Dipula will size up acquisition opportunities

Diversified real estate group Dipula Income Fund is looking for merger and acquisition opportunities while share prices remain under pressure and smaller property firms struggle to compete in a slow economy.

CEO Izak Petersen said the company, which released financial results for the six months to February on Monday, could take advantage of weak conditions in the listed property sector.

“The market is very tough right now. Some funds which listed a couple of years ago were small when they went to market and they’ve found it tough going, They could be takeover targets.”

But Petersen said the group had always grown its portfolio conservatively and would continue to do so. “If we find another portfolio or fund that could fit into Dipula, we would have to consider it,” he said.

There has been little consolidation in the listed property sector in the past year-and-a-half. Investors were hesitant to do deals in 2017 amid political uncertainty and in 2018 the sector has underperformed, according to Evan Robins, a portfolio manager at Old Mutual Investment Group.

During the past 18 months, Dipula has focused on enhancing the quality of its portfolio. Its asset base has grown strongly since it listed in August 2011 with R2.2bn of assets.

The group’s dividend increased 4.6% per share on a combined basis during the six months to February. Dipula ended the period with a portfolio of R7.1bn, which would escalate in value to R8.5bn on the transfer of acquisitions after the reporting period. With an asset base of this size, Dipula has become a mid-cap fund that could swallow junior property groups such as Tower Property Fund and Transcend.

Dipula’s capital structure is split into A and B shares, where A shareholders receive 5% preferential growth in distributions and B shareholders get the residual distribution.

Metope Investment Managers investment analyst Kelly Ward said Dipula’s results were disappointing and management had reduced its guidance for the full year to 4%-5%.

Dipula also finalised the internalisation of its management company, which was in line with industry best practice, and would better align the interests of management and investors, and save on administrative costs.