South Africa: Dipula Income Fund may seek capital for REIT acquisitions, CEO says

By David Whitehouse
Posted on Wednesday, 16 March 2022 09:07, updated on Thursday, 17 March 2022 15:26

Dipula Income Fund CEO Izak Petersen. Photo supplied.

Dipula Income Fund may consider acquisitions of other South African real-estate investment trusts (REITs) once it has completed a share consolidation, CEO Izak Petersen tells The Africa Report.

The proposed restructuring of the company’s A and B shares into a single class of share is scheduled to be completed by June, Petersen says in Johannesburg. The move will “lead to a rerating of the stock” and “widen the investor pool.”

That would open the possibility of raising new capital, and Dipula “might well” go to the market to do so, he says. Petersen sees a process of consolidation among South Africa’s smaller and medium-sized REITs. “We want to play our part in that consolidation.”

Dipula, which trades on the Johannesburg stock exchange, owns retail, office, industrial and residential properties, with about 66% of assets by rental income concentrated in Gauteng. In the year to August 2021, retail properties accounted for 62% of rental income, with office assets on 18%, industrial on 14% and residential on 6%. The fund has a defensive focus on non-discretionary spending at grocers and clothing stores.

  • That means that the fund won’t “shoot out the lights” in the good times, but has held up in periods of crisis such as the Covid pandemic, Petersen says.
  • Petersen sees little prospect of e-commerce having much of an impact on his tenants anytime soon.
  • The logistics are lacking are there is not enough bulk demand to make it feasible to serve townships online, he says. “It’s going to take a long time.”

South Africa Turnaround

Petersen has little interest in making investments abroad to achieve diversification. Some South African investors who have done so, he says, have overpaid and come back “with their tails between their legs.”

South African investors who have been putting money into eastern Europe may be more likely to invest at home in the light of Russia’s invasion of Ukraine, Petersen says. “Instability is not just an African story.”

“We are an option for someone wanting to buy pure South African exposure,” he says. “Our market is still big enough for a market of our size. We will stick to our knitting.”

That stance reflects Petersen’s optimism that South Africa’s economy can be turned around. The country has Africa’s best infrastructure and an international skills base, he argues. “South Africa can turn around overnight” if it has better political leadership, he says. “The problem is political,” with a lack of clarity in policy in areas such as education, he says.

  • The country puts a high priority on education, but not enough attention is paid to the skills that young people need to have when they come out of the education system, he says.
  • “Skills are more important than education in a developing economy.”
  • Renewable power is one area where that needs to happen, with people who have been working in the coal industry needing to undergo ‘reskilling’ to work in renewable energy, Petersen says.
  • South Africa has the opportunity to become less reliant on centralised state power, and state utility Eskom needs to be split up into its component parts as the government has proposed, he adds.

Bottom Line

Dipula sees diversification away from South Africa as simply weakening exposure to its anticipated recovery.

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