DIPULA POSTS ROBUST HALF YEAR RESULTS DESPITE MACRO-ECONOMIC PRESSURES

NAV increased by 7% to R5.9 billion
Contractual rental income increased by 3% to R556 million
Net property income up 1% to R447 million
Distributable earnings of R257 million, down 7% mainly due to interest rate increases
90% distribution ratio
New leases worth R120 million concluded
Lease renewals of R387 million concluded
Tenant retention rate of 91% (up from 78%), excluding residential

Wednesday, 17 May 2023. Rosebank. South-African focused, JSE-listed diversified REIT, Dipula Income Fund today published robust results for the financial half year to 28 February 2023 (“the period”), despite South Africa’s macro-economic environment further deteriorating.

Contractual rental income for the period grew by 3% to R556 million (H1FY22: R541 million), whilst net property income tracked slightly ahead of the prior period at R447 million (H1FY22: R441 million). Management kept a tight grip on property related expenses, which were limited to a below inflationary 3% increase to R239 million (H1FY22: R232 million).

CEO, Izak Petersen, commented:

“Our portfolio of mainly convenience, rural and township retail centres continue to prove defensive, notwithstanding a deterioration in the domestic macro-economic environment, with rising interest rates and unprecedented levels of load-shedding. Our strong financial performance is underpinned by diligent asset management initiatives and a consistent focus on cost containment.”

Despite Dipula’s solid operational performance, distributable earnings for the period contracted by 7% to R257 million (H1FY22: R276 million), mainly as a result of a 3.25% increase in interest rates on a like-for-like basis.

Distributable earnings per share were recorded at 28.72 cents, with dividends per share of 25.85 declared. This represents a pay-out ratio of 90%. Distributable earnings per share and dividends per share are not comparable with the prior period as a result of Dipula simplifying it’s A- and B-share structure into a single ordinary share with effect from June 2022.

The Group concluded 99 new leases (excluding residential leases) with a total gross letable area (GLA) of 20 825m2 during the period, which amounts to a lease value of approximately R120 million at a weighted average escalation of 7.3% and a weighted average lease expiry (WALE) of three years.

137 lease contracts (excluding residential leases) representing a total GLA of 63 897m2 were successfully renewed, representing gross lease income of approximately R387 million over the WALE of three years.

“We are especially pleased to have achieved an average 4% positive rental reversion on renewed leases for retail and 1% for offices, although lease reversions for the industrial portfolio contracted by 2% on average.

“Management’s focus on attentive tenant service across all sectors is bearing fruit, with an impressive overall 91% tenant retention rate, compared to 78% in the prior period,” added Petersen.

Non-residential vacancies increased marginally to 9.9% from 9.3% previously, mainly as a result of structural changes globally in the commercial office sector following Covid-19.

“We are working hard at lowering the Group’s vacancy to between 6% and 8% in the next 18 months,” Petersen commented.

“We will reduce retail vacancies primarily through re-tenanting of highly lettable space vacated by Game at Gillwell Mall, as well as the completion of the Atrium @ 45 mall redevelopment and various other strategic letting interventions. In addition, we have seen encouraging demand for office space in recent times,” he added.

At period end, Dipula’s residential portfolio comprised 712 apartments valued at R387 million with an aggregate vacancy of 9% (H1FY22: 18%).

As at 28 February 2023, Dipula’s portfolio was valued at approximately R9.6 billion (H1FY22: R9.2 billion) driven by revaluation increases at the end of August 2022. The portfolio comprises 179 properties (H1FY22: 186 properties) with a total GLA of 915 243m2 (H1FY22: 925 251m2).

“We are pleased to have grown our NAV by 7% period-on-period to R5.9 billion (H1FY22: R5.5 billion),” said Petersen.

Lower growth in office rental income and some diesel costs under-recoveries impacted Dipula’s cost-to-income ratios negatively. Although still competitive relative to industry norms, Dipula’s cost-to-income and administrative cost-to-income ratios were 40.4% (2022: 38.5%) and 5.3% (2022: 3.9%) respectively.

The Group invested approximately R63 million in refurbishments and redevelopments during the period and disposed of 16 properties with a book value of around R180 million. The aggregate disposal amount was higher at R183 million, and at an average yield of 9%. Proceeds from the sales will be used to settle debt and recycled into strategic value enhancing refurbishments as well as the roll-out of renewable energy and back-up power across the portfolio.

During the period, Dipula successfully renewed debt of R711 million at a weighted average margin of 2.1% above three-month JIBAR, for a weighted average period of 3.6 years. A new three-year, R100 million facility was raised during the period at a margin of 2.03% above three-month JIBAR and post period-end, another R100 million facility was raised for a one-year tenure at a margin of 1.6% above three-month JIBAR.

As at 28 February 2023, Dipula’s blended average cost of debt was 8.74% (H1FY22: 8.13%) and the Company had total debt of R3.7 billion with a weighted average debt expiry rate of 2.8 years. All debt is Rand denominated and 73% (H1FY22:78%) of the Group’s interest rate exposure was hedged.

The Group loan-to-value (LTV) ratio was stable at 36.9% (H1FY22: 36.7%), well within the Group’s lenders’ LTV covenant level of 50%. The interest cover ratio (ICR) was at a comfortable 2.9 times, compared to the lender limit of two times.

The Group has committed capital to the rolling out of Solar PV in three phases, prioritizing properties based on financial feasibility, tenant needs, and optimization of trading hours.

Dipula shareholders will be offered an election, in respect of all or part of their shareholding, to re-invest the cash dividend of 25.84695 cents per share in return for shares (the “re-investment option”).

By electing to participate in this re-investment option, shareholders will be able to increase their shareholding in Dipula without incurring dealing costs. In turn, Dipula will benefit from an increase in the value of shareholders’ funds available to support its growth initiatives.
Further details regarding the re-investment option, including the manner in which the number of shares to which a participating shareholder is entitled and the action to be taken by shareholders in order to participate in the re-investment option, will be set out in a circular to shareholders to be issued on 17 May 2023, and an announcement in this regard will be released on SENS.

Going forward, Dipula believes that the office portfolio will show improved performance after having stabilised from challenges over the past number of years, whilst demand for good space by retail tenants wishing to expand will drive positive performance in the retail sector. Management believes that the industrial sector will remain relatively robust, whilst affordable residential apartments are expected to record high occupancies in the short term.

The immediate outlook will be adversely affected by ongoing headwinds in the property sector, including loadshedding, dysfunctional local authorities, increasing interest rates and weak economic fundamentals. Dipula will continue to focus on controlling the controllable and delivering good performance to its shareholders.