Dipula Properties Limited (DIB) Earnings Call Transcript & Summary

Good morning, everybody. Thank you very much for all -- setting time aside for pre-close presentation here with our Investor Relations team as well as our full-on management team. Yes, we know that it's quite busy out there in the marketplace with people are releasing and also doing pre-close presentations today. So yes, thanks for making time for this particular one. And just need to open this. But I hope all you can see the presentation. We hope not to keep you for too long, but we will take you through the business update and then talk a bit about the capital restructure and at the end allow for questions from the [ staff ]. Just to emphasize that the pillars, strategy remains the same. We do continuous tweaking to the strategy and refine as we go along. And a lot of that is obviously still going to take place in -- I think the most important thing is to focus on how we get better at what we do operationally. And there's quite a bit going on there. We're doing a lot of automation in our processes and allocated quite a lot of resources towards looking after our tenants -- looking after our tenants as well as basically coping with some of the normal challenges that we have with an industry around utilities, municipalities and things like this. But from a strategy point of view, there's no major deviations from that. And I think we're all very familiar with what that strategy is at the moment. So I'm not going to draw a lot at that today. Just very briefly on what's happened in the past 5 to 6 months in our business. Big things have obviously been about the impact of riots on us in July last year. Talk a bit about how far we are with that as well as a brief update on COVID-19. From a riots perspective, most of our properties are trading now substantially so. I mean there may be 1 or 2 tenants aren't back trading, but I mean, we've fixed and reinstated what we could. They're not necessarily all -- necessarily looking all good, so we need to still apply thoughts and [indiscernible] and as everything, but from a trading point of view, most of these properties are trading with the exception of Dobsonpoint Shopping Centre. That one we expect to trade round about June, and our teams are full on working on that to get that back on trade. It is a fairly complex project, as you imagine. I mean lots of the infrastructure was destroyed.

Sorry, Izak, it doesn't seem like we can follow the presentation. So you just have to share it.

Okay. Good. I fail to understand the tech in terms of flipping through that, you'd have to look.

Yes.

Apologies for that. Tech is getting [indiscernible]. Yes. So just to reiterate what I was saying is, most of the properties are trading. Dobsonpoint is not trading yet, although there are some shops at Dobsonpoint are trading, for example, your KFCs that was a stand-alone outside the centre. But obviously, structurally, we need to attend to the roof at Dobsonpoint. We need to deal with electrics and we need to deal with our roof. So it's a fairly complex structure from that point of view. So there's been a lot of back and forth between ourselves and our insurers and their professional teams just to make sure that we're all on the same page in terms of what needs to be reinstated at that particular property. The total damages estimated at the moment, ZAR 110 million, including loss of income. And so far, we've recovered ZAR 38 million from SASRIA for the reinstatement of all the properties. We expect another check in the next month or so as we [ refine ] the costings on these properties. From a COVID-19 perspective, we had lodged a claim for about ZAR 50 million for loss of income, and we've been observing what's going on in the market, obviously, talking to insurers and trying to figure out if indeed will be successful in getting that it will be most welcome if we were, but it was encouraging to see that some of our competitors have actually been successful in claiming from the insurance for the interruption that happened during COVID-19. So we will keep the market posted in terms of how that goes. And at this stage, we're not really expecting a big tenant reliefs for 2022. But I mean this thing comes and goes. So it's early days to tell whether there will be big tenant reliefs coming. But I mean, as I said, expectations are that, that will be much lower than it's been in the past. And what we've seen is that quite a few of our tenants are actually returning to close the normal now, which is great. Obviously, more so from a retail perspective than from an office perspective. But even that's changing, but we'll touch on that when we get to the respective sectors. To the end of June 2022, at the end of Jan 2022, our collections were averaging than 103%, just for that particular month. And we were also at about a 96% collection average since the event or the start of COVID-19. So collection is still looking very healthy and we're quite pleased about that. Just briefly on our balance sheet and perhaps just broader vacancy discussion. We sold ZAR 42 million worth of property, since the last time we spoke, of which ZAR 23 million still awaits transfer. That's all smaller properties and sold at very close to book. And in some instances, there was -- we had sold actually at better than book. Capital repayments of about ZAR 220 million were done by the end of January. That will make a slight difference to our [ RTTs]. And we had refinanced ZAR 1.2 billion worth of debt for an average period of 3 years. That's different expiries, 2.5, 3 and 4 years. And basically, that was done at about 5.99% floating rate. That rate has obviously been fixed out and we have picked up a few basis points on the fixed rate. For FY 2022, there's another ZAR 250 million of expiries. We're not expecting any issues with refinancing debt. And our current hedge is sitting at about 78%. There's obviously an uptick with where those rates have gone in the past sort of 12 months or so. There's definitely an upward trend there. I think we feel safe that 78% we've derisked our interest rate position quite significantly. We're not quite sure how long this increasing period is going to take. I mean that's clearly a global increase in interest rates, because not -- with a setback and I suppose, defend the currency to a large degree, so yes, we've taken the precaution there. [ Work ] capital of approximately ZAR 300 million, which obviously will be phased sensibly and this excludes the looted assets and some of the potential renewable energy projects that we have potential to go on the portfolio. We're thinking about that. We've appointed someone full time on the renewable energy and the water side and the sustainability side to be exact sort of ESG becoming a focus area. And at least begin to fund us about potentially -- funding whatever is going to play here on the green side of things, and let's say, a few basis points on that. But yes, we are at the start of that project, and we'll keep the market updated as that progresses. Our vacancies have gone up slightly by 2 percentage points. I'll drill into that. And that was partly due to some redevelopments, which I'll talk about when I get to the sections. No retail portfolio. Looking at that quickly. December was a good trading month for most of our tenants. And I suppose most importantly, not just the essential retailers, but also some of the discretionary [ guys ] starting to show better numbers now in -- at the end of 2021 and that have to do it the fact that there's almost no overseas travel and there was very little regional travel and some local travel. And I think the people are spending a bit more time at home, they buy gadgets. They buy a bit more food, they stay at home. So there's still good support there. We see it coming through in numbers. You would have also seen the retailers announcing their trading numbers. And that's generally looking reasonably good on that front. Social grants are still providing good support, especially in the lower LSM markets. There's long lines at some of our shopping centers, people actually collecting these grants and then immediately shopping so to have the facility for them to collect is good, but brings the feet to the centers. And I suppose without going into the pros and cons of the extension of the ZAR 350,000 we welcome it because I suppose our retailers retail tenants will benefit from that. Dipula won't be significantly impacted by Post Office and CNA, what we've seen happen with Post Office, obviously, they're not great payers. I mean, [indiscernible] has been trying to intervene there. We try and not to renew them, but in the few exceptional circumstances where we think that maybe we should still be retaining them there. But one doesn't know how long that is going to go on for because of the companies operationally weak and it's underfunded and one could even an argue that stays in decent management of postal for at the moment. So it is something that is probably not going to survive. And we all know what's going on with CNA at the moment, we don't really have massive exposure there. So no need for the market to worry about that and as far as it Dipula's concerned. We're seeing a fair amount of inquiry quite a lot relative to previous times courier companies. There are replacements for our post office and the inefficiencies as well as deep promise operators in some shape or the other. And we've actually moved space to some of these type of tenants in the portfolio, which is great. And what we've been doing strategically is also double anchoring some of our convenience centers. And where we've done this double anchoring, the numbers are going up instead of coming down, I think the single anchors were always concerned about what people eat into their market share. But bringing more customers to the center has actually led to even the anchors that were concerned about double anchoring picking up in turnover. Obviously, that comes from somewhere, but that will be happening that as people used to travel into a certain location, [ eating ] away from those markets, but that's the trend that we see in our portfolio at the moment from a double anchoring point of view. Still lots of demand and inquiries and opportunities for us, both national and second-tier retailers expanding into centers on the back of, obviously, limited new center developments. And we don't see that trend changing. Guys are rather adapting their models. I mean, it's merchandising plus a size thing. So a Clicks in Sandton for example, will not stock the same as a Clicks in Soweto. So -- we've been talking to the retailers, understanding that a bit better, and they've got their game on, they understand what they're doing, and they're chasing market share among themselves. So it's not a bad position to be in as landlords to take advantage of that. And we've seen some of our restaurants, restaurant chains, now trading close to pre-COVID levels. Again, an encouraging sign that there's a little bit of -- there's some support here for us to continue delivering good performance in the retail portfolio. And we don't think that in the short to medium term, e-commerce will be a big factor in our lives. But we nonetheless not sitting back and not responding to what that might mean. The reason for that is just in some of the sectors that we cover [ explore ] basket size is not making a worthwhile, Internet penetration, cultural issues that will take a bit longer to work through the system, et cetera, et cetera. That's definitely a wave with definitely something happening, how significant is going to be on the Dipula portfolio in the short to medium term. We don't think it's a big impact at all. But we are also seeing a trend where the demand for click-and-collect facilities. Again, just sort of speaking to this growth in e-commerce and I suppose anything that's complementary rather than the threat or centers at the moment. Just looking at leasing, we've done -- we did 16,500 square meters of leases on the retail portfolio in new leases, for an average period of just over 4 years, 4.4 years. So nice long leases there. And basically, we've done sort of 3- to 10-year leases with maybe some shorter leases, but a lot of national tenants in that number, about 72% of the tenant that we move space to the were nationals and a great proportion out of that 70% were regional guys and then obviously, a few small tenants, I will say that 30% is then covered other nationals. The rentals were at about our asking 0.3% below that with escalations of 6.8%. I mean that escalation will always be a little bit lower if you're dealing with better quality because that's pushed back, but I suppose a great news is from a property perspective is that there's no inflation in the system. I think there's going to be even more inflation in the system market pressure on customers and things like that, but it from a REIT, from a property perspective, it might give us -- it will give us an opportunity to lock in better escalations going forward. Renewals are going well. We've renewed about by the end of Jan 34,000 square meters in the portfolio, average period of about 3 years. And we've had a slight negative reversion there of 0.06% and the weighted average escalation was 6.2%. I think that negative reversion obviously indicates that there's a lot of give and take, a lot of negotiating, but at least we're closing the deals out. From a vacancy perspective, we've gone up from about 9 to 10, that's very specific. That's excluding some redevelopments. And the main driver of that was vacating CNA, the banks still giving back space and I think we're almost through that space reduction by the bank [indiscernible] our exposure has changed from having offered large branches to maybe just walk in branches now a natural thing and in some instances, completely not having these banking branches. There's a lot of disruption in that space. I mean even going to place our Capitec people are incentivized to use their smartphone devices do all kinds of things. So that disruption still needs to work its way through the system. But yes, as I said, perhaps not such a big problem in our lives. And we probably saw the last of the big ones in the numbers I'm reporting now because we've had Standard Bank downsizing, [indiscernible] downsizing in Vanderbijl et cetera. On the office portfolio, we are looking at ways of dealing with obviously, lower demand for space, and we were very successful in converting Midrand and Bruma. And there are a few more opportunities for us to convert here just refining in the numbers and there's at least 4 properties where we can do this. Luckily, it's not huge CapEx, but we always do the comparison between outright selling, and perhaps converting and what that picture looks like to us in -- we've modeled it for maybe 5 or 10-year period and see where we would have been and the number doesn't work, obviously, we have to look at disposing of a property. But I mean there are schemes that are looking really good at a price at which we potentially would saw those properties vacant. So as said, it's an ongoing exercise on our side. It's not huge, but there's definitely some opportunity there for us to add value in that manner. And we've worked with some of these shared space providers, we've got [indiscernible] an example, that's doing excellently well. We looked at a few others. It's expensive, so we have to tone it down a bit. So we're going back and forth with these guys to try and tone that down. So we are relevant where there's a need, where there's a gap in the market, this office space will be utilized in that manner. And we've been leasing space to some blue chip guys, believe it or not. At [indiscernible] we've moved very, very nice space to excellent tenant. And it's probably indicative of the fact that there is some return to offices. And hopefully, that return will sort of just -- momentum, get a momentum over the next few months. And from a tenant retention point of view, we've had excellent tenant retention. Only having about 500 square meters being vacated by tenants in the past 5 months. Leasing wise, yes, I mean, we -- the big figure is you can see that we've only moved about 1,200 of which mostly was at [indiscernible]. Average lease period of 3 years and rentals were actually at about 14% below asking. So there's pressure on office side and escalations, a bit of a trade-off there that we achieved about 7.6% renewals. We've done about 16,000 square meters. We're still busy with the upcoming government renewals and we're hoping that, that will be closed out -- our indication at the moment that there will be a massive exodus from government I don't think they move that quickly. I think I mean that probably take a long time if they wanted to do something in terms of rationalizing space and all that. And we'll be spending money on those properties. They look great. I mean, we spent about ZAR 13 million on 1 building and another ZAR 8 million in other building. So the buildings are looking good that we negotiated renewals on now and hopefully, that will convince government to stay. And as I said, no indication of the space that, that's an issue. We saw a 6% negative reversion break on the renewals so far, but that was still about 9% above what we had budgeted. So I think we have taken a much more negative view of where we'd renew those offices. And yes, we're pleased that we performed 9% better than budget so far and weighted average escalations are about 6.8%. The vacancy at the moment because of the new space moved and basically the lack of tenants moving out, is roughly in line with where it was at year-end. So there isn't a huge deterioration in our office portfolio at the moment. Industrial, again, seeing demand there from leasing at courier companies, e-commerce operators, for example, who based to the likes of Takealot in that portfolio. Nice, space having 3- to 5-year leases, which is great. And I think, obviously, being associated with some of those players where they want to upsize what they've been asking for now at the moment at least will be first in line to try and supply them. And we're also seeing increased activity, at least inquiry for your mini-units. I think you always have a bit of confidence back in the market that does come back into the market. We're also seeing consolidation of some of the smaller to sort of medium tier guys, where businesses are little bit in trouble and then they get bought over by a stronger player, that stronger players is looking for a bit more space. And in some instances options to actually apply some of the properties, which is quite nice for us, because we can then as part of our cleaning up agree to some of that. So we've had at least 3 or 4 such deals in the past 5 months, where we've granted the people, the options or pre-emptives to acquire the space if we look to sell them. We've done 15,000 square meters of new leasing there, average period of 3.5 years, and the rentals were just about 0.6% below asking rentals and escalation of 6.8% were achieved. Some renewals about 4,600 isn't a huge amount coming up in that portfolio this year. And because most of that activity was in the mini-unit space where we're still doing shorter leases in anticipation of better market conditions, but average period is about 2 years and we had a 15% negative reversion there and so on. So weighted average escalation of about 6%. So yes, I mean, it is that mini-unit space that we must rather keep the property full on a shorter lease for now and then compromise but to not [indiscernible] than naught. Vacancy is low in that portfolio, we sit in about 2.2% vacancy. We were at about 3.6% at the end of the financial year. Looking at residential. So Norwood is full, Urban Villages Midrand is full, we've got about 3 units empty at Bruma. And basically, we moved our churn at Norwood was 2 units or 17%. And basically, our churn at Midrand that was about 47%. So what happened there is we renewed 80, and we let 59 new and at Bruma we retained 65, and we let 65 new ones. So yes, there's movement and we kind of welcome the movement because of the movement comes potential adjustment on the renting side. And at Palm Springs, which is where we had -- we have the biggest issues here. Only about 110 of the tenants renewed there, and we moved about 202 units. So if we move 202 units, we just need to stop tenants moving out and then we can then move this 116 units. And what we did there is we also dropped the price slightly to adjust to where market around us is. And now we're seeing a lot on inquiries. So just hoping that by the target report next, it would have made a big dent into the 116 units that are empty there. So if you compare it, 116 is on net, we were left with 116 units compared to 124 units at Palm Springs this last year. This is just a slide showing you -- giving you a little bit more detail on where some of the revamps are taking place. I'm not going to go through that in detail. You're more than welcome to go through that -- we've post this presentation on the website. And that number is roughly ZAR 300 million. We have to be sensible about how we phase that in and ensure that we don't lose deals in the process. So obviously, find the money from selling, find some money on our own balance sheet et cetera, et cetera, but mainly find that money from selling at this stage because you can't really do anything outside of that. But yes, I mean, that's -- obviously, we don't want to lose out to some of those opportunities. We also don't want to make up our portfolio less lettable. So next 12 to 18 months, we have to move over ZAR 300 million for CapEx. Next few slides, just to show you some of the things we're doing. Kerk Street, we're putting in a new anchor and we've got great demand from fashion guys. So we're just finalizing the anchor lease now and then we should be good to go with that project. This is basically where [ Hoovers ] moved out. This is part of the reason for our vacancy that was about 9,000 square meters that were taken from a single occupancy to multiple occupancy. This particular street is extremely busy. I mean that's probably the heart of the city, [indiscernible] we perform the one side of the city to the other, but all the transport nodes around us. So we -- some of the retailers are really excited about this development coming on stream here. And we think that it will take us about 6 months to complete the whole thing. We're hoping to still complete in this calendar year. And we've just recently completed -- substantially completed this one here. Fresh 10-year lease with Pick n Pay. And we are potentially putting another food operator in there and some hardware, negotiating those and further underline with that, but the property looks much better. And we have already seen the Pick n Pay numbers. We completed this in -- I think it was in October, November last year, so we've got 3 months of trading year and the turnover has gone up at least 30%. So it's a little bit of a facelift, a little bit of rightsizing of shops and the whole story changes. So -- we have to remain quite resilient on the asset management side to just ensure that we're actually selecting this portfolio to the best of our ability, but it costs money. And Range Road, done with Phase 1 and Phase 2, just left with the third phase, which is basically just taking that small, but in the front there and converting that into smaller units. And yes, that's we've been receiving inquires from the leasing agent there. There's about 4 units that we create in there and we surveyed the area. There isn't a lot on offer at that size and for the quality that we're trying to put out there. So when we're done with this, the spot will be fully let, we've got a 5-year lease there. We're going to 5-year lease here. This 5 years potentially going to become a 10 need to upgrade the fire system, which we've done with new tanks and all kinds of things. I mean, this lease will become longer. This tenant that we put it back there, they supply [indiscernible] countrywide, and this is their first operation in the Western Cape because they've been following these things down from about [ 10 year ]. They've got very strong shareholding behind them, one of the prominent families. And this year is also part of company that's backed by the [indiscernible] board, which are on the PE side, they're big players in the energy space. So they're building transformers in this particular facility here. I mean, that's gone according to plan. And this is a little bit further down the line, but the good news here is that our zoning has come through. So we'll either developers out ourselves or we might actually sell at wood zoning, make a bit of a turn depending on where we've got the capital. I mean, yes, I mean, we've looked at the market there from a leasing perspective, where there's huge demand, if we were excited to do it ourselves. The part of a plan with us, is that if we don't -- and it's unlikely that we're not going to increase our footprint, but for just seeing out what we have. But if we don't do that with registering sectional title schemes, all of these things, and there's definitely profit embedded in this development at the price, and we can make anywhere between 15% and 30% in some instances even 40% profit on selling it. So there's embedded value in it as a sales product. And I think if you just get reasonable performance on the leasing side, it's not a bad space to be in. And finally, just some update on the capital lease structure. The transaction is the be completed simplified now. There's no more capital raise, some acquisition of asset, no more buy in from another fund. And after very extensive engagement with the market and understanding and listening. The swap ratio has been increased, and there is no cash alternative for A guys. The scheme is expected to be supportive just from the discussion with that with many of the shareholders, we hope that, that remains so. And from an outlook going forward, Dipula intents -- we intend retaining our strategic focus on this convenience retail and some industrial in the portfolio post the implementation of the scheme. But we're obviously hoping that with that happening, some of those things that we couldn't execute on the opportunities. And there's plenty of those in the market that will become a reality for us. But to be very frustrating not being able to utilize your capital to do anything, but most importantly, not get into the right rating for your shareholders in the share. So we're just being at the shareholders who get the right rating because this is not just about sitting there and feeling like you safe and you doing all the right things. It's also about people that are investing in the share getting a return for what they've invested in and the company going forward and moving forward because there will always be opportunities, as I said earlier, it's just is a question of whether you're ready to take advantage of those opportunities. And yes, we are expecting a correction in our cost of equity. And I think if you take that, you and fund us or debt fund us, is more sustainable than there's definitely something good that's going to come out of that. We've been agile. We intend to remaining agile and acting quick. We are adaptable to a large degree in terms of how quickly we can adapt and change and fix our mistakes. And we hope that with the simplification that this transaction will come up with will take it at places have previously mentioned in many of our presentations. But just to give you a sense of the timetable going forward, we will be published with issuing the circular to the market down about the 8th of March. So that's next week, Monday, Tuesday. And we expect the scheme meeting to take place about a month after that, beginning of April and for the scheme to go up conditional towards the end of April. We will then be releasing our results a little bit earlier than what we normally do and declare a dividend. So everybody will earn embedded dividend on the A and B before the actual conversion takes place. And that's expected to have a round about in May, and then we'll pay the dividend in June. And basically, the A share will cease to trade in June, and we'll then have 1 unit from that [indiscernible]. With that ladies and gentlemen, this is the presentation. We get to take some questions. Thank you very much for listening.

[Operator Instructions] The question from Dennis [indiscernible] and of [ Business Day ] on retail performance what sort of...

Dennis, I think your question is around turnovers. And as I said, we will release these turnovers at our interim results. We still got a few numbers trickling in, for especially the smaller guys. There was an increase in turnovers albeit modest for the supermarket guys, but for some very different. I mean if you look at a lot of our shop right numbers. Those were significantly up on the prior year. We -- a lot of that for us for the bottle stores. I think there was a shorter trading periods of liquor guys in the prior year. They came back a lot stronger in the speed that might have been pending buying people thinking that will get locked down and all that. I mean, those numbers were significantly up on the prior year. just talking on a December for December basis. But if I look at the full year 12 months to 12 months, then 2021 was up in the prior year.

Next question is from [indiscernible].

Okay, I have your question has to do with the double anchoring and whether there's more opportunities, definitely more opportunities there. But as I said earlier, we need the CapEx to do that. So I don't know how quickly we can actually roll that out. We just need to make sure that we've got a funding solution there. But I suppose on the other side of our capital restructure, which is a priority now, we'll obviously prioritize that. We don't actually want to temper too much out of gearing in a moment because I think there's safety in that. So capital recycle, double anchoring situation definitely on the cards here. And you ask asking a question around how we intend to reducing the retail vacancy. Our shopping centers are occupied north of 96%, here some of the stand-alone properties that are sitting as noncore in our portfolio at the moment where there's just been a change in use. We're getting quite a much lower rental there, probably moved them in the past months alone, some of the properties that were vacated in from the [ Bell ] we've had some inquiries there. Probably close out some of those deals, which should improve that number. And when we budget for that, you will see that, that number has always been high, but it's not the centers, we're not aggressive in making assumptions there. So those properties are noncore, and we would have to move them as part of potentially in short to medium term, reducing that vacancy. These second tier retailers, can you name some of them? [ To lease ] the second-tier retailers that you're referring to here, smaller sort of fashion guys like Power Fashions, referring to the likes of Roots and OBC et cetera, et cetera. Those are the second tier tenants. So they're not listcos, but they've got a huge regional footprint. And my sense is, I think some of those businesses will probably end up in the bigger businesses down the line. Obviously, a little bit more trickier for the likes of OBC and Bruce because, I mean, these are franchised. So to do a deal, they probably not be all that easy. [indiscernible] resulted in the 30% uptick in the Pick n Pay turnover, at Kroonstad, it's a combination of things. We've been complaining about the management in its store firstly. Number two, there's -- every time we spend money in your store and you fix it up, to put in new aircon, you stock a bit better, your offering changes or there's big difference between old checkers and the new black checkers, for example. There's a big doing between old item-based and a -- and I think people do actually gravitate towards the newer stores. So between ourselves and retailers, we need to continuously to be improving the product, and that's what happened there. On balance sheet, can you provide an update on LTV and the asset values as the weighted average cost of I can't see the whole thing. So LTV slightly better than year-end, but still at about that 38% level. And asset values, we haven't revalued the portfolio. We don't revalue the portfolio at half year. And we're only 5 months into the prior financial year end. But I think with our income having been sustained and an improvement in trading conditions purely referring to the fact that more people buying and shopping and a few more people turning to offices and a lot more inquiries on the industrial/logistics of things. We don't see there being an issue with our asset values going forward. And the weighted average cost of debt would have dropped -- ever so slightly because we went and fixed out it was on the debt that we raised at 5.99%. As the guidance for FY '22 earnings, including of us still stand. Yes. Matthew, that's your question there. I just forgot to mention that our performance will be in line with guidance for the first half of the year besting stand. Further questions? There's no sort of questions. If we give another minute so nothing right. We thank you very much for your time, and we will see you in May.