DIPULA INCOME FUND LIMITED - Unaudited condensed consolidated interim results for the six months ended 28 February 2018

Release Date: 21/05/2018 10:00
Code(s): DIA DIB
 
Wrap Text
Unaudited condensed consolidated interim results for the six months ended 28 February 2018

Dipula Income Fund Limited
(Incorporated in the Republic of South Africa)
(Registration number 2005/013963/06)
JSE share code: DIA  ISIN for A-shares: ZAE000203378
JSE share code: DIB  ISIN for B-shares: ZAE000203394
(Approved as a REIT by the JSE)
('Dipula' or 'the company' or 'the Fund', and together with its subsidiaries, 'the group')

Unaudited condensed consolidated interim results for the six months ended 28 February 2018

Highlights
Post-period acquisitions R1.42 billion (yield in excess of 11%)
Post-period capital raise of R790 million (32% oversubscribed)
Post-period portfolio value exceeds R8.5 billion
Distributable earnings up 11.5% to R216.4 million
A-share dividend up 4.0% to 52.67488 cents per share
B-share dividend up 5.3% to 44.07594 cents per share

Commentary

Introduction
During the six months ended 28 February 2018 ('the period') dividends increased by
4.6% per share on a combined basis.

In November 2017 Dipula announced the acquisition of a portfolio from Setso Holdco
Proprietary Limited ('Setso') and Rec Group Property Trust ('RecTrust') for R1.25 billion.
Post period end the company raised equity capital of R790 million in a 32% oversubscribed
accelerated book-build to fund the acquisition. In addition to this, new debt facilities of
R480 million were secured.

Profile
Dipula is a REIT that owns a diversified portfolio, comprising retail, office and industrial
properties located across all provinces in South Africa. The majority of properties are
located in Gauteng.

Dipula trades under the codes DIA and DIB. DIA shares are entitled to a preferred income
growth at the lower of 5% or consumer price index (per Stats SA) at the end of the
reporting period, while DIB shares receive the remaining net distributable income.

Distributable earnings
Distributable earnings increased 11.5% to R216.4 million (February 2017: R194.2 million),
representing a 4.6% growth in dividend per share on a combined share (February 2017:
6.3%).

The dividend attributable to A-shares increased 4% year-on-year to 52.67488
cents per share (February 2017: 50.64892 cents) in line with the dividend policy to
A-shareholders. The dividend attributable to B-shares increased 5.3% year-on-year to
44.07594 cents per share (February 2017: 41.83993 cents).

Property portfolio
At period end Dipula's property portfolio of 174 properties was valued at R7.1 billion with a
total gross lettable area ('GLA') of 748 978 m2 (February 2017: 193 properties; R7 billion
value; 789 753 m2 GLA). Post conclusion of the acquisition (see 'Acquisitions' below) the
portfolio value will increase to R8.5 billion.

Acquisitions
As announced on SENS on 10 November 2017 and 22 March 2018, Dipula acquired a
portfolio valued at R1.25 billion from Setso and RecTrust with a forward yield of 11.8%.
The retail, office and industrial portfolio has a GLA of 340 221 m2. Vacancies are a nominal
0.8% and the portfolio has a weighted average lease expiry of 4.5 years. The portfolio is
comprised of two retail properties in Gauteng (Chilli Lane and Chilli on Top), six office
properties across Gauteng and the Western Cape and two redevelopment properties. The
transaction includes the acquisition of 50.01% of a company that owns a portfolio of
predominantly industrial properties located across KwaZulu-Natal, Eastern Cape,
Mpumalanga, Gauteng and North West.

The purchase consideration will be funded through a combination of debt and equity. Debt
funding of R480 million has been secured and post period end R790 million of equity was
raised in a book-build.

All conditions precedent have been met and the properties are expected to transfer in
June 2018.

Other completed acquisitions are outlined below:
                                                                        Attributable        Effective
Property                                                                       value             date
Marikana Shoprite Centre (50.1% interest)                                R50 million  1 December 2017
Firestation - Rosebank (sectional title offices - 30% of scheme)        R122 million    20 April 2018
Harding Shopping Centre KZN (50% interest)                               R52 million    16 March 2018

Cost-to-income ratios
                                                                            February         February
                                                                                2018             2017
Property cost to income (gross basis)                                          34.5%            35.0%
Total cost to income (gross basis)                                             36.7%            38.4%
Property cost to income (net basis)                                            20.9%            18.0%
Total cost to income (net basis)                                               23.5%            22.2%

Sectoral and geographic profile
The sector and geographic breakdown of Dipula's portfolio at 28 February 2018 is set out below:

Dipula Portfolio as at 28 February 2018
Sector
                                                                                           % of gross
Row Labels                                                                  % of GLA    rental income
Industrial                                                                       26%              14%
Office                                                                           16%              17%
Retail                                                                           58%              69%
Grand Total                                                                     100%             100%
                                                                                       
Geographic                                                                             
                                                                                           % of gross
Row Labels                                                                  % of GLA    rental income
Eastern Cape                                                                     10%               8%
Free State                                                                        3%               2%
Gauteng                                                                          60%              61%
Limpopo                                                                          13%              12%
North West                                                                        3%               4%
Northern Cape                                                                     1%               0%
Western Cape                                                                      2%               1%
KwaZulu-Natal                                                                     6%               9%
Mpumalanga                                                                        2%               3%
Grand Total                                                                     100%             100%

Dipula lease expiry profile

Portfolio LEP February 2018
                                                                                              Average
                                                                                              monthly
                                                                                                gross
Lease Expiry Profile                                                             GLA           income
Vacant                                                                        75 072*               0
Expiring before 31 August 2018                                               133 393       13 944 130
Expiring before 31 August 2019                                               136 350       13 165 293
Expiring before 31 Aug 2020                                                   92 324       10 131 637
Expiring before 31 August 2021                                                79 393        8 259 513
Expiring after 31 August 2021                                                204 013       17 634 534
* Vacancy opportunity cost approximately R8 million.

Vacancies
Vacancies increased to 10.4% compared to 9.2% at February 2017. The breakdown of
vacancies by sector is as follows: Retail 8.1% (February 2017: 7.9%), Offices 15.3%
(February 2017: 15.1%) and Industrial 12.9% (February 2017: 8.8%).

Disposals
During the period Dipula disposed of two centres in Gauteng (274 Beyers Naude Drive and
Wescen Corner) for R53 million.

Post period end Dipula disposed of its 30% interest in Eyethu Orange Farm for R147 million
at a yield of approximately 7%.

Refurbishments and developments
The conversions of vacant office buildings located in Midrand and Bruma to residential
units are progressing well and are expected to be completed in the latter part of 2018 and
early 2019, respectively.

Funding
At 28 February 2018, Dipula's all-in blended rate of interest was 9.19% (February 2017:
9.06%). The company has total debt facilities of R3.0 billion with R2.9 billion utilised to date.
The weighted average debt expiry is two years and interest rate hedges expiry is 1.7 years.

Approximately 91% of the interest on the debt had been fixed at the end of the period 
(February 2017: 70.6%).

Debt maturity and hedging profile
                                       Facility                   Fixed/Swap              Floating
Financial year-end                 R'000         %            R'000           %       R'000         %
FY2018                           557 676     18.8%          244 456        8.2%     313 220     10.6%
FY2019                           951 195     32.1%        1 148 601       38.8%    (197 406)    (6.7%)
FY2020                           710 400     24.0%          756 250       25.5%     (45 850)    (1.6%)
FY2021                           543 642     18.3%          450 000       15.2%      93 642      3.2%
FY2022                           200 000      6.8%          100 000        3.4%     100 000      3.4%
                               2 962 913      100%        2 699 307       91.1%     263 606      8.9%

Manco internalisation
Dipula concluded the internalisation of its asset management function during the period,
through the acquisition of 100% of the beneficial interest in the Dipula Asset Management
Trust ('DAMT'), for an aggregate acquisition cost of R150 million. The internalisation is
consistent with industry best practice and will further align the interests of the company's
management with investors. The transaction was effective on 1 September 2017.

The acquisition was funded by the allotment and issue of 9 931 631 Dipula B-shares for the
equivalent of R100.3 million issued at a 30-day volume weighted average price per Dipula
B-share and a cash payment of R49.7 million.

Changes to the board
Mr S Gumede resigned as a director effective from 22 December 2017.

Prospects
The board remains cautious on trading conditions in the near term and the focus in the next
six months will be on integrating the new acquisitions into the group and extracting
maximum value from the existing portfolio.

The board expects growth in dividends of between 4% and 5% for the year ending 31 August 2018.

The reduction in dividend growth compared to previous guidance is due to:
- tougher trading conditions than previously anticipated;
- delays in transfer of earnings enhancing property acquisitions; and
- increased provisions for bad debts.

This dividend growth assumes that macroeconomic conditions do not deteriorate further,
no major corporate failures occur and that tenants will be able to absorb rising utility and
assessment rates costs. Forecast rental income is based on contractual escalations and
market-related renewals. This forecast has not been reviewed or reported on by the
group's auditors.

Payment of interim dividend
The board has approved and notice is hereby given of the interim dividend (dividend
number 14) for the period 1 September 2017 to 28 February 2018 of 52.67488 cents per
A-share and 44.07594 cents per B-share.

The dividend is payable to Dipula shareholders in accordance with the timetable set out below:
Last day to trade cum dividend                                              Tuesday, 5 June 2018
Shares trade ex dividend                                                  Wednesday, 6 June 2018
Record date                                                                  Friday, 8 June 2018
Payment date                                                                Monday, 11 June 2018

Share certificates may not be dematerialised or rematerialised between Wednesday, 6 June 2018 and 
Friday, 8 June 2018, both days inclusive.

The dividend will be transferred to dematerialised shareholders' CSDP accounts/broker accounts on 
Monday, 11 June 2018. Certificated shareholders' dividend payments will be paid to certificated 
shareholders' bank accounts on or about Monday, 11 June 2018.

An announcement relating to the tax treatment will be released separately on SENS.

On behalf of the board

Zanele Matlala
Chairperson

Izak Petersen
CEO

21 May 2018


Condensed consolidated statements of financial position

                                                                  Unaudited     Unaudited
                                                                 six months    six months       Audited
                                                                      ended         ended    year ended
                                                                28 February   28 February     31 August
                                                                       2018          2017          2017
                                                                      R'000         R'000         R'000
ASSETS
Non-current assets                                                7 149 994     6 742 881     6 989 754
Investment property                                               6 911 103     6 692 741     6 882 691
Fair value of property portfolio                                  6 748 850     6 541 767     6 727 095
Straight-line rental income accrual                                 162 253       150 974       155 596
Intangible assets                                                   144 577        48 482        13 327
Property, plant and equipment                                         1 574         1 658         1 267
Derivative financial assets                                             271             -             -
Loan receivable                                                      92 469             -        92 469
Current assets                                                      205 775       275 398       374 260
Trade and other receivables                                         173 114       170 632       153 817
Loan receivable                                                           -             -        89 936
Derivative financial assets                                               -             -           281
Cash and cash equivalents                                            32 661       104 766       130 226
Non-current assets held-for-sale
Investment property held-for-sale                                   164 446       336 722        42 942
Total assets                                                      7 520 215     7 355 001     7 406 956
EQUITY AND LIABILITIES
Equity                                                            4 537 595     4 356 792     4 424 473
Stated capital                                                    3 460 604     3 167 159     3 346 742
Fair value reserve                                                1 033 359       978 810       998 793
Retained income                                                      43 632        81 467        78 938
Non-controlling interest                                                  -       129 356             -
Non-current liabilities                                           1 830 204     1 881 495     2 306 139
Interest-bearing liabilities                                      1 758 918     1 881 495     2 271 057
Non-interest bearing liabilities                                     50 154             -             -
Derivative liabilities                                               21 132             -        35 082
Current liabilities                                               1 152 416     1 116 714       676 344
Interest-bearing liabilities                                      1 032 079       979 667       551 008
Derivative liabilities                                                    -         9 037             -
Trade and other payables                                            120 337       128 010       125 336
Total equity and liabilities                                      7 520 215     7 355 001     7 406 956


Condensed consolidated statements of comprehensive income
                                                                  Unaudited     Unaudited       Audited
                                                                28 February   28 February     31 August
                                                                       2018          2017          2017
                                                                      R'000         R'000         R'000
Revenue                                                             537 160       537 439     1 069 660
Contractual rental income                                           419 018       411 367       825 555
Recoveries and other income                                         111 484       115 253       226 962
Straight-line rental income accrual                                   6 658        10 819        17 143
Property expenses                                                  (183 082)     (184 434)     (353 463)
Net property income                                                 354 078       353 005       716 197
Administration and corporate costs                                  (11 519)      (17 559)      (31 887)
Net operating profit                                                342 559       335 446       684 310
Net finance cost                                                   (120 723)     (125 713)     (243 632)
Finance income                                                       13 229         3 801        20 606
Finance cost                                                       (133 952)     (129 514)     (264 238)
Net profit after finance cost                                       221 836       209 733       440 678
Transaction costs on business combination                            (2 543)            -             -
Amortisation of intangible assets/ goodwill impaired                (18 750)            -       (35 155)
Fair value adjustments                                               27 908       (24 893)        1 352
Investment properties and properties held-for-sale                   20 626          (821)       57 512
Straight-line rental income accrual                                  (6 658)      (10 819)      (17 143)
Interest rate swaps                                                  13 940       (13 253)      (39 017)
Profit before taxation                                              228 451       184 840       406 875
Taxation                                                                  -             -             -
Profit for the period after taxation                                228 451       184 840       406 875
Other comprehensive income                                                -             -             -
Total comprehensive income for the period                           228 451       184 840       406 875
Total profit and comprehensive income for the
period attributable to:
Shareholders of the company                                         227 163       178 474       387 922
Non-controlling interests                                             1 288         6 366        18 953
                                                                    228 451       184 840       406 875
Earnings and diluted earnings per share
A-share (cents)                                                       51.33         42.87         91.59
B-share (cents)                                                       51.33         42.87         91.59


Reconciliation between profit, earnings and headline earnings

                                                                  Unaudited     Unaudited       Audited
                                                                28 February   28 February     31 August
                                                                       2018          2017          2017
                                                                      R'000         R'000         R'000
Earnings                                                            227 163       178 474       387 922
Adjustments                                                           4 782        11 640         7 372
Amortisation of intangible assets/goodwill impaired                  18 750             -        35 155
NCI portion of fair value adjustment                                      -             -        12 586
Fair value - investment properties and held-for-sale                (20 626)          821       (57 512)
Fair value - straight-line rental income                              6 658        10 819        17 143
Headline earnings                                                   231 945       190 114       395 294
Weighted average number of A-shares in issue*                   218 817 494   208 160 748   211 771 488
Weighted average number of B-shares in issue*                   223 755 974   208 160 748   211 771 516
Basic and diluted earnings per A-share (cents)                        51.33         42.87         91.59
Basic and diluted earnings per B-share (cents)                        51.33         42.87         91.59
Headline and diluted earnings per A-share (cents)                     52.41         45.67         93.33
Headline and diluted earnings per B-share (cents)                     52.41         45.67         93.33
Dividend per A-share (cents)                                       52.67488      50.64892     101.29784
Interim                                                            52.67488      50.64892      50.64892
Final                                                                     -             -      50.64892
Dividend per B-share (cents)                                       44.07594      41.83993      95.49834
Interim                                                            44.07594      41.83993      41.83993
Final                                                                     -             -      53.65841
Combined dividend per share (cents)                                96.75082      92.48885     196.79618
Interim                                                            96.75082      92.48885      92.48885
Final                                                                     -             -     104.30733
Total number of shares in issue*                                448 276 813   419 921 746   436 932 798
Number of A-shares in issue                                     219 172 546   209 960 873   218 466 344
Number of B-shares in issue                                     229 104 267   209 960 873   218 466 454
Net asset value per A-share (cents)                                1 012.23      1 006.72      1 012.62
Net asset value per B-share (cents)                                1 012.23      1 006.72      1 012.62
Loan to value ('LTV')                                                 39.0%         39.2%         38.9%
*Net of treasury shares

Basic and headline earnings per share are based on the weighted average number of
shares in issue during the period.

The company does not have any dilutionary instruments in issue.


Condensed consolidated statements of changes in equity

                                                                                     Fair
                                                                     Stated         value      Retained
                                                                    capital       reserve        income
                                                                      R'000         R'000         R'000
Balance at 31 August 2016 (audited)                               3 107 931       992 884        93 599
Total comprehensive income for the period                                 -             -       178 474
Dividends declared                                                        -             -      (204 680)
Issue of shares                                                      59 228             -             -
Transfer to fair value reserve                                   
- investment properties                                                   -          (821)          821
Transfer to fair value reserve                                   
- interest rate swaps                                                     -       (13 253)       13 253
Balance at 28 February 2017 (unaudited)                           3 167 159       978 810        81 467
Balance at 31 August 2017 (audited)                               3 346 742       998 793        78 938
Total comprehensive income                                       
for the period                                                            -             -       227 163
Dividends declared                                                        -             -      (227 903)
Issue of shares                                                     113 862             -             -
Transfer to fair value reserve                                   
- investment properties                                                   -        20 626       (20 626)
Transfer to fair value reserve                                   
- interest rate swaps                                                     -        13 940       (13 940)
Balance at 28 February 2018 (unaudited)                           3 460 604     1 033 359        43 632

                                                                                     Non-
                                                                              controlling         Total
                                                                                 interest        equity
                                                                                    R'000         R'000
Balance at 31 August 2016 (audited)                                               131 190     4 325 604
Total comprehensive income for the period                                           6 366       184 840
Dividends declared                                                                 (8 200)     (212 880)
Issue of shares                                                                         -        59 228
Transfer to fair value reserve - investment properties                                  -             -
Transfer to fair value reserve - interest rate swaps                                    -             -
Balance at 28 February 2017 (unaudited)                                           129 356     4 356 792
Balance at 31 August 2017 (audited)                                                     -     4 424 473
Total comprehensive income for the period                                           1 288       228 451
Dividends declared                                                                 (1 288)     (229 191)
Issue of shares                                                                         -       113 862
Transfer to fair value reserve - investment properties                                  -             -
Transfer to fair value reserve - interest rate swaps                                    -             -
Balance at 28 February 2018 (unaudited)                                                 -     4 537 595


Condensed consolidated statements of cash flow
                                                                  Unaudited     Unaudited       Audited
                                                                28 February   28 February     31 August
                                                                       2018          2017          2017
                                                                      R'000         R'000         R'000
Cash flows from operating activities                        
Cash generated from operations                                      309 284       329 801       691 395
Net finance cost                                                   (121 105)     (125 713)     (245 228)
Dividends paid                                                     (227 903)     (212 880)     (413 184)
Net cash (utilised in)/generated from                           
operating activities                                                (39 724)       (8 792)       32 983
Cash flows from investing activities                            
Acquisition of investment properties and                        
capital expenditure                                                (136 247)      (50 006)     (110 424)
Acquisition of business combination                                 (44 839)            -             -
Acquisition of non-controlling interest                                   -             -      (133 633)
Acquisition of property, plant and equipment                           (233)         (324)         (460)
Proceeds on disposal of investment properties                        52 194        71 430       111 642
Net cash (utilised in)/generated from                       
investment activities                                              (129 125)       21 100      (132 875)
Cash flows from financing activities                        
Issue of shares                                                      13 562        59 228       238 811
Loans receivable                                                     89 936             -             -
Interest-bearing liabilities repaid                                 (32 214)      (25 502)      (67 425)
Net cash generated from financing activities                         71 284        33 726       171 386
Net (decrease)/increase in cash and                         
cash equivalents                                                    (97 565)       46 034        71 494
Cash and cash equivalents at beginning of year                      130 226        58 732        58 732
Cash and cash equivalents at end of period                           32 661       104 766       130 226


Condensed consolidated segmental information
                                                                     Retail       Offices    Industrial
                                                                      R'000         R'000         R'000
Six months ended 28 February 2018                                  
Extracts from the statement of                                     
comprehensive income                                               
Revenue from property portfolio#                                    379 029        86 520        64 953
Property expenses                                                  (131 752)      (31 839)      (19 483)
Net property income                                                 247 277        54 681        45 470
Extracts from the statement                                        
of financial position                                              
Investment property at fair value                                 4 612 492     1 267 394     1 003 994
Non-current assets held-for-sale                                    161 900             -             -
Total                                                             4 774 392     1 267 394     1 003 994
Six months ended 28 February 2017                                  
Extracts from the statement of                                     
comprehensive income                                               
Revenue from property portfolio#                                    373 139        83 174        70 307
Property expenses                                                  (132 646)      (30 774)      (21 006)
Net property income                                                 240 493        52 400        49 301
Extracts from the statement of                                     
financial position                                               
Investment property at fair value                                 4 455 800     1 223 936       987 091
Investment property held-for-sale                                   313 022        10 600        11 700
Total                                                             4 768 822     1 234 536       998 791
#Excluding straight-line rental income

                                                                                     Land         Total
                                                                                    R'000         R'000
Six months ended 28 February 2018
Extracts from the statement of
comprehensive income
Revenue from property portfolio#                                                        -       530 502
Property expenses                                                                      (8)     (183 082)
Net property income                                                                    (8)      347 420
Extracts from the statement
of financial position
Investment property at fair value                                                  27 223     6 911 103
Non-current assets held-for-sale                                                    2 546       164 446
Total                                                                              29 769     7 075 549
Six months ended 28 February 2017
Extracts from the statement of
comprehensive income
Revenue from property portfolio#                                                        -       526 620
Property expenses                                                                      (8)     (184 434)
Net property income                                                                    (8)      342 186
Extracts from the statement of
financial position
Investment property at fair value                                                  25 914     6 692 741
Investment property held-for-sale                                                   1 400       336 722
Total                                                                              27 314     7 029 463
#Excluding straight-line rental income


The group has four reportable segments based on the sectorial nature - these are the
group's strategic business segment. For each strategic business segment, the group's
executive directors review internal management reports on a monthly basis.

                                                                  Unaudited     Unaudited       Audited
                                                                28 February   28 February     31 August
                                                                       2018          2017          2017
                                                                      R'000         R'000         R'000
Reconciliation of reportable segment
revenue and profit
Revenue
Total revenue for reportable segments                               530 502        526 620    1 052 517
Straight-line rental income accrual                                   6 658         10 819       17 143
Consolidated revenue                                                537 160        537 439    1 069 660
Profit                                                           
Total profit for reportable segments                                347 420        342 186      699 054
Straight-line rental income accrual                                   6 658         10 819       17 143
Administration and corporate cost                                   (11 519)       (17 559)     (31 887)
Net finance cost                                                   (120 723)      (125 713)    (243 632)
Fair value adjustments                                               27 908        (24 893)       1 352
Transaction costs on business combination                            (2 543)             -            -
Amortisation of intangible assets/                               
goodwill impaired                                                   (18 750)             -      (35 155)
Profit before taxation                                              228 451        184 840      406 875
Distributable earnings
Reconciliation of profit for the period
to distributable earnings
Profit attributable to shareholders of the company                  227 163        178 474      387 922
Fair value - investment properties revaluation                      (20 626)           821      (57 512)
Fair value - straight-line rental income                              6 658         10 819       17 143
Fair value - interest rate swaps                                    (13 940)        13 253       39 017
NCI portion of fair value adjustment                                      -              -       12 586
Antecedent interest                                                   2 538          1 642       10 991
Transaction costs on business combination                             2 543              -            -
Amortisation of intangible assets/
goodwill impaired                                                    18 750              -       35 155
Straight-line rental income accrual                                  (6 658)       (10 819)     (17 143)
Distributable earnings and dividends declared                       216 428        194 190      428 159
Distribution statement
Revenue                                                             530 502        526 620    1 052 517
Contractual rental income                                           419 018        411 367      825 555
Recoveries and other income                                         111 484        115 253      226 962
Property expenses                                                  (183 082)      (184 434)    (353 463)
Net property income                                                 347 420        342 186      699 054
Administration and corporate costs                                  (11 519)       (17 559)     (31 887)
Net operating profit                                                335 901        324 627      667 167
Net finance cost                                                   (120 723)      (125 713)    (243 632)
Antecedent dividend                                                   2 538          1 642       10 991
Non-controlling interests                                            (1 288)        (6 366)      (6 367)
Distribution                                                        216 428        194 190      428 159


Basis of preparation and accounting policies

The unaudited condensed consolidated interim results for the period ended 28 February
2018 have been prepared in accordance with the JSE Listings Requirements and the
requirements of the Companies Act, 71 of 2008 of South Africa. The interim report has
been prepared in accordance with IAS 34: Interim Financial Reporting, the SAICA Financial
Reporting Guides as issued by the Accounting Practices Committee and Financial
Pronouncements as issued by the Financial Reporting Standards Council. The accounting
policies applied in the preparation of the unaudited condensed consolidated interim results
are in accordance with International Financial Reporting Standards ('IFRS') and are
consistent with those applied in the preparation of the previous year's consolidated annual
financial statements.

These results have been prepared under the historical cost convention, except for
investment properties, which are measured at fair value, and certain financial instruments,
which are measured at fair value.

These unaudited condensed consolidated interim results were prepared by the Financial
Director, Mr R Asmal and the Group Financial Manager, Mrs N Kotze, and they have not
been reviewed or reported on by the company's independent external auditors.

Measurement of fair value
Investment property
On an annual basis, investment properties above R12 million (at the last valuation date) and
one-third of properties below R12 million are valued by external independent registered
valuers, whilst the remaining two-thirds are valued internally by directors. Independent
valuations for these below R12 million in value properties are obtained on a rotational basis,
ensuring that every property below the threshold is valued at least once every three years
by an external independent valuer.

At the interim reporting stage, the properties are valued internally by directors.

The properties are valued using either the discounted cash flow or capitalisation methods
by the directors and external valuers. The valuations are done on an open market basis
with consideration given to the future earnings potential and applying an appropriate
capitalisation rate to a property. The capitalisation rates used range between 7.5% and
13.10%. Investment properties held-for-sale were valued at the net sale price, which is
considered to be the fair value.

Financial instruments
Financial instruments are measured at fair value including derivatives. The fair value of
interest rate swaps is based on broker quotes. Those quotes are tested for reasonableness
by discounting estimated future cash flows based on the terms and maturity of each
contract and using market interest rates for a similar instrument at the reporting date.

Hierarchy levels
The fair value hierarchy reflects the significance of the inputs used in making fair value
measurements. The level within which the fair value measurement is categorised in its
entirety shall be determined on the basis of the lowest level input that is significant to the
fair value measurement in its entirety.

The different levels have been defined as follows:
- Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities;
- Level 2: Inputs other than quoted prices included in Level 1 that are observable for the
  asset or liability, either directly (ie as prices) or indirectly (ie derived from prices); and
- Level 3: Inputs for assets or liabilities that are not based on observable market data
  (unobservable input).

Investment properties and derivative financial instruments have been categorised as
Level 3 and 2, respectively. There has been no material change between levels during
the year.

Fair value measurements for investment properties categorised as Level 3:

                                                                                                  R'000
Balance at beginning of year                                                                  6 882 691
Acquisitions/additions                                                                          179 171
Transferred to non-current assets held-for-sale                                                (152 968)
Tenant installation/lease commission                                                              2 209
Balance at end of year                                                                        6 911 103

Valuation technique and significant unobservable inputs:
Investment property - Level 3

                                                                   Inter-relationship between
                                    Significant                    key unobservable inputs
Valuation technique                 unobservable inputs            and fair value measurement
Discounted cash flows:              - Expected rental growth       The estimated fair value
The valuation model considers         varies between 6% and 8%     would increase/(decrease) if:
the present value of net cash         per annum.                   - expected rentals were
flows to be generated from          - Risk-adjusted discount         higher/(lower); and
the property taking into account      rates vary between 14%       - Risk-adjusted discount rates
expected rental and                   and 16%.                       and capitalisation rates were
capitalisation rates. The                                            lower/(higher).
expected net cash flows are                                      
discounted using risk-adjusted                                   
discount rates. Among other                                      
factors, the discount rate                                       
estimation considers the                                         
quality of the property, its                                     
location and lease terms.                                        
                                                                 
Capitalisation model:               - Capitalisation rates vary    The estimated fair value would
Establishes the market-related        between 7.5% to 13.10%.      increase/(decrease) if:
rental income for the property                                     - Capitalisation rates
and applies an appropriate                                           were lower/(higher).
capitalisation rate.

Derivative financial instruments - Level 2
Interest rate swaps

Valuation technique                                                Significant unobservable inputs
Valued by discounting the future cash flows using the              - Interest rate swap curve.
South African swap curve at the dates when the cash
flows take place.

Business combinations
During the six months ended 28 February 2018, the group acquired 100% of the investment
units in its asset manager DAMT, for R150 million. This acquisition was in terms of the
group's agreement to internalise its asset management.

The acquisition was funded by the allotment and issue of 9 931 631 Dipula B-shares for the
equivalent of R100 299 995.84 issued at a 30-day volume weighted average price per
Dipula B-share and a cash payment of R49 700 003.65.

The practical effective date of the acquisition was 1 September 2017.

The acquisition of 100% of the investment units in DAMT is accounted for in terms of
IFRS 3: Business Combinations. Going forward, the asset management internalisation will
better align the interests of management with that of the group's shareholders and with
global best practice.

                                                                                                   DAMT
                                                                                              September
                                                                                                   2017
                                                                                                  R'000
The assets and liabilities arising from the acquisition are as follows:
Property, plant and equipment                                                                        74
Trade and other receivables                                                                         852
Cash and cash equivalents                                                                         4 861
Assets                                                                                            5 787
Trade and other payables                                                                          5 787
Liabilities                                                                                       5 787
Fair value of assets and liabilities acquired                                                         -
Total purchase consideration                                                                    150 000
Intangible asset                                                                                150 000
Transaction costs of R2.432 million were incurred on the
acquisition and have been reflected in the statement of
comprehensive income.
Purchase consideration                                                                          150 000
Add: Acquisition-related costs                                                                    2 432
Less: Settled in Dipula B-shares                                                               (100 300)
Purchase consideration settled in cash                                                           52 132
Cash and cash equivalents in trust acquired                                                      (4 861)
Net cash outflow on acquisition                                                                  47 271
Revenue of DAMT included in the statement of comprehensive income
and eliminated on consolidation - September 2017 to February 2018                                13 423
Profit of DAMT included in the statement of comprehensive income and
eliminated on consolidation - September 2017 to February 2018                                     6 128


Corporate information
Directors
ZJ Matlala* (Chairperson)
IS Petersen (CEO)
BH Azizollahoff*#
R Asmal (FD)
E Links*
Y Waja*
SA Halliday*
*Independent non-executive
#British

Registered office and business address
Block B
Dunkeld Park
6 North Road
Dunkeld West
Johannesburg
2196

Independent auditors
Deloitte & Touche
Practice number: 902276
Registered Auditors
Deloitte Place
The Woodlands
20 Woodlands Drive
Woodmead
Sandton

Transfer secretaries
Link Market Services South Africa Proprietary Limited
(Registration number 2000/007239/07)
13th Floor
19 Ameshoff Street
Braamfontein
2001

Bankers
The Standard Bank of South Africa Limited
(Registration number 1962/000738/06)
3rd Floor
East Wing
30 Baker Street
Rosebank
2196

Corporate advisor and sponsor
Java Capital
6A Sandown Valley Crescent
Sandton
2196

Company secretary
CIS Company Secretaries Proprietary Limited
(Registration number 2006/024994/07)
Rosebank Towers
15 Biermann Avenue
Rosebank
2196

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