Dipula Properties is in advanced discussions to sell its residential property portfolio as the company moves closer to being added to the JSE FTSE All property index.
Co-founded by its CEO Izak Petersen, Dipula’s portfolio comprises 161 retail, office, industrial, and residential properties across South Africa, predominantly in Gauteng. It has retail centres in townships, rural and urban areas with its total portfolio valued at R10.3bn.
The company announced in May it will dispose of its residential buildings, which account for 4% of total group income. “We have never really been in the residential market,” Petersen said in a recent interview with Business Times.
“We did a few conversions of our office properties into [apartments]. We got involved in one or two developments, and own development land in the Western Cape, where we can do 300 units. And even after developing those potential conversions and land, that still doesn’t give us the scale.”
Petersen said the residential market was a “safe asset”, and there was a shift from owning to renting. “There’s more demand than supply, and I think that will always be the case. It’s an exciting space going forward, but we think the residential market will be better served in other hands at the moment because we see other opportunities elsewhere.”
There is “a lot of interest [in Dipula’s residential portfolio] and we are in fairly advanced discussions with some parties”, he said, adding they hoped to conclude the deal by the end of this year.
Our preference at the moment is obviously to take calculated calls on brownfield opportunities, where we can add additional value, and they tend to be less risky. Any province that has economic activity, a big concentration of people that live far away from urban centres and is large enough to justify a centre is what we are looking for
— Izak Petersen, Dipula CEO
Petersen sees strong growth in retail, as food, pharmacies, and clothing brands look for space for new stores, and also industrial space on the back of the demand in e-commerce. While the focus is largely on Gauteng, Limpopo, Eastern Cape and KwaZulu-Natal still have some opportunities.
“There’s still pockets that are undersupplied,” he said. “Our preference at the moment is obviously to take calculated calls on brownfield opportunities, where we can add additional value, and they tend to be less risky. Any province that has economic activity, a big concentration of people that live far away from urban centres and is large enough to justify a centre is what we are looking for.”
Dipula has 83 retail centres. The company owns general-purpose warehouses “in really good locations … with very good demand, with minimum size of 5,000m2 to about 30,000m2.
“We almost have no vacancy to speak of in that portfolio [industrial] as we stand now.”
Petersen expects the last-mile delivery to benefit the group on the back of strong competition from retailers and international e-commerce companies.
Reflecting on the company’s 20-year journey, Petersen said the challenges it had faced over the period were outside its control — including the global financial crisis in 2008, high interest rates, and, at some point, cash flow issues in a business with a high gearing.
The turning point came around 2010 during the Fifa World Cup held in South Africa.
Dipula has gone through “a good period of growth” between 2011 and 2018. “My sense is that some of that is coming back. I think we'll do things even better with a sort of more positive sentiment around an interesting pipeline that hopefully we can execute on.
”So, where do we want to take the company? We want to grow it sensibly, buy more of the right assets, increase the size, market cap, liquidity, and that sort of thing, for shareholders to be able to easily trade in and out of it, and hopefully keep [them] happy in terms of the returns that we can make for them. We have built a phenomenal team.”
Petersen expects Dipula to be added to the all property index in the last quarter of the year. The JSE looks to broaden the number of companies in that index to provide more choice to fund managers and other investors.
There are 38 listed property companies, and 18 of those are excluded from the index due to their size. “We have had some promising correspondence from the JSE. So if anything happens, I think we’re looking at the last quarter of this year, potentially,” said Peterson.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.