Dipula delivers earnings growth as retail portfolio outperforms weak office market

Key topics:

• Retail income up 7%; vacancies down to 5.1%

• Distributable earnings per share up 5% to 57.26c

• Office vacancies surge to 26.4%, weighing on portfolio

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BizNews Reporter

Dipula Properties Limited, a South Africa-focused Real Estate Investment Trust (REIT), reported solid financial results for the year ended August 31, 2025, buoyed by the resilience of its defensive retail assets. While core earnings and portfolio value saw meaningful growth, the performance highlights a growing divergence between the robust retail segment and persistent weakness in the office and industrial portfolios.

The company, which boasts over 20 years of property excellence and manages a diversified portfolio primarily located in Gauteng, benefitted from early signs of recovery in the South African property sector, supported by factors like improved stability in the national energy grid and reduced interest rates.

The good news: Financial strength and retail dominance

Dipula delivered strong headline financial growth for the year:

Distributable earnings growth: Full-year distributable earnings per share increased by 5% to 57.26 cents (up from 54.40 cents in 2024). Distributable earnings grew by 5% overall to R521 million. Management remains optimistic, anticipating distributable earnings growth of 7% for the 2026 financial year.

Revenue and NPI: Revenue (excluding straight-lining) increased by 4% to R1.517 billion, driven by net property income (NPI) growth of 3% to R905 million.

Robust retail segment: The portfolio is increasingly weighted towards retail, which now accounts for 67% of gross income. The retail portfolio saw strong revenue growth of 7% year-on-year and recorded a robust 10% increase in like-for-like property valuations. The retail retention rate was high at 85%, and retail vacancy improved to 5.1% (down from 6.4% in 2024).

Balance sheet health and acquisitions: The portfolio value increased by 6% to R10.8 billion, and Net Asset Value (NAV) grew by 7.5% to R6.8 billion. Gearing remained stable and prudent at 34.9% (2024: 35.7%), which is well below the 50% loan-to-value covenant. Dipula completed R694 million in acquisitions, including the Protea Gardens Mall in Soweto for R478 million, aligning with the strategy to expand quality retail and industrial assets. Furthermore, the Group achieved a positive renewal rate of 0.6% for the year, a significant improvement from the negative 9.7% recorded in 2024.

The challenges: Sector weakness and rising costs

Despite the overall positive financial trajectory, underlying operational challenges, particularly in non-retail sectors, led to elevated risk metrics:

Increased vacancy: The overall portfolio vacancy rate rose to 8.5% (2024: 7.5%). This uptick was specifically driven by poor performance in the office and industrial sectors.

Office sector deterioration: The office vacancy rate increased sharply to 26.4% (2024: 22.0%). Office tenant retention plummeted to 65%, down significantly from 94% in the previous year. Office valuations remained relatively stable year-on-year but showed a slight like-for-like decline of 0.7%.

Industrial vacancy spike: The industrial vacancy rate doubled to 5.7% (2024: 2.8%). Industrial tenant retention also fell steeply, dropping to 67% from 87% in 2024.

Rising costs: The cost-to-income ratio increased to 43.2% (2024: 42.3%). This was primarily reflective of a 6% rise in property-related expenses, largely due to above-inflation increases in electricity costs.

Shorter lease terms: The Weighted Average Lease Expiry (WALE) for renewals decreased substantially to 2.2 years (from 3.2 years in 2024), indicating shorter lease commitments from tenants.

Residential portfolio pressure: The residential portfolio, which is considered non-core and earmarked for disposal, saw a 9% decline in valuation due to rental discounting.

Overall, Dipula's performance demonstrates its ability to leverage its retail focus and manage debt effectively, resulting in higher distributable earnings. However, the company faces headwinds in its non-core and office segments, evidenced by increased vacancies and retention struggles in those specific sectors. Management has confirmed that active efforts are underway to relet recently vacated, highly lettable spaces. (559 words)