Municipal service delivery failures, particularly such as for water, are “massively value destructive” and the problems need to be dealt with as soon as possible, Dipula Income Fund CEO Izak Petersen said yesterday.
Dipula Income Fund reported a solid set of results for its year to end-August, and its portfolio produced growth and increased by 4% in value to R10.2 billion, contributing to a 5% rise in net asset value.
Petersen said in a presentation at the release of annual results that South African trading conditions and consumer sentiment were improving post the May 29 national elections, and “things are a lot more positive.”
However, he expressed concerns about municipal service delivery problems, particularly in Gauteng. Property owners were not just sitting back “hoping for the best,” he said.
For instance, they had become less dependent on the electricity grid.
Dipula was also implementing measures to address water supply constraints, such as having back-up supply available to keep properties operational for a period, rainwater harvesting and using less water.
Petersen said also that property owners were joining lobby bodies such as the SA Property Owners Association to have their concerns heard more effectively by the local governments.
However, “this is a concern that needs to be addressed” because while it was possible for shopping centres to continue trading through an electricity outage, they must close if there was no water—not only due to the lack of drinking water but also because there was then no water available for firefighting purposes.
Dipula’s dividend for the year to August 31 fell slightly to 48.96 cents per share from 51.26 cents the year before after the South Africa-invested REIT reported a solid performance from its portfolio of retail, office, industrial, and residential rental properties.
The growth generated from its 165 properties saw the value of the assets increase by 4% to R10.2bn. Convenience, rural, and township retail centres produce 65% of the company’s portfolio income, and 60% of portfolio rental income is generated in Gauteng.
Petersen added that apart from the positive sentiment created by the formation of the Government of National Unity, global and local interest rate cuts, easing inflation, and a stronger rand also bode well for the economy and are likely to have a positive impact on the property market in the short to medium term.
Dipula’s revenue grew by 7% during the year, despite negative rental reversions in government-tenanted offices and lower income due to prior-year disposals. Net property income increased 2%, under pressure from above-inflation municipal hikes that have significantly increased property expenses, higher maintenance spending, and rising third-party contract labour costs.
Overall, prior disposals, bigger expenses, and higher finance costs led to a decrease in distributable earnings per share of 4%. The declared dividends totalled 90% of distributable earnings.
Very high leasing activity was a feature of the results. Dipula concluded leases worth R1.4bn during the year, keeping its portfolio well occupied with longer leases. Tenant retention improved from 84% to 87%, with R1.2bn of leasing renewals.
Retail vacancies improved from 7.5% to 6.4%. However, the overall portfolio vacancy rate was 7.5%, up from 6% in the previous year, primarily due to higher vacancies in the office and industrial sectors.
The 8.3% increase in the valuation of Dipula’s 83 retail properties was also a highlight. All tenant categories reported positive turnover growth - health and beauty, restaurants and fast food, liquor, and hardware delivered the strongest growth.
When tenants chose not to renew their leases, Dipula secured replacement rentals at a 14% higher rate.
The office portfolio ended the year with a 22% vacancy rate, but Dipula anticipated a gradual recovery in line with recent sector improvements, supported by limited new development activity.
Dipula’s mid-sized industrial and logistics facilities represented 14% of its rental income. With a vacancy rate of just 3%, this portfolio had the lowest vacancy across Dipula’s assets.
The residential property portfolio represented 4% of rental income and recorded an average vacancy of 6%.
Petersen said the retail and industrial portfolios were likely to continue their robust performance, while the office sector was expected to experience a gradual recovery. High occupancy levels were anticipated for the affordable residential sector, with rental growth that at least kept pace with inflation. Dipula anticipated distributable earnings growth of at least 5% for the year ahead.
BUSINESS REPORT