Dipula Income Fund on Monday posted one of the strongest sets of interim results in the listed property sector this year, defying market conditions to increase its distributable income in addition to paying out 100% of its interim dividend.
The small-cap real estate investment trust (Reit) outshone its much larger listed peer, Redefine Properties, which also published its interim results for the half-year ending February 28, 2021 on Tuesday.
While Redefine reflected an improving performance in some areas, the fact that its distributable income plunged in the period and the fund opted to defer a decision on its interim dividend to year-end is in stark contrast to Dipula.
Neither fund paid out a full-year dividend for the 2020 financial year, but Dipula has hinted that it may still pay this out to coincide with its 2021 year-end in August.
Dipula, which has a dual A-share and B-share structure, declared an interim dividend for its 2021 half year of 59.02 cents per share for its A-shares (up 2.9%) and 45.09 cents per share for its B-shares (up 16.8%) respectively.
The large majority of its JSE listed peers have opted to either not pay out an interim dividend or to introduce payout ratios (paying dividends of 75% or more) in order to conserve cash to better weather the Covid-19 storm.
Dipula’s overall interim distributable earnings increased 8.5% to R275 million, compared to R254 million in the comparative period.
The fund also managed to slash its loan-to-value (LTV) ratio from over 46% to 35.7% during the interim period.
Dipula CEO Izak Petersen conceded to Moneyweb that the fund’s decision not to pay out a full-year dividend for its 2020 financial year did give it a “bit of an uplift” for its latest interim results.
However, he stressed that this did not take away from the fact that the fund posted a strong half-year performance compared to the listed property sector at large.
“We are pleased with our performance under extremely challenging trading conditions. Our hands-on asset and property management, combined with our defensive portfolio, were the differentiating factors in these unprecedented times,” he said.
Listen to Suren Naidoo’s interview with Dipula CEO Izak Petersen (or read the transcript here ):
Petersen added that Dipula’s prudent balance sheet management contributed to the double-digit (11%) reduction in the fund’s LTV.
“This strengthened our balance sheet, thus positioning us well to navigate these difficult times and be in a position to pay interim dividends to shareholders,” he said.
Stanlib’s head of listed property funds Keillen Ndlovu tells Moneyweb that Dipula is one of the most underrated Reits in the sector.
“Apart from being one of the few Reits to pay out 100% of its distributable income and also posting an increase in distributions, it is supported by or it scores better than the sector across most metrics – lower office vacancies, higher office tenant retention and a lower LTV of 36% versus the sector average at 42%,” he explains.
“Dipula also has a healthy ICR [interest cover ratio), which is above three times … and its net asset value has increased, whereas the sector is reporting a decrease,” he notes.
“However, what lets Dipula down is size and the liquidity of its shares,” Ndlovu adds.
Redefine, meanwhile, reported a 21.8% plunge in distributable income per share for the interim period, to 26.18 cents per share compared to 33.46 cents for the prior corresponding period.
While the group did not pay a full-year dividend for its 2020 financial year and deferred its interim dividend for the first half of this financial year, Redefine has indicated that it will pay out a final dividend for 2021.
As the fund notes in its interim results Sens statement: “Having regard to the effects of the Covid-19 pandemic, its impact on Redefine’s business operations, liquidity and LTV ratio, and the extraordinary uncertainty of its future impact on the company, the board as a precautionary measure to provide the company with additional flexibility and bolster its liquidity, has resolved to defer its decision on the declaration of a dividend until the release of the results for the year ended 31 August 2021, which is expected during November 2021.
“Subject to the liquidity and solvency test as required by the Companies Act at the time of the declaration of the dividend, it is anticipated that Redefine should be in a position to pay a dividend for the 2021 financial year,” it adds.
Redefine CEO Andrew Konig says the fund did not take the decision to defer its interim dividend lightly.
“We took all stakeholder interests into account. It is fundamental to our investment proposition to pay dividends, but unfortunately there is just too much uncertainty to factor in right now. We hope to have better news towards the end of the year, but as always we must act prudently,” he notes.
Konig says while ongoing Covid-19 pressure contributed to the decline in Redefine’s distributable income for the half-year, the fact that the group sold some R4.8 billion in properties also had an impact.
Dividends were also not forthcoming from Redefine’s 45.4% holding in Polish-based EPP, as the offshore fund acted to preserve its own financial flexibility and bolster liquidity in light of Covid-19.
Redefine’s disposals are part of the fund’s stated mission to reduce its LTV in the face of the pandemic and bolstering its balance sheet.
The Reit has made progress in this regard, reducing its LTV from 47.5% at its 2020 financial year ending August 31, to 44.3% by the end of its interim period (to February 28, 2021).
Redefine’s ultimate aim is to bring its gearing levels below the 40% mark.
Real estate analyst at Anchor Stockbrokers, Pranita Daya, says Redefine’s liquidity constraints and LTV ratio overhang have been the key focus areas for the fund’s management over the past year.
“Thus, the most notable aspect of the results, in our view, relates to the reduction in the LTV ratio,” she notes.
“Overall, Redefine’s results are reflective of the tough local macroenvironment. Management have however done well to execute on their LTV ratio pathway and as a result strengthen their balance sheet,” she says.
“Management have also indicated, that subject to their solvency and liquidity test at the time of declaration, they intend to declare a dividend for FY 2021.
“This has been a strongly debated topic subsequent to Redefine’s recent decision to not declare a dividend for FY 2020 and therefore should provide the market with some clarity,” Daya adds.
On Dipula, she says the fund posted a “fairly strong set of interim results” considering its increased distributable earnings and improvements to both its LTV and ICR.
“Despite going the same route as Redefine with regards to not paying out a dividend for FY 2020, Dipula has paid out dividends on both their share classes for the interim period, which is a good indicator in this market of management’s confidence in their current position and liquidity going forward,” she points out.
Listen to Simon Brown’s interview with Garreth Elston of Reitway Global on Redefine not paying a 2020 dividend: