Dipula Properties Limited (DIB) Earnings Call Transcript & Summary

Good morning, investors. Welcome to Dipula's 2026 pre-close presentation. We thank you for setting aside time to spend a few minutes with us. We'll run through the presentation. I'll do most of the talking here with Sudesh. Please post all your questions electronically, and we'll deal with all of those questions at the end of the presentation. Basically, quite a simple presentation, 3 parts to it, a brief business update, and then an update sort of specifically just focusing on the portfolio itself, mainly dealing with leasing, and then we kind of just conclude after that. So getting right into it. If you look at our balance sheet, basically, we're looking at the company, our cutoff was 31 January this year. So it's everything that's happened up to that point. So in terms of balance sheet, and we're basically just comparing where we were in August last year at the end of the financial year. So balance sheet-wise, nothing much has changed. Gearing is still around the 34% mark. Please bear in mind that we've paid away for all the acquisitions that we have made and announced last year. but for 1 or 2 small land parcels that we had indicated that we are buying that are still stuck in a process of transfer. In terms of ICR, that's sitting at about 2.7%. We ended the year at about 2.8% last year. I'm sure it will sort of trend back towards that sort of level by the end of the financial period because we've still got a month to go. And that number is obviously always still pregnant with distributions and then we build up to whatever that ICR is after that. Weighted average cost of debt has come down nicely from 9.3% in August to 9%. Quite a bit of that is obviously a little bit of new debt in there, but a lot of it also has to do with the interest rate reductions that we've received from the Reserve Bank. Our interest rate exposure is hedged to the tune of about 74%, similar to year-end really, where we were sitting slightly higher. Year-end was sitting at about 68%. So we're sitting at 74%. So quite a bit of that interest rate risk has been taken out of the system. But we've got enough floating still in that number to ensure that we benefit from downward movements. And obviously, we've got a mix of caps in the hedging strategy, which also give us that participation should rates trend further downward. We've made disposals between August and January of about ZAR 82 million, of which ZAR 36 million transferred. It's quite a bit of property that we -- also as we bring in property, we try and rebalance the portfolio sell. I mean that number doesn't look like a big number, but it's quite a lot of smaller assets. So I think just from a management point of view, as you get rid of the smaller assets, our management teams can focus more on the larger assets that we're acquiring. We spent about ZAR 51 million in CapEx so far this year. We projected another ZAR 82 million to come. And obviously, that excludes sort of projects that might emerge as we go that obviously would have to stand the financial test from our point of view and which would have to actually find a way of funding. But I mean, so far, so good. And acquisitions of ZAR 650 million, that's basically the shopping center and the industrial property, the ZAR 650 million that transferred between August and now. You'll remember that last year, the industrial property that we bought close to O.R. Tambo International Airport had transferred just before year-end last year. So if you add that property to this, we're looking at ZAR 713 million roughly of property that's transferred since the announcement of our acquisitions. Our average collections are still trending close to 100 at 98% -- if you just move on to ESG matters. We're progressing very well with our solar rollout Phase 2, sitting at about 99%. So we're in the commissioning and testing phase now of most of those systems. As indicated previously, that's about 9 megawatts. I think we should have complete handover of those systems by no later than sort of end of April. But yes, that progress is very well there. And backup water, we've installed at about 32 properties so far within the portfolio. So that's basically where we either fill up tanks with own harvested water, we fill up tanks with municipal water. And then if we've got outages, we draw from those tanks. That's sitting in about 32 of our properties. Typically would be your larger properties because we prioritize the larger properties, but would also be typically the properties where we know that there is big problems with supply. That's obviously something that we're navigating our way through. I think that the water problems in Gauteng and a few other municipalities are well publicized. I mean we don't have to say too much about that. We know it's existing. So we need to be proactive in dealing with that issue. We're also in the process of installing water harvesting systems to the tune of 129,445 kiloliters per annum. That's on basically 8 properties. I think we take that as a percentage of our total consumption on those properties, you're looking at about 76%. So that gives us close to independence. I mean, obviously, that's an estimated number. We're hoping that it will trend closer to 90% or 100%. But the aim here is to try and have a consistent flow of water regardless of what the munis are doing. We've already got water harvesting at about 7 of our properties as things stand. Again, strategically, shopping centers where it's most needed and then basically where we're not harvesting, where it's not possible to harvest and obviously, it's a question of having storage. And we've also obtained all of our energy performance certificates, our EPCs that's required by law in all of the buildings that these things are applicable to. So we're quite happy that we can tick that box. It's all done. And we're very excited to announce that since the introduction of our internship in 2019, we've had 22 people walk through our corridors and all of them are employed or are still in employer with us. But when they left here, they got themselves some really nice jobs. BE-wise, still at Level 2, aiming for level 1 this year, but that's obviously something that we'll report on later in the year. So maybe just touching on the municipalities and what we saw last year and what we're seeing going forward. This year, just to remind you because I think it's important to realize, I mean, we -- our portfolio is located in about 27 municipalities. So 27 headaches. But of those, about 9 of those have valuation roles coming up in 2026. that's less than 10% of our exposure in GLA. So we don't necessarily see that as a big risk for 2026. So less than 10% is coming up valuation roll-wise. And a lot of those are happening between now and sort of April in terms of objection, open objection periods. Our teams are fully engaged in ensuring that fairness is the order of the day there. From a tariff increase point of view in 2025, we saw rate increases of anywhere between 3% and 6%. Refuse went up. This is across our portfolio, all of the munis that we are engaged in or where our properties are located. Refuse went up by between 4% and 7% and water went up between 6% and 15%. What's interesting is that your highest tariff increases are actually in the municipalities where there's no water. So we're hoping they're not charging us just for estimates for something that we're not consuming. But it is interesting that the municipalities are the biggest problem to actually lev in the highest tariffs. Sewer obviously, would typically track water very closely. So that went up by between 4% and 14% in these municipalities. And electricity, obviously, always very close to that Eskom number, which was close to 13% at 12.7%. So there, we saw increases in electricity of between 12% and 16%. We should pass most of that on to tenants. And so obviously, where we do have vacancies in common areas, we absorb some of that increase. Water is no longer cheap. I think the highest tariff that we've seen in our portfolio now is ZAR 72 per kiloliter. So that's quite expensive. So moving on to the portfolio. Our portfolio vacancy is trending down nicely. We're sitting at about 7.8% now from about 8.5% in August and a lot of effort going into that. Hopefully, we can bring that down -- that number down some more. And we've had so far, basically, if you look at the total vacancies that are coming up in 2026 financial year, it was about 181,000 square meters. So far this year, we've only renewed about 40,000 square meters of that 39,105. It's only about 22%. So there's quite a bit of work still ahead. But those leases obviously get renewed as they come up. So that's not a function of whether you'll see that our retention ratio is actually still quite high. It's just a function of when those leases are coming up. So basically, so far, with the 22% that we've renewed, we've seen a positive reversion rate of 4%. And we have achieved a weighted average escalation of about 6.8% across the portfolio on renewals and 6.4% on new leases. And the residential vacancy is also trending down nicely since changing managers. I think the year before last, we were sitting in the double digits. We dropped it to 6% last year, and it's sitting at 4% now. Obviously, still in discussions about the disposal of that particular portfolio, and that's also going positive so far. Tenant retention rate was 92%, as mentioned. So that's also quite nicely up on the prior year where we ended the full 12 months at the retention ratio of 76% across the portfolio. Now it's about 92%. So just looking at sort of number -- specific numbers, GLA new leases across the portfolio, 25,918 square meters of new leases done. It's nice and chunky, in the size of a small regional shopping center or a large community center. And renewals of 39,000 square meters have been done so far. As I said, that's 20% of our total renewals coming up during this period. Value-wise, ZAR 151 million for new leases of new value created or locked in and for the renewals, about ZAR 263 million and the weighted average escalations, as I said, is 6.4% and 6.8%, respectively, with nice WALE of 3.7% for new leases and 3.2 years for renewals. If we look specifically at the retail portfolio, vacancy is slightly up on last year. We will deal with that, basically 6% from about 5.1% at the end of last year. That also relates to some of the redevelopments that we've now brought back into the portfolio where we need to actually deal with some of the vacancies that were created as a result of that redevelopment. And our tenant retention ratio for retail was 92%, up good 7 percentage points from the end of last year at 85%. And our turnover growth, as announced earlier this month in that sense that we put out for the last quarter, so quarter-on-quarter, quarter 4 of 2025, we have seen turnovers in this portfolio grow by 5% I mean I think that there's a mixed bag of news coming out around how retailers are doing microscope and I mean there's quite a few of the larger retailers that are restructuring their businesses and they're going through challenging times in that process on the grocer side of things. I mean you guys know what the story is there with the ones that we're referring to. And then basically, we've also seen that it's a mixed bag of outcomes in terms of how the retail story sort of reads at the moment even for the fashion guys. And so we obviously -- we just need to keep an eye on that and ensure that we remain focused on ensuring optimal tenant mix, but also just making sure that we've got the right type of exposure to the right guys. So from a new leases point of view here, we did 10,000 square meters of new leases, 24,000 square meters of renewals and the escalations were 6.4% and 6.8%, respectively, with a WALE on the new leases of 4.8 years. So almost 5 years on new leases and 3.5 years on renewals. The WALE on renewals obviously determined on who is renewing. And again, a reminder, if you lock in a grocer, you get a full 10 years for that first tenure. And then after that, they lock in 5-year renewal periods. And then with your fashion guys, it's normally 3 years. So it just depends -- it's 5 and 3 subsequent. It just depends on who you're renewing. And I mean, the guys are quite steadfast in terms of the periods -- they've got their own models. But I mean, those things are -- it's almost cast in stone that a fashion guy will give you 3 years on a renewal and 5 years on a new lease and as will give you 10 and 5 subsequent to that. So you probably see that your retail lease expiry profile will always sort of skew to reflect that reality. On the office side, this is always like a small component of what we deal with from a renewal point of view, lease because that is the smaller component of our portfolio. That vacancy is still looking quite high at 22. from about 26.4%, but it is trending downward. And our tenant retention here was 96%. So at least we're not -- we're also not losing tenants, and we're adding some tenancies. But I mean, it's a small deal. I mean we did 2,300 square meters of new leases. We renewed 2,700 square meters. And basically, if you look at -- for retail, I think that was 27% of what was coming up in the financial year. And for offices, we've only just dealt with 9% of what's coming up. There's about 30,000 square meters of renewal. So of the 30,000, if you deduct 3,000, we still need to go negotiate on 27,000 square meters. Again, I don't think it's a massive number in the bigger scheme of things. But I mean, it takes some work to actually get that done. Industrial vacancy is down from 5.7% to 4.7%, concentrated in the smaller boxes and that sort of thing. So the guys are working quite hard in trying to find those tenancies. And our tenant retention ratio here was up from 67% in the prior year or for the full 12 months of 2025 to about 88% for the first 5 months of this year. And we did an almost equal number of new leases and renewals, 12,951 and 12,000 square meters for renewals and escalations of 6.1% and 6.7%, respectively, and the WALE on new leases because it's the many units, 1.9 years and 2.1 years for the renewals. And if you look at what that number is relative to what's coming up for renewal in industrial, we've only just dealt with 3% of the renewals coming up. So any sort of positive reversion here or anything that you're seeing is not really going to have an impact on the numbers because it's actually quite a small number in the bigger scheme of things. So we still need to see how that story plays out. Right. In conclusion, I think, yes, just to indicate that, obviously, strategically, we remain disciplined in doing what we have set out as a strategy, which has to do with being very wise in how we allocate scarce capital, disposals, noncore disposals, sweating of our assets and focusing on these sustainability initiatives that at times, an essential thing to do and not a nice to have. And the guidance remains at what we had guided last year, DPS growth of approximately 7% is where we expect to conclude. Thank you very much. We'll open up the floor for some questions.

I'll start off from Anchor Stock Brokers from Trinity. When do you expect Protea Guidance Mall and Gezina acquisitions to start contributing to NPI? I'll take that. Protea Guidance transferred on the 8th of Jan of this year. And the Gezina property transferred in on the 19th of December.

Okay. And in terms of obviously, contribution to NPI, as the properties come in, it's the differential of where we fund it and the yield that we paid for those properties that filters through. And I think you can go work out your numbers in terms of where that happened. But I mean, we're already seeing revenue streams coming through from those. So when you look at the 5 months so far, obviously, they haven't been in the system for all that long because Protea Guidance is literally in for 1 month now. But the second half, we'll probably see more of an impact of those properties contributing towards the bottom line.

Next question is from Lawrence from ClucasGray Asset Management. How long can the 32 properties operate on backup water alone?

It's normally at least a day's water supply and in some properties, maybe up to 3 days. It just depends. I mean if you take a Chilli Lane, for example, where we've got a gym, that's got a massive consumer of water between people showering and refilling the pool and cleaning the pool and things like that, your backup water doesn't actually go too long way. But where you basically just got a normal supermarket and line tenants, then we can get up to 3 days of backup.

There's no more questions.

Excellent. Thank you very much. We'll see you in May.