CAPE TOWN – Dipula Income Fund lifted distributable earnings a healthy 19 percent to R257.6 million in the six months to February 28 after the conclusion last year of acquisitions and modest like-for-like growth.

And in contrast to other real estate investment trusts (Reits) that have reported results recently with rising vacancies, Dipula reduced theirs by 23 percent to 8 percent in its portfolio of retail, office and industrial properties.

But chief executive Izak Petersen said in a telephone interview on Wednesday that the firm had lowered its dividend guidance for the full year to 5 percent below 2018, because of less-than-expected lease renewal rates, higher costs of leasing, longer lead times for new leases, tenants vacating due to changing models and because an anticipated improvement in the market after the South African election might take longer than expected.

Petersen said he was more optimistic about the medium- and long-term growth, because “if the right things happen, and quite a lot has happened already, this market will turn around quite quickly”.

On a combined basis, the dividend was flat in the interim period, in line with guidance – the A-share dividend was up 4 percent to 54.83 cents per share, while the B-share dividend came down marginally to 42.50c per share.

Acquisitions of R1.5 billion during the latter part of the 2018 financial year resulted in a 23 percent increase in the value of the group’s property portfolio to R8.6bn and, management said, a significant enhancement in the quality of its assets. At the end of the six-month period, Dipula’s property portfolio of 199 properties, mostly in Gauteng, had grown from 174 properties at the same time last year.

All properties recently acquired were transferred in the prior year ended August 31, 2018, and were performing in line with expectations, Petersen said.

Dipula spent R80m on refurbishments, most of which had been let to “good quality tenants”, or tenants with a national presence, or a multi-outlet presence regionally.

Management continued to streamline operations and drive efficiencies as indicated by the 16 percent reduction in the cost-to-income ratio to 17.5 percent from 20.9 percent in the prior period.

The reduction in vacancies, and the positive rental renewal rate of 0.4 percent “under extremely challenging economic conditions,” had followed Dipula’s strategy to internalise the management of its portfolio. The low like-for-like growth and an increase in the number of shares used to fund acquisitions had resulted in the flat combined dividend.

Over the next 18 months, R449m of developments, upgrades and revamps are planned. Further headway was also expected in leasing and cost management.

BUSINESS REPORT