Dipula Income Fund is the latest real estate counter on the JSE to make a foray into the residential market as diversifying income streams is a growing priority in these tough economic times.
Dipula is on the prowl for opportunities in the middle-income residential market of largely rental units. It expects to enter the market next year.
Its residential plans, which have been two years in the making, will grow its exposure beyond office, retail and industrial properties. CEO Izak Petersen says there is massive opportunity in the residential sector and investors are now showing an appetite for this asset class.
“Property companies are now entering a difficult period in the economy which calls for further diversification. Residential investments will get us through the cycles,” says Petersen.
The residential market has seen an insatiable demand for housing units on the back of faltering supply in the market, which has helped drive property valuations upward over the past three years.
And no doubt that real estate counters on the JSE’s R400 billion-plus sector are getting in on the act. For instance Vukile Property Fund and Tower Property Fund recently unveiled their intention to enter the market. Other counters with exposure to the sector include Indluplace Properties, Growthpoint Properties, Octodec Investments and SA Corporate Real Estate.
Dipula is targeting strong urban areas such as Randburg and Midrand in Johannesburg. “We will partner with people who have the knowledge in this market,” Petersen says.
Dipula might acquire existing residential assets and also embark on developments. On the latter, Petersen says the company has identified some of its office properties that have the potential for conversion into residential units.
“Some properties for possible conversion might be buildings in locations where banks are downsizing space,” he says.
Residential properties won’t be the core focus for Dipula, which expects the sector to make up about 10% of its income by next year September. Dipula is eyeing a property acquisition pipeline of R1 billion to R1.5 billion, which Petersen says the residential properties would make up a small part of. Dipula has the option of raising capital or bank debt to realise its pipeline.
Over the past four years, Dipula has built scale through acquisitions, as upon listing in 2011 its property assets were valued at R2.2 billion which has grown to R5.6 billion for the 12 months to August 31, 2015. During the period, it concluded acquisitions worth R R1.2 billion.
Post year end it purchased an 80% stake in an R860 million property portfolio of retail and industrial assets from unlisted property developer Moolman Group and Gillwell Taxi Retail Park in East London, increasing Dipula’s portfolio value to R6.6 billion.
It invested R59 million on refurbishments and redevelopments to its properties and eyes spending a further R350 million on revamps in the next 18 months.
Dipula, which an A and B-unit share structure, declared a combined growth in dividend payouts of 7.05%. The A-shares saw a 5% growth to 91.8 cents per share and 9.5% increase for B-shares to 80.296 cents per share.