Diversified real estate investment trust (Reit) Dipula does not expect the SA economy to recover soon as interest rates and inflation remain high, and has decided against providing a guidance of what to expect in its new financial year because of the “high volatility being experienced in the economy at present”.
“Economic forecasts indicate that interest rates will remain high for longer in the coming year, with modest increases relative to the past two years, which will aid with much-needed stability in the trading environment,” the company, valued at about R3.4bn on the JSE, said on Wednesday in its results for the year to end-August.
“The board remains concerned about rapidly increasing administered costs and poor service delivery by the government and municipalities. This is overburdening property owners with additional costs and leading to value destruction,” it added.
To offset this, the owner of retail, office, industrial and residential properties will focus on installing solar power, energy efficient lighting, water saving and refuse recycling.
The local economy has also been hit by global developments, poor growth, high unemployment, power cuts and deteriorating infrastructure, with the SA Reserve Bank flagging muted GDP growth in 2024 and 2025.
“As the improved occupancy in our office portfolio shows, better performance in this sector was evident during the year. However, a significant improvement in offices is highly correlated to economic growth. Businesses need to be doing well for office occupancies and rentals to increase,” CEO Izak Petersen said.
Dipula’s portfolio comprises 170 properties, largely in Gauteng, with a gross lettable area of 885,612m², about 124 soccer pitches, and is valued at R9.8bn. Retail accounts for the bulk of the gross income (63%) and Gauteng is the largest province by gross income (61%).
But despite these tough trading conditions, Petersen said on Wednesday in the results presentation there is still a strong demand for retail properties.
“It really comes from the fact that SA retailers are expanding more aggressively at home than anywhere else,” he said.
The group’s revenue improved 3.2% year on year to R1.4bn and net property income 2.4% to R901.3m.
Net asset value (NAV) rose 2.1% to R6.1bn, but distributable earnings fell 6.9% to R514.2m.
Over the past year, the tenant retention rate improved 12 percentage points to 84%, boosted by about R300m in new leases and R700m in renewals, and the vacancy rate was reduced by four percentage points to 6%.
Interest rates drove up net finance costs by 14.1% to R314m, which was the main contributor to the lower distributable earnings.
As the cost of borrowing increased, Dipula is looking to sell noncore assets to bring in capital to spend on new possible properties, its current properties and paying off debt.
“It’s cheaper to raise capital by recycling your own assets at the moment,” Petersen said.
Noncore disposals increased more than threefold over the past year to R190m, and he added that the group is at another R300m-R500m in the new financial year if the price is right.
Update: November 15 2023
This story has been updated with new information.
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