JSE diversified REIT, Dipula Income Fund, has overcome tough macro-economic conditions to post a 5.8% increase in combined dividends per share for the year to August 2017, driven entirely by organic growth. In a challenging economy, the REIT edged revenue over the R1 billion mark. The property portfolio was valued at R6.9 billion at year-end. Today’s announcement follows that of last week regarding Dipula’s strategic acquisitions totalling R1.5 billion.
CEO Izak Petersen says focus on the REIT’s strategy of disposing of non-core properties, quality-enhancing acquisitions and “sweating existing assets” enabled Dipula to continue performing well in a difficult trading environment. Distributable earnings for the year grew by 11.3% to R428 million.
Vacancies in the overall portfolio remained stable year-on-year at 8.5%. Retail vacancies improved from 8.5% to 7.1%, with industrial vacancies improving from 5.9% to 5.4% compared to the prior year. Leases worth R631 million, covering over 179 000m², were concluded across all sectors. Petersen adds that rental escalations remain above inflation at 7%.
Dipula sold 27 properties during the year for a total consideration of R295 million at an average yield of 10%. “These disposals reduced the number of properties in our portfolio to 174 compared to 201 properties at the previous year-end, while the valuation remained on par with 2016. This further resulted in an increase in the average size and value per property in line with our strategic intent.” The sale proceeds will be utilised for debt repayment and recycled into the REIT’s redevelopment programme.
Dipula also continued extracting value from its existing properties and concluded around R50 million worth of refurbishments and developments. A further R265 million worth is planned for the next 18 months at an estimated 11% yield.
The recently announced post year-end acquisitions are set to add 258 141m2 GLA to Dipula’s portfolio, almost fully let, and expand the footprint in Gauteng and KwaZulu-Natal. Further broadening its presence in these regions, Dipula has also acquired P-Grade offices in the Rosebank Fire Station development for R122 million and a 50% stake in KwaZulu-Natal shopping centre, Harding Corner, for R55 million. Petersen points out that the acquisitions in aggregate are expected to be income-enhancing and have a 4.5 years Weighted Average Lease Expiry profile. “As with Dipula’s existing portfolio, the incoming properties are diversified across retail, industrial and offices and there is additional bulk to develop on a tenant-demand basis.”
The REIT has further made strides from an internal strategic perspective and is currently close to completing the internalisation of its asset management function. Petersen explains that the move will more closely align management’s interests with investors’. He adds that the REIT’s interest rate hedge now extending to 90% of all debt will effectively shield Dipula from any unexpected rate hikes.
Petersen concludes that general prevailing trading conditions are expected to continue, and provided they do not worsen materially, Dipula should post dividend growth of around 5% for the year ending 31 August 2018.
The Dipula counter closed yesterday at R10.50.