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Optimised portfolio pays off for Dipula's managers

Dipula Income Fund Chief Executive Izak Petersen. Photo: Supplied

Dipula Income Fund Chief Executive Izak Petersen. Photo: Supplied

Published Nov 19, 2020


CAPE TOWN - DIVERSIFIED real estate investment trust Dipula Income Fund said yesterday management's efforts to optimise the portfolio and its defensiveness through asset management initiatives had proved useful in the year to September 30, as the portfolio grew by 3 percent to R9.1 billion.

Chief executive Izak Petersen said in a telephone interview that bottle stores and essential-goods stores at the group’s retail centres had started trading reasonably well again following the hard lockdown, but gyms – the group has two large gyms among its tenants – sit-down restaurants and take-aways were still experiencing below-average trading conditions.

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Although restaurants were achieving turnover targets, margins were difficult to maintain because of the high cost of deliveries for online orders, he said.

He said the group's concern about the year ahead was the potential for a second harder lockdown, as had happened in some European countries, and the impact of this on small and medium-sized businesses.

Petersen did not think Dipula would perform worse in the year ahead than it had in 2020, as, for instance, the recent ruling on exclusivity clauses in retail centre leases would be good for the group, because it would allow a range of new tenants to enter the centres.

In addition, online purchases had not deeply penetrated the retail market in regional and rural centres, because, among other factors, data was relatively unavailable to consumers, so, to that extent, the group's retail centres were defensively positioned for now compared with, for instance, the very big urban shopping malls.

“We are delivering on our diversification strategy and have taken transfer of our stake in Palm Springs, Cosmo City, on July 1, 2020. This brings our residential exposure by value to 2 percent. Our medium-term goal is 10 percent,” Petersen said, adding that the residential component would add defensiveness to the group's portfolio.

The 50.1 percent interest in Palm Springs was acquired for R121.6 million, settled with R71.8m cash and debt of R49.8m.

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Group net asset value (NAV) was maintained at about R10 per share.

“NAV is a true measure of long-term value creation, and we are pleased we have sustained value under trying times,” said Petersen.

The group had invested R43.1m in portfolio improvements, which included upgrades at Belle Ombre, Kopanong Tembisa, Norwood Urban Village, Howick Mews, the extension of Range Road, the installation of water storage tanks at Corporate Park, and a rooftop solar installation at Harding Corner.

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Distributable earnings fell 12.4 percent year on year to R447m, driven mainly by rental relief packages of about R50m to tenants and a higher-than-normal increase in provisions for bad debt of R11m, versus R3.4m in 2019.

“This was an extremely tough year. We are pleased with the defensive nature of our portfolio,” said Petersen.

The portfolio vacancy rate increased slightly to 6.9 percent from 5.8 percent in the prior year. Gearing fell from 40.4 percent in the prior year to 38.9 percent, and was well within its strictest debt covenant levels of 45 percent loan to value.

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