Dipula Income Fund recently indicated that its remaining residential and office assets will be disposed of over time to enable it to focus only on its retail and industrial assets.
One of the more interesting developments in the firm’s story is that competitor Fairvest’s shareholding in it rose to 26.29% when Fairvest snapped up Coronation Asset Management's stake of 21.24% in Dipula in November 2024. Fairvest has stated that it is looking to build a retail-focused real estate investment trust (Reit), so many of the Dipula assets should fit the Fairvest strategy.
We have not seen any action from Fairvest in terms of increasing its stake further. The way the Coronation deal was structured effectively put Fairvest on hold. But come November 2025, Fairvest would be free and clear to make new moves — or to not move, if desired.
Given that Dipula is trading at discount of about 36% to its net tangible assets (NTA), any bid for a complete takeover of Dipula would need to be pitched to the remaining Dipula shareholders, at the very least at a level close to NTA — or even at a slight premium, in order to reflect the change of control.
The big question after any deal with Fairvest would be what would happen to Dipula’s nonretail assets, specifically the industrial assets, as Dipula’s stated intention is to focus on this asset class as part of its long-term growth strategy.
There are a few options for Fairvest here, so these industrial assets are certainly not a deal breaker.
Most of Dipula’s assets are located in and around Gauteng, so it is no surprise that the company has a solid programme of solar and water-saving sustainability measures at its properties. It’s a natural response to municipalities’ ever-growing administrative charges for electricity and water and Gauteng’s difficulty in supplying these — with Eskom’s regular price increases on top of that.
While the upfront costs of the solar and water-saving measures of Dipula are being felt now, the benefits will soon start flowing, making the properties more attractive to potential buyers.
The company recently held a pre-close investor presentation, at which the interesting point came up that it had achieved rental escalations across all its asset classes, including the office portfolio. Another pertinent fact is that, by and large, its vacancy rate declined in every asset class, even the office sector — though it’s just below 20%, so let’s not get too excited about that.
While the upfront costs of the solar and water-saving measures of Dipula are being felt now, the benefits will soon start flowing
However, the broad brushstrokes of the Dipula picture as a whole are that rental escalations are up and vacancies down, which is a good story to hear for any Reit investor. Lower interest rates are obviously a positive for all Reits across the board and, given that we have entered an interest-easing cycle, Dipula should hopefully see a positive double whammy.
The first of these is cheaper debt refinancing, as debt matures over the next year or two. Reits typically see a lagged effect of interest rate moves, because the majority of their debt tends to be fixed, so it is only when the debt needs to be refinanced that the prevailing interest rate kicks in. It may be higher or lower than the previous rates.
Second, lower interest rates should aid consumer spending, especially for the lower-income section of the market. Most of Dipula’s retail assets are based in township and rural hubs, so improved foot count and spending by this group of consumers should be a benefit to retailers operating from Dipula’s properties.
The capital freed by the two-pot retirement reforms should also aid retail spending. We have seen a bigger take-up of this capital-release mechanism than anyone had forecast before it started in September 2024. Some early reports are that as we entered the new tax year in March 2025, fresh applications flooded in from people looking to obtain a portion of their retirement capital in this new tax year — the facility is available only once a year.
Overall, Dipula seems to be an interesting Reit at this juncture. With the rival suitor on the share register, it has a yield of about 9.5%, with an improving portfolio of assets and an attractive discount to NTA.
It might be worth considering for your portfolio if you are looking for a South Africa-focused Reit.
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