Woeful performances from retailers have derailed the results of property company Dipula Income Fund, whose dividends shrank nearly a fifth in the financial year ended August as some tenants struggled to meet rents and others closed their stores.

CEO Izak Petersen said the company had been through “an incredibly difficult year” in which it was held back by one-off costs, including those around tenant failures as well as the unsuccessful takeover offer for SA Corporate Real Estate.

He urged investors to remain patient even though the fund’s income growth was disappointing.

Dipula uses a dual share capital structure designed to serve investors with different risk profiles. Its A-shareholders are entitled to income growth of 5% or the prevailing consumer price inflation rate, whichever is lower. They are paid their dividends first. B-shareholders receive the remaining distributable income and benefit from potential upside in the company's dividends.

The dividend for its A shares rose 4.2% from 105.81c to 110.25c, while B-share dividends fell 17% from 99.68c to 82.71c. This resulted in a combined dividend per share of 192.96c, a 6% drop compared with the 205.48c in 2018.

“This year has been very difficult for us. Some of our retail tenants really struggled and retail vacancies have been stubborn. We also suffered from one-off events, including the legal and corporate advisory costs around our attempted takeover of SA Corporate Real Estate,” Petersen said.

Retail vacancies across the group rose from 8.1% to 8.4%. Petersen said various retailers had decreased their shop sizes and some had closed branches.

Kristin Govindasamy, an investment analyst at Catalyst Fund Managers, said the results were “tough in a tough environment”.  She said the fall in overall dividend per share growth was below guidance for the financial year.

“The retail environment seems to be under pressure, with higher vacancies recorded compared with industry averages,” she said. Govindasamy said the closure of various banking branches and the restructuring of national retailer, Edcon, had hurt Dipula’s overall performance in the reporting period.

But Petersen was confident that Dipula’s fortunes would improve in the near future. He said Dipula’s business was sound, including a conservative gearing level of 40% and low vacancies at its offices and industrial properties.

Dipula’s B-shares have been under pressure, falling 50.53% so far this year, which Petersen said was perplexing. The B-share price was flat at R3.75 at the close on Wednesday.

“Our metrics are strong but yet our B-shares are trading at the same forward yield as some funds with well-known challenges. We have nowhere close to the issues that those funds have. I hope that in the next year our shares can perform better. I believe the B-shares should be trading around R6 and R6.50,” Petersen said.  

Petersen said Dipula did not have high debt levels as many other JSE-listed property funds did. Its loan-to-value (LTV) was at 40% at the end of August. South African fund managers want a property counter’s LTVs to be between 30% and 40%, so that they aren’t overly indebted in a weak economic environment.

Petersen said other positives were that “Dipula’s tenant retention was 85% for the year, with an aggregate rental increase of 1.1% being achieved in a market otherwise evidenced by negative rental reversions.” He said Dipula’s guidance for the financial year to August 2020 was 2% on a combined basis.  


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