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- Dipula Income Fund says municipal rates and load shedding are driving up operating costs.
- The company spent R4 million in the past three months on diesel alone, a cost that wasn't budgeted for.
- Because of these issues, Dipula's property expenses increased by 5.1%, much higher than its revenue which grew by 3%.
- For more stories, go to the News24 Business front page.
The owner of Sunninghill shopping centres, Dipula Income Fund, says problems facing the property sector and other businesses in SA are likely to force companies to look offshore at the expense of South Africa.
The group, which owns many smaller shopping centres around the country, from rural towns to Johannesburg CBD, Sandton and office parks, published its 2022 results on Wednesday. It came under pressure from climbing costs, including for insurance, security and municipal rates, saying this was despite many local governments remaining in a state of "dysfunction".
While Dipula saw its net property income increase by 1.6% to end August and revenue grow by 3% during that period, its property expenses increased faster. Expenses grew by 5.1% year-on-year to R467 million, but distributable earnings edged up 0.1% to R552 million, with the firm attributing this to cost-cutting efforts.
The group, which has been lamenting unreasonable municipal rates for some time, said this remained the biggest driver of costs.
"Despite management's focus on cost efficiencies … margins came under pressure for the year ended 31 August 2022, mainly due to higher inflation, particularly in respect of administered costs and municipal rates," it said.
Dipula also flagged that it expects municipal costs to remain on an upward trajectory "with very little or no additional service delivery" to justify that. Speaking to News24 about this, Dipula CEO, Izak Petersen, said most of the cost increases resulted from these administered price increases rather than inflation.
"We recover a substantial amount of our electricity and water bill. But for common areas and where we have vacancies, we don't recover those costs."
Insurance and security had climbed, but administered costs, municipal rates especially, were by far the biggest contributor, said Petersen.
Over and above that, the increased frequency and intensity of load shedding in 2022 has seen Dipula "by far" exceed its budgeted diesel costs.
"On the load shedding side, in our capex, we put a number for backup power. We have increased the backup power system, and there's also the consumption bit to it. But in the past three months alone, we incurred about R4 million worth of diesel costs, completely unbudgeted for," he said.
READ | Sandton City owner to spend 3 times more on diesel than budgeted due to intense load shedding
The generators in its shopping centres and office parks also need more frequent maintenance and replacement of parts. The company also has to double up on refuse removal costs when the City of Johannesburg's Pikitup doesn't come on time.
"The generators are working much more than they were designed to. There's obviously the consequential losses of your mechanical equipment packing up," he added.
Dipula itself isn't switching off investment taps for SA. In the year to end August, it spent R93 million refurbishing and buying properties in the country. This was significantly more than the R52 million it spent in the 2021 financial year. It also acquired a 19.9% stake in a residential development, Palm Springs Cosmo City, resulting in full ownership. The group plans to spend another R376 million in the next 12 to 18 months, mainly on refurbishing its malls.
Petersen still believes that there are pockets of growth for Dipula to pursue. And as a South Africa-focused company, it has to look within the borders for growth. But he is worried about the attractiveness of SA for firms that have been looking offshore for growth opportunities and whether all of Dipula's tenants will continue investing in SA expansion.
"Where the concern comes is whether our tenants will allocate more in South Africa. On the retail side, we are comfortable that it is still happening. There's a huge demand. This year alone, we did about R1 billion worth of leasing," he said.
Still, Petersen said the other pockets of commercial property, especially the office sector, need the political will to sort out the municipalities because businesses were under strain from the current state of "dysfunction".
In afternoon trade on Wednesday Dipula's shares were up 2.19% to R4.20, valuing it at R3.68 billion on the JSE.
Click here for more details on Dipula's share price and other info.
