Dipula Properties Limited (DIB) Earnings Call Transcript & Summary

Good morning, and welcome to the Dipula's pre-close business update for the upcoming year end, 31 August 2026. I'll take you through the presentation. And at the end, we will open up the floor for a Q&A session. We thank you for making time to join us. I suppose the big things in our lives right now is we are progressing well and finalizing the announced acquisitions. It was quite a large acquisition for us, but we did a lot of heavy lifting upfront, as you may have realized from the announcement. So due diligence was finalized. And most of the CPs were satisfied from the seller side. Also from our side, I think that the sort of only fundamental big CP that remains is the Competition Commission approval, which we're expecting to come through in November, typically don't really experience follows in property transactions in that regard, but we're ready to go. So again, there are lots of preparation has taken place upfront. We're basically just dotting i's and crossing the t's in terms of making that submission, which should be off before the end of this month. As indicated at our interim results, we expect to do between 7% and 8% in growth in distributable income this year. And our expectation is that we'll do the sort of the upper end of that guidance. So we're quite pleased about that. Fundamentally, the business is doing well. I mean, vacancy levels have improved from the interim period by about 1%, and I'll touch on that in later slides. And where we've seen this improvement is primarily in the retail, the resi and the industrial portfolio. We're still finding offices quite challenging. And we're obviously pleased that we continue to reduce their importance to us as will be demonstrated by this acquisition that we announced a few days ago. Our tenant retention is slightly lower than interim but that's purely because of a huge amount of tenant recycling that's taking place in the portfolio to continue to actually improve that quality of tenant and quality of income. And I mean, you'll see that our collections are actually quite high relative to what we're billing as a result of this sort of long-term or medium-term sort of like intentional recycling of tenants and flight into better quality tenants. We are also continuing with our renewables journey, quite a lot of the projects that we had set out to do on stream, and we're moving on to other phases of the journey, including BESS and so on. You've just look at a snapshot of our balance sheet at the moment, pretty much the same as where we were at interim, round about 34% LTV and 3x ICR. So all well within the covenant levels as set up by funders, but also sort of indicating a very healthy picture in terms of cash flow generation and balance sheet. I mean, for your information, I mean -- this number is before our property revaluations, which are being undertaken now at a moment. But an improvement in income, obviously, there should naturally be an improvement an increase in the property values. So I mean, that should actually improve those numbers quite nicely, especially LTV. Our year-to-date weighted average cost of debt is slightly below what we reported in May at about 8.95% from the 9% or so that we were at. We've still got a reasonable amount of legacy debt in there that's sitting at a fairly high spreads or margins. We obviously -- there's lots of efforts underway to take care of that. And once we've implemented some of those strategic interventions, I think you'll see that number trending downward, which should, in the near future also support our performance. From a hedging point of view, we're sitting at about 75% as things stand, and that's slightly higher than where we were in Feb or yes, around May, Feb when we reported, also been selling a fair amount of property, especially in number, maybe not in sort of quantum value -- but I mean we sold 19 properties for ZAR 190 million. If you kind of just think about what that number looks like or means, have just announced ZAR 2 billion worth of property acquisitions together with last year's billion. I mean, between those 2, that ZAR 3 billion worth of property, we're talking about 14 properties for ZAR 3 billion, and we sold 19 for ZAR 190 million. This is obviously quite transformational for us. Of those 19 properties, we transferred 10 for about ZAR 90 million at the average yield of 9%. Operationally, it just means that our teams are focused on the larger assets and sweating them a bit better because these properties are -- most of them were in Gauteng. But I mean, it still takes a bit of time for a team member to get to a property and do what they need to be doing there. Our average collections, as I alluded earlier, now sitting at a healthy 99%. And we raised no additional debt during the period. Just looking at the portfolio, our vacancy has dropped to 6% from 7% and basically, in terms of CapEx, we've spent close to ZAR 100 million, about ZAR 97 million as things stand. That's almost double what we had spent last year this time. But I mean, you know where the money is going, solar, water improvement of property and hopefully, all of that actually obviously leads to an improving company, which is our objective here. We experienced a positive reversion overall in our leasing on a year-to-date basis of about 4.5%, and escalations are still in excess of 6% that we're achieving on both renewals and new leases. But this is quite a pleasing number, especially given where inflation is printing at the moment and some of the pressure that's coming from tenants in terms of those escalations. Residential vacancies are sitting at 5% from 6%. So that too has improved and our tenant retention rate, as I said, is slightly down, while 5% down but that's concerted efforts there to recycle into better quality. If you just look at those leasing numbers in quantum, so that about almost 45,000 square meters of GLA in new leases. So that's basically where we had vacancies plus the replacement of these tenants have moved out. So it's both replacement and sort of like leasing new space that was to be vacant. The value of that is roughly ZAR 270 million at an escalation of 6.8%. Renewals. There are about 95,000 square meters there and the value of that is just under ZAR 600 million at ZAR 574 million, escalations of 6.5% that we realized. Looking at the retail portfolio. Vacancies are sitting at a 4% level at the moment from 5% at interim. And if you want to get a proper feel for that number, obviously, the sticky vacancies in our retail portfolio are basically just sort of like a more older CBD high street buildings that was in our portfolio. That's leasing fairly slowly at the moment, but we are moving space there. If you look at our core portfolio, you just look at our retail centers, I mean, that number sitting at 2%. So we've really are looking quite good there. Tenant retention in the retail portfolio is at 83% recycling efforts, as I said, and the cost of occupancy is still sitting at about a healthy 4.4%, indicating potential upside with both when those leases come up for renewal. And of the 19 buildings we sold, 13 were retail, for ZAR 120 million. So that's an average value of ZAR 9 million. Again, just compare that to what we're acquiring. You see what we're selling. You can see what the picture is and what the objective is in terms of what we're doing. And looking at new leases there. On the retail side, we had 23,000 square meters. It's about ZAR 214 million of value over a lease period, 6.7% escalation, and renewals, the bulk share of our renewals were retail, given the SKU of the portfolio, almost 55,000 square meters of a value of ZAR 500 million at an escalation of 6.5%. If you track through to office, where the vacancy is still setting fairly high. It's like almost flat on what we reported at interim period. There are some leases being negotiated there. We are still hoping to drop that vacancy. Our tenant retention was about 88%. And we sold 5 office buildings between September last year and now, 4 of those who are in Johannesburg, sort of BC graders and one was in Quebec. So from an office point of view, I mean, a few years ago, we sold all of our offices in this London. We're now out of offices in the entire Eastern Cape, which is great and the average value of what we sold was ZAR 12.5 million. From a leasing perspective, it is about 4,000 square meters of new deals at an escalation of 7.5% and renewals of 7,600 square meters, lease value of 31, escalation of 6.3%. Industrial, good performance in our portfolio. Vacancy sitting at 1.8%, roughly 2% from 3% at interim. Our tenant retention was about 85% in this portfolio, flat, very comparable to what we had in Feb. But I suppose some of that tenant movement in this particular portfolio has to do with our mini parks where you typically would have a bit of a high turnover in tenants and so on. They signed shorter leases, so they move. And we sold 1 industrial building for about ZAR 8 million, again, sort of small ticket pricing across these 3 sectors from a sales point of view is a fair amount of sort of owner occupiers. That's sort of our primary go-to purchases for these smaller assets. And from a leasing point of view, almost 17,000 square meters of new deals here, 6.7% escalation and renewals with about 33,000 square meters at a 6.6% escalation. Resi, there's a few units vacant in this portfolio. I mean, just -- we've got about 23 units at Palm Springs vacant. I mean that's a 423 unit complex. So it's really not a big vacancy to write home about. Of that, about 17 of those are 2 beds and 6 or 1 bed units and at Palm -- and at Bruma Urban Village, we've got 7 units of the 140 units in that particular complex and now it is fully lent. So just briefly touch on acquisitions. We have had some discussions with some of you around these acquisitions. But in a nutshell, they are portfolio strengthening acquisitions in terms of quality. Also just focus and diversification within SA, more particularly into what we view as the stronger provinces but also the provinces where we think that there's still room for more retail, that's where we've acquired. It's a -- the deals that we did last year and this year are quite transformational, and they increase our retail exposure and income terms to close to 80%. And basically, in those core retail markets that we're targeting as articulated so many times before. We are going to experience quite good operational leverage from this due to internal management and as sort of things. I mean those numbers -- when you look at the yields that we're paying are not factored in, but I mean, there's potential upside there that we're definitely going to realize. And I mean, as indicated, these are income accretive at the levels at which we're raising capital both debt and equity. And there's potential upside from an energy optimization point of view, lower management costs and potential rent for growth given the relatively low cost of occupancy in all of these assets. And firmly believe that relative to other areas in SA, these acquisitions are actually in towns and cities and places that are economically active and where there's decent buying power. So this is a list of assets basically. And in a nutshell, if you look at this map, Limpopo is where we bought the lion's share of the 90,000 or so square meters of new acquisitions. That accounts for about 45% of what we bought. And then we also acquired in a free state, specifically in Sasolburg and in Bloemfontein, which are basically some of the best-performing times in terms of just like the activity that's going on there. Sasolburg, both in terms of the Sasol plant there and in terms of its proximity to the hub of Gauteng. I mean people travel their daily. They live there because properties are cheap and things like this. But I mean, it's quite an economically active town. And then we also acquired in Gauteng, specifically in Tembisa and a very nice center that's located very close to the universities of Johannesburg and [indiscernible]. And then on property in the Northwest is what we acquired in this latest announced acquisition. And the numbers I'm showing you now are basically before revaluations. If we factor the revaluations in India, I think you're looking at our portfolio jumping to just over ZAR 14 billion post the acquisitions that we did last year and the ones that we've just announced. So basically, last year, this time, sitting at just over ZAR 10 billion, ZAR 10.2 billion, that moving the needle to ZAR 13 billion, ZAR 14 billion and obviously, an increase in lettable area of about 95,000 square meters and occupancy last year this time at interim was sitting at 93%. There's a mistake on the slide, but that occupancy is moving to anywhere between 95% and 97% post implementation. And as indicated, the overall vacancy at the moment, 6% impute this portfolio, the vacancy falls as a result of high occupancy levels in the portfolio. And the average property value for our retail at the moment is ZAR 92 million that moves to about ZAR 11 million. Let's just a bit of detail on these assets. And basically, largest of the portfolios is Lephalale, massive coal deposits, 2 strategic power stations of Eskom, strong regional town, a little bit of an overflow from Botswana from a shopping point of view, average rentals sitting at about 174. And basically, fully enclosed mall. So obviously, purchase price per square meters to think about ZAR 27,000 square meter and average lease period is sitting at about just under 5 years and the initial yield is 8.4% for this particular asset, and we're buying 50%. So the center itself was about 38,000 square meters. So we will be picking up about 19,000 square meters of that with our partners retained in the other 19,000. The other asset is the Checkers in Limpopo. It's a leasehold property, hence the higher yield, but the leasehold as many, many years to go with some renewal options and basically average lease period is about 3.6 years. And the purchase price for us and about ZAR 170 million. And then we're also acquiring the city center in Polokwane. It's in the main shopping strip, very strong shopping strip. One other listed read owns property in close proximity to this particular one, so it funds through from their property into our property. And you've got all of the sort of like transportation lines moving from this area. Long distance and short distance, the Polokwane BRT also moves from the pub locations. So it's a very strong location. Also there's Limpopo, there's great North in Limpopo. This particular property benefits from obviously from cross-border trade with ZIM. Musina is obviously the first top where you're coming from ZIM site. So people cross daily to shop in this town, so it's quite a busy time from a retailing point of view. So we're happy to pick up a smaller property, but hopefully, we can pick up more. It's a location that we like. This carve and paint corner is located in Tembisa. I need not explain too much about Tembisa. But I mean, it's the most dense township in Gauteng. And it's hard to find land inside the township. I mean there are some developments in the outside quite a big outflow into places like Kempton and Festival Mall and particularly more of Africa, but that's just overflow because there's just so many people. I mean the center has got a trading density per month of -- in excess of 4,500 per square meter. So very, very strong trading, and we're glad to add it. I mean this brings our total tally in terms of properties in Tembisa to 4 properties, actually 5 with the other properties that I'll show you that we acquired without amounting because it was below the threshold. And also in Gauteng and Rand Steam, this is a property I was indicating is nestled between wits and University of Johannesburg. Long lease expiry profile of just under 9 years anchored by shop -- sorry, by Pick n Pay and Hoolies with some really nice sort of lifestyle components to it. This is the other property that we acquired between when we last saw you and now it's about ZAR 150 million, 145 million anchored by Pick n Pay and Dis-Chem does a trading density, well, the Pick n Pay does a turnover between ZAR 20 million and ZAR 23 million, ZAR 25 million a month here. So very, very strong trading year. And we've got about 10 years left on average on these leases and the initial yield is about 9.1%. Makro Bloemfontein, nice income contributor, wide catchment, to the west all the way into Kimberly, to the East all the way into all of the [ Suto ]. And North catchment probably starts in Kronstadt and South catchment is sort of is on the board of the Eastern Cape and the Northern Cape basically. So it's very strong and it is a macro, which means that oil guys that do the bulk shopping as well as general public actually with come here. So it's a strong property. Then we've got Shoprite in -- well, Sasol Junxion, 12,000 square meters. We're buying 50% primary catchment is obviously the entire town, but also Zamdela, which is a large township, just on the outskirts of Sasol that shops here. It does present sort of the biggest concentration of fashion tenants in the town. And if they're not shopping here, they go further out to Vaal Mall, which is a distance away, but lots of traffic and that sort of thing. So those are all natural sort of deterrent for people to go out, so they go on there maybe once a month or once a week, whatever, but for day-to-day weekly shopping, this is the primary shopping center in the town. Then we got Game. That's obviously got rid of a few games over the years and I think, especially in urban areas, but rural games do well, and this one is also doing well. We engaged with Game quite extensively during our -- this is a keeper for them, but they're going to also convert this into a Walmart. But I mean, there are other potential tenants, nothing around in this particular location. If Game were not to renew or if we were to part ways with Game. But I mean as things stand, fairly large sort of catchment area to get to the game because there's not too many in these rural parts of the Northwest and really good turnovers that are being reported by Game. Thank you very much. That is our presentation. We will open up the floor for questions. But just remind you again, that from a guidance point of view, we've indicated it is what we guided at interim sort of the upper end of that.

Just move on to some of the questions. Trinity from Anchor Stockbrokers. It appears that most of the properties being acquired are well taken care -- and as such, may not necessarily have near-term low-hanging fruits in terms of asset management improvements like in the case of project guidance. Are -- Is management planning to grow assets like Lephalale Mall and Kaalfontein, which already seem a bit full at 8.4% yield.

Okay. I think that's a good question. I think -- obviously, we always try and get into the right areas. So I think the scarcity fact in a place like Tembisa will obviously lead to tenant demand because there isn't a huge amount possible in the pause because of just a lack of land. And if you look at the cost of occupancies, I mean -- I think Tembisa is sitting just under 5% cost of occupancy which means that there's definitely room to grow those rentals. What hasn't been factored in that deal is also obviously you do factor the cost of managing those properties into how you calculate your NOI for value, for yield, for price calculation purposes. I mean there are some savings that will come through there. Although they are sold on some of these assets, there is no bars, so the possibility of bars exists for us to actually sweat those assets better. And I think just from an economy of scale, negotiating power, things like that, you're also leading to a situation where with more exposure to some of these retailers, we actually have a bigger share at the table. And from Lephalale is a town obviously, a huge amount of core deposits, hopefully transit also sorts out the logistics issues in terms of getting that call from there to report. But in case you don't know this, I mean it's our understanding that these are some of the biggest and cleanest coal deposits in the world, in fact, and that sort of thing. So we just like the fact that there's buying power, there's people. And Lephalale has a small vacancy, so we'll probably lease that up, but it also has the potential for us to actually potentially into these things like payers in it. So yes, I mean, if anything, we also are locking in very nice escalations in these circumstances, every escalation across the portfolio to be requiring a 6%.

Okay. Great. Next question from Trinity as well. Could you comment on why the seller is retaining 50% share Lephalale? Is this indicative of the seller's confidence in the growth prospects of this asset even at an 8.4% yield?

Yes, I believe so, but we've also got like quite a long-standing relationship with the sellers. Full-time joint ventures for the past, we've acquired from in the past, and that's sort of thing. And I think we also firmly believe that together with them, we can have this estimate better. But yes, I mean, they still hold a very positive view about the prospect of this asset, and we share that.

Next question, [ Pranita ] from [indiscernible]. Your retail escalations on renewals and new lets are still very strong. Do you expect this trend to persist? Or when do you see the pressure to start seeing seeping through? And where does that land on a sustainable basis?

Yes, it's a difficult question to answer because we literally finding ourselves in a situation where we're often discussing different inflation experiences. And as far as the default starting point of our retail tenants is that inflation is low now. So escalation should track inflation. But I mean our cost inflation is higher. So we often put up quite a strong argument around that. I mean, I can't really give you a number, but I mean, obviously, we're going to be pushing towards the sort of higher escalations rather than the low escalations, but I'd be lying if I said that there wasn't pressure on that. But I mean, we do report a blended escalation. So as things stands, our lease expiry profile is quite staggered. So even if sort of low escalation sort of creep in. It will take a while for those to filter through the portfolio as a whole. And who knows where inflation is going to be in maybe another 2 years' time where circumstances are going to be. And this is obviously, the beauty of being in so many multiple locations and heavy leases come up at a different time in the different assets. So short term, I think you're definitely looking at average escalation across the portfolio in excess of that 5% or 6% long term, difficult to answer. Sorry, we obviously need to ensure that our performance is not purely just linked to the escalations in terms of how we can sort of grow distributable earnings. We also just need to make sure that we actually negotiate in such a way that we can get upside from expiring rentals. And if you look at average occupancy levels in the portfolio, there's definitely room for that.

Okay. Next question from Trinity. Any risks you see from single tenanted properties on the recently acquired portfolio, especially the game building, the price seems to reflect some risks?

I think, obviously, with Massmart, we negotiated in such there was a risk for came to default. And as I said, the turnover is very healthy. Do we have room to actually go do something else with that portfolio? And basically, that's how we price that particular asset. And some of the things that spring to mind and some of the tenants that has been sniffing around there is the likes of Checkers because of where the particular properties located and the fact that it's co-anchored by Hoolies. So in the unlikely event that game falls in the next 3 years, we'll have to spend a bit of money to bring in another arc there. But the tower itself is sufficiently shopped and there's a new shopping center that opened in outskirts of town. It's been trading for about 2 years now. So whatever do have done in terms of changing the town shopping dynamics that's already taken place. But what I'm saying is it's all in asset management, to be honest with you. We've been in a situation, we're busy changing anchors now at Fairvest and Maine, where we're replacing Pick n Pay with an okay. So I mean that's what you pay us to do. I mean, we just need to constantly between the asset management and risk management the portfolio.

[ Marcus ] from [ Catalyst Fund Managers ]. Did Fairvest elect to participate in the recent equity raise?

Fairvest was given a chance, they did not participate for the reasons that maybe you can get from them. But I mean, as we understand, obviously, they've got the internal processes that take a little bit longer than your typical institutional investor.

Okay. Great. Marcus, again, could you provide a bit more detail about the legacy high rate debt? And when will benefit from refinance inflow to the company? That's -- so Marcus, the margins on these debt are between ZAR 175 million and ZAR 190 million. And these debt expire between February '28, Feb '29. We basically had initial discussions with our funders and the intention is for us to secure some refi hopefully before the next half year end. So you see some benefits of fully in the 6 months post. Trinity from Anchor. What is net yield on checker center property after adjusting for ground lease payments?

That is the yield after adjusting for current lease payments. And the reason that one is also priced a little bit up is because you don't have freehold. And basically, you typically -- that would trade higher. I mean if we developed a leasehold property as opposed to developing a freehold property, we've also developed that at a high yield because you don't have an end cost component. But that's a thing in your op cost already 20.

[ Jacques from Fares ]. Can you please elaborate on the one-off amount that will be utilized to achieve an enhanced deal as mentioned in your sense?

That's just basically -- I mean we've got a bit of money that's going to sit probably on the call that we've raised for the next 2 months or so until we pay away. I mean that demand would just be utilized to kind of subsidize this. We don't see a dilution as a result of this particular acquisition.

Next question for Izak is what is the anticipated date of transfer on the portfolio? Will the cash drag until transfer not be dilutive in the short term?