBB+ (ZA) long term and A2(ZA) short term.
Dividends per A-share increased 4.1% to 54.8 cents per share (2018: 52.7 cents per share), B-share dividends per share reduced by 3.6% to 42.5 cents per share (2018: 44.1 cents per share).
Petersen says: “Given the slow economy and asset mispricing in the market currently, we continue to focus on ‘sweating our existing assets’. We are however, at various stages of assessing good acquisition opportunities that are appropriately priced and should execute on some in the near future.” This is in line with Dipula’s previously stated strategy to maximise and create value while improving the quality of the portfolio. The REIT ended the period with a portfolio of R8.6 billion, largely unchanged from the previous year end.
Focused efforts on leasing saw Dipula reduce vacancies by 23%, to 8% from 10.4% at February 2018, with the office and industrial portfolios being the main contributors to the positive movement. An impressive 82% tenant retention rate was achieved with a positive lease renewal rate of 0.4% in spite of the challenging environment. Petersen states “Our property cost to income ratio dropped by 16% yoy to 17.5%, thanks to running our operations more efficiently.”
Notwithstanding oversupply and tough trading conditions for the office sector, Dipula’s office portfolio performed well with vacancies dropping by 48% to 7.9% well ahead of the SAPOA average of 11.1%.
The total spent on the various enhancing revamps and developments was R80 million for the period and a further R450 million is planned over the next 18 months. Notably in the period, Dipula completed the Range Road expansion, adding almost 2 000m2 to the facility and taking it to over 12 000m2 in total. Petersen points out that a long-term, 10-year lease has been secured for the entire facility.
Dipula’s debt amounted to R3.6 billion with 80% of interest exposure hedged (2018: 91%). Gearing was at 41.6% at an average rate of 9.24%.
Looking ahead Petersen sees much of the same, economic headwinds and poor market performance with no material relief in the near-term. Accordingly, the board has revised downward its dividend growth per share forecast for the year to August 2019, to 5% below the prior year as opposed to flat on the prior year as previously expected. The reduction in dividend growth guidance is mainly due to tough trading conditions that have resulted in less than expected lease renewal rates, changing tenant business models, higher leasing costs and longer lead times to conclude new leases.
Petersen concludes: “We are hoping for better policy direction from the newly elected leadership as this will return confidence to the market and set the economy on a growth path. We remain SA focused, disciplined in the execution of our strategy and believe the turnaround of the SA economy will come.”
The Dipula counters DIA and DIB closed Tuesday at R10.70 and R6.94, respectively.