Dipula Income Fund (JSE: DIB) delivered a healthy set of results for the six months to 29 February 2024, reporting improved operational and financial metrics, as well as strategic gains in a period that marked the first phase of its new solar photovoltaic initiative roll-out.

Dipula is a prominent, diversified, South Africa-invested REIT that owns a R9.8 billion portfolio of 166 retail, office, industrial and residential rental assets countrywide. Convenience, rural and township retail centres produce 64% of its portfolio income, with 61% of its rental income generated in Gauteng.

Izak Petersen, CEO of Dipula, comments, “This is a good set of results in which Dipula delivered top-line growth, albeit at relatively modest levels — a solid achievement given the background of elevated inflation, interest rates at their peak, and double-digit electricity tariff increases.”

Dipula’s revenue grew by 9%, and its net property income increased by a credible 6%, highlighting efficient operations supported by rental growth. While rental income remained under pressure, with some rentals still reverting to market due to the persistent tough conditions in the office sector, Dipula showed a 2% increase in rental income. The net income growth was supported by Dipula’s tight check on expenses, which increased modestly relative to inflation levels. Dipula’s net asset value increased by 2% to R6bn.

Higher interest rates, however, worked against Dipula’s gains, resulting in a decrease in interim distributable earnings per share of 3%. The declared dividends amounted to 90% of distributable earnings.

Dipula concluded R105m of new leases during the period with renewals worth R845m and achieved a tenant retention ratio of 89%, keeping its buildings well occupied while strategically doubling the lease expiry profile of its office real estate portfolio from 1.5 years to three years.

Vacancies improved from 10% to a pleasing 8% during the period. In Dipula’s substantial retail portfolio, vacancies reduced from 9% to 6%. In its office portfolio, which accounts for only 15% of its gross income exposure, vacancies decreased from 27% to 23%. Vacancies in the industrial portfolio remained low at 5% compared to 4% in the prior period. The average vacancy in Dipula’s residential portfolio of 716 units for the six months was 6%, and it recorded rental growth of between 2% and 8% across its different properties.

“We believe that our residential assets offer great quality accommodation for tenants at extremely competitive rentals, especially in the ongoing tough operating environment in South Africa,” reports Petersen.

Dipula awarded a contract for 5.3kWp of solar projects at nine of its properties in the first phase of its solar roll-out. Dipula is investing R50m in this phase of its installation, which is anticipated to be completed before the end of August 2024.

“Before the end of this financial year, we expect to increase our solar power capacity more than fourfold, from the current 1.6kWp to 7kWp in total. Then, we plan on trebling this number in the next 24 to 36 months,” says Petersen.

Dipula’s interim results demonstrate a robust balance sheet with a favourable liquidity position. The company concluded its debt syndication, which extended its weighted average debt term to four years. Its debt levels remained stable at R3.7bn, with 61% hedged and no major facilities expiring in the next four years.

Gearing decreased over the period to a healthy 36.3% from 36.9%.

Dipula anticipates stable conditions for the rest of its financial year to August 2024, with improved performance in 2025 as it completes various capital projects.

Petersen concludes, “A reduction in interest rates would boost performance going forward. Our rentals have room for improvement and will respond well to any uptick in the trading environment. Dipula will continue to drive stakeholder value with our focused, prudent approach to capital allocation while maintaining our strong balance sheet and working to further reduce vacancies and run efficient operations.”

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About Dipula Income Fund:
Dipula is an internally managed, South Africa-focused REIT (real estate investment trust) with a portfolio of defensive urban, township, and rural community retail centres. It also owns industrial and logistics mid-sized properties, office properties in urban areas and affordable residential rental assets in economically active locations throughout South Africa. Most of the portfolio is in Gauteng.