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DIPULA INCOME FUND LIMITED - Reviewed provisional condensed consolidated financial results for the year ended 31 August 2018

Release Date: 19/11/2018 10:00
Code(s): DIA DIB     PDF:  
Wrap Text
Reviewed provisional condensed consolidated financial results for the year ended 31 August 2018

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

Reviewed provisional condensed consolidated financial results for the year ended 31 August 2018

Highlights
Property portfolio increase to R8.6 billion up 25%
Non-core disposals of R290 million
Vacancies down to 7.5%
Reduction in office vacancies of 51%
Capital raise of R790 million (32% oversubscribed)
Distributable earnings R504.2 million up 17.8%
Market capitalisation R4.8 billion up 9%
A-share dividend 105.80560 cents per share up 4.45%
B-share dividend 99.67872 cents per share up 4.38%

Commentary
Profile
Dipula is an internally managed, South African focused Real Estate Investment Trust ("REIT") that
owns a diversified portfolio, primarily comprising retail, office and industrial properties located
across all provinces in South Africa. The majority are located in Gauteng.

Dipula is listed on the JSE Limited ("JSE") with a combined market capitalisation of R4.8 billion
and assets valued at R8.6 billion. Dipula has two classes of shares in issue that trade under the
codes DIA and DIB. DIA shares are entitled to a preferred income growth of the lower of 5% or
CPI, while DIB shares receive the remaining net distributable income.

Dipula's strategy is to own a diversified portfolio with a retail bias and good tenant 
covenants.

Financial results
During the year ended 31 August 2018 ("the year") distributable earnings increased 17.8% to
R504.2 million (2017: R428.2 million), amounting to a combined dividend per share of 205.48432
cents which represents a 4.41% (2017: 5.8%) growth in dividend per share, in line with market 
guidance.

The dividend per A-share increased by 4.45% year-on-year to 105.80560 cents per share (2017:
101.29784 cents) and is in accordance with the A-share dividend policy. The dividend per
B-share increased by 4.38% year-on-year to 99.67872 cents per share (2017: 95.49384 cents).

Efficient management resulted in the property cost-to-income ratio remaining in line 
with the prior year at 33.7% (2017: 33.6%).

Dipula's net asset value per share was R10.03 (2017: R10.13), 0.9% lower than the prior year due
to write off of goodwill.

A total of R1.5 billion of property acquisitions had transferred by year-end. This included portfolios
acquired from Setso Holdco Proprietary Limited ("Setso") and Rec Group Property Trust
("RecTrust") amounting to R1.25 billion which became effective in June 2018. In order to fund
these acquisitions the company raised equity of R790 million in a 32% oversubscribed
accelerated book-build.

Property portfolio
At year-end Dipula's property portfolio consisted of 203 properties valued at R8.6 billion 
with a total gross lettable area ("GLA") of 932 492m2 (2017: 174 properties; R6.9 billion 
value; 757 363m2 GLA).

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 transactions
became effective on 26 June 2018.

During the period under review, Dipula acquired sections in Firestation Rosebank, 
Harding Shopping Centre (50% undivided interest) and 14 Kramer (Kramerville) for 
a purchase price of R229.50 million at an aggregate forward yield of 9.7%.

Sectoral and geographic profile
The sector and geographic breakdown of Dipula's portfolio at 31 August 2018 is set out below:

Sectoral profile by GLA (%)
Retail 50.0%
Office 14.0%
Industrial 36.0%

Sectoral split by gross rental income (%)
Retail 66.4%
Office 19.0%
Industrial 14.6%

Geographic profile by GLA (%)
Gauteng 57.1%
Eastern Cape 11.4%
Limpopo 10.1%
KwaZulu-Natal 9.5%
North West 3.4%
Mpumalanga 3.2%
Western Cape 2.7%
Free State 2.4%
Northern Cape 0.2%

Geographic split by gross rental income (%)
Gauteng 63.6%
Eastern Cape 8.0%
Limpopo 9.6%
KwaZulu-Natal 8.0%
North West 3.6%
Mpumalanga 2.5%
Western Cape 2.6%
Free State 1.9%
Northern Cape 0.2%

Dipula lease expiry profile

                                                                                   Average
                                                                                   monthly
                                                                                    rental
                                                                              GLA   income
                                                                           (000m2)     (Rm)
Vacant                                                                         68
FY2019                                                                        204       20
FY2020                                                                        102       10
FY2021                                                                        119       13
FY2022                                                                         88        8
>FY2022                                                                       333       22

Vacancies
Vacancies reduced by 12% to 7.5% (2017: 8.5%) due mainly to a 51% reduction in office 
vacancies. The breakdown of vacancies by sector is as follows: Retail 8.1% 
(2017: 7.1%), Offices 9.2% (2017: 18.7%) and Industrial 5.8% (2017: 5.4%).

Disposals
During the year seven properties were sold for R290 million at an average yield of 9.2%. The
largest being the 30% undivided interest in Eyethu Orange Farm Mall.

Refurbishments and developments
A total of R195 million was spent on capital expenditure including redevelopments during 
the year. The conversion of Broadwalk Place and Finance House from office to residential 
is expected to be completed in October and December 2018 respectively.

The company plans to spend R250 million on refurbishments over the next 18 months.

Cost to income ratios

                                                                     31 August   31 August
                                                                          2018        2017
Property cost to income (gross basis)                                    33.7%       33.6%
Property cost to income (net basis)                                      18.6%       17.8%
Total cost to income (gross basis)                                       35.9%       36.6%
Total cost to income (net basis)                                         21.4%       21.6%

Funding
At 31 August 2018, Dipula's all-in blended rate of interest was 9.25% (2017: 9.17%). The
company has total debt of R3.5 billion. The weighted average debt expiry is 2.7 years and hedge expiry is 2.1 years.
87% of the interest on the debt had been fixed at the end of the year (2017: 90%).

Debt maturity and hedging profile

                                  Facility             Fixed/swap             Floating
Financial year-end            R'000        %          R'000         %      R'000        %
FY2019                      975 195     27.7      1 148 601      32.6   (173 406)    (4.9)
FY2020                      650 391     18.5        756 250      21.5   (105 859)    (3.0)
FY2021                      845 067     24.0        450 000      12.8    395 067     11.2
FY2022                      633 238     18.0        400 000      11.4    233 238      6.6
FY2023                      420 000     11.8        300 000       8.4    120 000      3.4
                          3 523 891    100.0      3 054 851      86.7    469 040     13.3

Management company ("Manco") internalisation
Effective 1 September 2017, the internalisation of the Manco was finalised through the acquisition
of 100% of the beneficial interest in the Dipula Asset Management Trust, for an aggregate
acquisition cost of R150 million. The internalisation is consistent with industry best practice and
more closely aligns the interests of the company's management with investors.

Changes to the board of directors
Mr NS Gumede resigned as a director effective from 22 December 2017. The directors of Dipula
would like to thank Saul for his dedication and valuable contribution to the company and wish him
well in his future endeavours.

Prospects
The board remains cautious regarding trading conditions in the near term. The group remains
focused on integrating acquisitions and extracting maximum value from the existing portfolio.
Despite the negative sentiment, Dipula has a "pipeline" of projects that will add significant value
in the long term.

Notwithstanding flat growth in dividends per share for the next year due to various initiatives 
undertaken in the current period which impact distributions in the year ahead but which have 
set a solid foundation for the medium to long term, the board is confident of delivering 7% 
growth in dividends per share for the year ending 31 August 2020.  

This forecast 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
with no further property acquisitions or disposals assumed. This forecast has not been reviewed
or reported on by the group's independent external auditors.

Payment of dividend
The board has approved and notice is hereby given of the final gross dividend (dividend
number 15) for the period 1 March 2018 to 31 August 2018 of 53.13072 cents per A-share and
55.60278 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, 4 December 2018
Shares trade ex dividend                                        Wednesday, 5 December 2018
Record date                                                        Friday, 7 December 2018
Payment date                                                      Monday, 10 December 2018

Share certificates may not be dematerialised or rematerialised between Wednesday, 5 December
2018 and Friday, 7 December 2018, both days inclusive.

The dividend will be transferred to dematerialised shareholders' CSDP accounts/broker accounts
on Monday, 10 December 2018. Certificated shareholders' dividend payments will be paid to
certificated shareholders' bank accounts on or about Monday, 10 December 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

19 November 2018

Condensed consolidated statement of financial position

                                                                    Reviewed       Audited
                                                                  year ended    year ended
                                                                   31 August     31 August
                                                                        2018          2017
                                                                       R'000         R'000

ASSETS                                                                        
Non-current assets                                                 8 944 839     6 989 754
Investment property                                                8 607 859     6 882 691
Fair value of property portfolio                                   8 427 249     6 727 095
Straight-line rental income accrual                                  180 610       155 596
Goodwill                                                                   -        13 327
Intangible assets                                                    112 500             -
Property, plant and equipment                                          3 886         1 267
Derivative financial assets                                           26 315             -
Loans receivable                                                     194 279        92 469
Current assets                                                       298 532       374 260
Trade and other receivables                                          208 266       153 817
Loans receivable                                                           -        89 936
Derivative financial assets                                            1 202           281
Cash and cash equivalents                                             89 064       130 226
Non-current assets held for sale                                              
Investment property held for sale                                     30 013        42 942
Total assets                                                       9 273 384     7 406 956
EQUITY AND LIABILITIES                                                        
Shareholders' interest                                             5 308 816     4 424 473
Stated capital                                                     4 243 513     3 346 742
Fair value reserve                                                 1 037 803       998 793
Retained income                                                       27 500        78 938
Non-controlling interests                                            155 796             -
Non-current liabilities                                            2 602 100     2 306 139
Interest-bearing liabilities                                       2 546 926     2 271 057
Non-interest-bearing liabilities                                      51 124             -
Derivative financial liabilities                                       4 050        35 082
Current liabilities                                                1 206 672       676 344
Interest-bearing liabilities                                         974 225       551 008
Bank overdraft                                                        20 048             -
Trade and other payables                                             209 648       125 336
Derivative financial liabilities                                       2 751             -
Total equity and liabilities                                       9 273 384     7 406 956

Condensed consolidated statement of comprehensive income

                                                                    Reviewed       Audited
                                                                   31 August     31 August
                                                                        2018          2017
                                                                       R'000         R'000
Revenue                                                            1 141 348     1 069 660
Contractual rental income                                            860 027       825 555
Municipal and property recoveries                                    217 557       226 962
Other income                                                          38 750             -
Straight-line rental income accrual                                   25 014        17 143
Property-related expenses                                           (362 824)     (353 463)
Net property income                                                  778 524       716 197
Administration and corporate costs                                   (24 470)      (31 887)
Net operating profit                                                 754 054       684 310
Net finance cost                                                    (231 605)     (243 632)
Finance income                                                        42 103        20 606
Finance cost                                                        (273 708)     (264 238)
Net profit after finance cost                                        522 449       440 678
Transaction costs on business                                                  
combination                                                           (2 543)            -
Loss on sale of property, plant                                                
and equipment                                                           (153)            -
Amortisation of intangible assets                                    (37 500)            -
Goodwill impaired                                                    (13 327)      (35 155)
Fair value adjustments                                                13 996         1 352
Investment properties and                                                      
properties held for sale                                             (16 507)       57 512
Straight-line rental income                                                    
accrual                                                              (25 014)      (17 143)
Interest rate swaps                                                   55 517       (39 017)
Profit before taxation                                               482 922       406 875
Taxation                                                                   -             -
Profit for the year after taxation                                   482 922       406 875
Other comprehensive income                                                 -             -
Total comprehensive income                                                     
for the year                                                         482 922       406 875
Total profit and comprehensive                                                 
income for the year attributable to:                                           
Shareholders of the company                                          471 540       387 922
Non-controlling interests                                             11 382        18 953
                                                                     482 922       406 875
Basic and diluted earnings per A-share (cents)                         99.09         91.59
Basic and diluted earnings per B-share (cents)                         99.09         91.59

Earnings, headline earnings and dividends

                                                                    Reviewed       Audited
                                                                   31 August     31 August
                                                                        2018          2017
                                                                       R'000         R'000
Reconciliation between profit, earnings                       
and headline earnings                                         
Earnings                                                             471 540       387 922
Adjustments:                                                          96 595         7 372
Amortisation of intangible                                    
asset/goodwill impaired                                               50 827        35 155
Non-controlling interest portion                              
of fair value adjustment                                               4 247        12 586
Fair value - investment properties                            
and held for sale                                                     16 507       (57 512)
Fair value - straight-line rental income                              25 014        17 143
Headline earnings                                                    568 135       395 294
Total number of shares in issue*                                 529 282 638   436 932 798
Number of A-shares in issue                                      264 641 319   218 466 344
Number of B-shares in issue                                      264 641 319   218 466 454
Total weighted average number                                 
shares in issue*                                                 475 853 506   423 543 004
Weighted average number of                                    
A-shares in issue*                                               236 062 841   211 771 488
Weighted average number of                                    
B-shares in issue*                                               239 790 665   211 771 516
Headline earnings per A-share (cents)                                 119.39         93.33
Headline earnings per B-share (cents)                                 119.39         93.33
Dividend per A-share                                               105.80560     101.29784
Interim                                                             52.67488      50.64892
Final                                                               53.13072      50.64892
Dividend per B-share                                                99.67872      95.49834
Interim                                                             44.07594      41.83993
Final                                                               55.60278      53.65841
Combined share                                                     205.48432     196.79618
Interim                                                             96.75082      92.48885
Final                                                              108.73350     104.30733
Net asset value per                                                             
A-share (cents)                                                     1 003.02      1 012.62
Net asset value per                                           
B-share (cents)                                                     1 003.02      1 012.62
Loan to value ("LTV")                                                  40.6%         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 year.

The company does not have any dilutionary instruments in issue.

Condensed consolidated statement 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 year                                                 -             -       387 922
Acquisition of non-controlling                                         
interests                                                    -             -         8 310
Shares issued net of share                                             
issue expenses                                         238 811             -             -
Dividends declared                                           -             -      (404 984)
Transfer to fair value reserve                                    
- investment properties                                      -        44 926       (44 926)
Transfer from fair value                                          
reserve - interest rate swaps                                -       (39 017)       39 017
Balance at 31 August 2017                                         
(audited)                                            3 346 742       998 793        78 938
Total comprehensive income                                        
for the year                                                 -             -       471 540
Equity contributed by                                                  
non-controlling interests                                    -             -             -
Shares issued net of share                                             
issue expenses                                         896 771             -             -
Dividends declared                                           -             -      (483 968)
Transfer from fair value                                          
reserve - investment properties                              -       (16 507)       16 507
Transfer to fair value reserve                                    
- interest rate swaps                                        -        55 517       (55 517)
Balance at 31 August 2018                                         
(reviewed)                                           4 243 513     1 037 803        27 500

                                                                        Non-
                                                                 controlling         Total
                                                                   interests        equity
                                                                       R'000         R'000
Balance at 31 August 2016                                       
(audited)                                                            131 190     4 325 604
Total comprehensive income                                      
for the year                                                          18 953       406 875
Acquisition of non-controlling                                  
interests                                                           (141 943)     (133 633)
Shares issued net of share                                      
issue expenses                                                             -       238 811
Dividends declared                                                    (8 200)     (413 184)
Transfer to fair value reserve                                  
- investment properties                                                    -             -
Transfer from fair value                                                  
reserve - interest rate swaps                                              -             -
Balance at 31 August 2017                                                 
(audited)                                                                  -     4 424 473
Total comprehensive income                                      
for the year                                                          11 382       482 922
Equity contributed by                                           
non-controlling interests                                            151 549       151 549
Shares issued net of share                                      
issue expenses                                                             -       896 771
Dividends declared                                                    (7 135)     (491 103)
Transfer from fair value                                        
reserve - investment properties                                            -             -
Transfer to fair value reserve                                            
- interest rate swaps                                                      -             -
Balance at 31 August 2018                                       
(reviewed)                                                           155 796     5 464 612

Condensed consolidated statement of cash flow

                                                                    Reviewed       Audited
                                                                   31 August     31 August
                                                                        2018          2017
                                                                       R'000         R'000
Cash flows from operating activities                             
Cash generated from operations                                       713 649       691 395
Net finance cost                                                    (237 337)     (245 228)
Dividends paid                                                      (491 103)     (413 184)
Net cash (utilised in)/generated                                 
from operating activities                                            (14 791)       32 983
Cash flows from investing activities                             
Acquisition of investment properties                             
and capital expenditure                                           (1 982 997)     (110 424)
Acquisition of business combination                                  (47 382)            -
Contribution by/(acquisition of)                                 
non-controlling interests                                            151 549      (133 633)
Net acquisition of property, plant                               
and equipment                                                         (3 344)         (460)
Proceeds on disposal of investment                               
properties                                                           201 416       111 642
Repayment of loans advanced                                           89 936             -
Net cash utilised in investing                                   
activities                                                        (1 590 822)     (132 875)
Cash flows from financing activities                             
Issue of shares net of share issue                               
expenses                                                             796 471       238 811
Non-interest-bearing liabilities                                 
raised                                                                51 124             -
Interest-bearing liabilities raised/                             
(repaid)                                                             696 808       (67 425)
Net cash generated from financing                                
activities                                                         1 544 403       171 386
Net (decrease)/increase in cash and                                
cash equivalents                                                     (61 210)       71 494
Cash and cash equivalents at the                                 
beginning of the year                                                130 226        58 732
Cash and cash equivalents at the                                 
end of the year                                                       69 016       130 226

Condensed consolidated segmental information

                                                        Retail       Offices    Industrial
                                                         R'000         R'000         R'000
Year to 31 August 2018 (reviewed)                                             
Extracts from the statement of                                                
comprehensive income                                                          
Contractual rental income and                                                 
recoveries (excluding straight-line)                   734 157       201 269       142 158
Other income                                             8 358        24 392         6 000
Property-related expenses                             (250 529)      (56 972)      (36 094)
Net property income                                    491 986       168 689       112 064
Extracts from the statement                                                   
of financial position                                                         
Investment property at fair value                    5 423 068     1 760 137     1 394 504
Investment property held for sale                       22 050         6 475             -
Total                                                5 445 118     1 766 612     1 394 504
Year to 31 August 2017 (audited)                                              
Extracts from the statement                                                   
of comprehensive income                                                       
Contractual rental income and                                                 
recoveries (excluding straight-line)                   737 589       177 611       137 317
Property-related expenses                             (259 152)      (57 808)      (36 488)
Net property income                                    478 437       119 803       100 829
Extracts from the statement                                                   
of financial position                                                         
Investment property at fair value                    4 633 166     1 221 630     1 001 315
Investment property held for sale                       40 500             -             -
Total                                                4 673 666     1 221 630     1 001 315

                                                          Land     Corporate         Total
                                                         R'000         R'000         R'000
Year to 31 August 2018 (reviewed)                        
Extracts from the statement of                           
comprehensive income                                     
Contractual rental income and                            
recoveries (excluding straight-line)                         -             -     1 077 584
Other income                                                 -             -        38 750
Property-related expenses                                  (21)      (19 208)     (362 824)
Net property income                                        (21)      (19 208)      753 510
Extracts from the statement                               
of financial position                                     
Investment property at fair value                       30 150             -     8 607 859
Investment property held for sale                        1 488             -        30 013
Total                                                   31 638             -     8 637 872
Year to 31 August 2017 (audited)                          
Extracts from the statement                               
of comprehensive income                                   
Contractual rental income and                             
recoveries (excluding straight-line)                         -             -     1 052 517
Property-related expenses                                  (15)            -      (353 463)
Net property income                                        (15)            -       699 054
Extracts from the statement                                              
of financial position                                                    
Investment property at fair value                       26 580             -     6 882 691
Investment property held for sale                        2 442             -        42 942
Total                                                   29 022             -     6 925 633

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

                                                                    Reviewed       Audited
                                                                   31 August     31 August
                                                                        2018          2017
                                                                       R'000         R'000
Reconciliation of reportable segment                           
revenue and profit                                             
Revenue                                                                        
Total revenue for reportable segments                              1 116 334     1 052 517
Straight-line rental income accrual                                   25 014        17 143
Consolidated revenue                                               1 141 348     1 069 660
Profit                                                         
Total profit for reportable segments                                 753 510       699 054
Straight-line rental income accrual                                   25 014        17 143
Administration and corporate costs                                   (24 470)      (31 887)
Net finance cost                                                    (231 605)     (243 632)
Transaction costs on business                                  
combination                                                           (2 543)            -
Fair value adjustments                                                13 996         1 352
Loss on sale of property, plant                                
and equipment                                                           (153)            -
Amortisation of intangible assets/                             
goodwill impaired                                                    (50 827)      (35 155)
Profit before taxation                                               482 922       406 875
Reconciliation of profit for the year                          
to distributable earnings                                      
Profit attributable to shareholders                            
of the company                                                       471 540       387 922
Fair value - investment properties                             
revaluation                                                           16 507       (57 512)
Fair value - straight-line rental income                              25 014        17 143
Fair value - interest rate swaps                                     (55 517)       39 017
NCI portion of fair value adjustment                                   4 247        12 586
Antecedent interest                                                   13 881        10 991
Transaction costs on business                                  
combination                                                            2 543             -
Loss on sale of property, plant                                
and equipment                                                            153             -
Amortisation of intangible assets/                             
goodwill impaired                                                     50 827        35 155
Straight-line rental income accrual                                  (25 014)      (17 143)
Distributable earnings and                                     
dividends declared                                                   504 181       428 159
Distribution statement                                         
Revenue                                                            1 116 334     1 052 517
Contractual rental income                                            860 027       825 555
Recoveries and other income                                          256 307       226 962
Property-related expenses                                           (362 824)     (353 463)
Net property income                                                  753 510       699 054
Administration and corporate                                   
costs                                                                (24 470)      (31 887)
Net operating profit                                                 729 040       667 167
Net finance cost                                                    (231 605)     (243 632)
Antecedent dividend                                                   13 881        10 991
Non-controlling interests                                             (7 135)       (6 367)
Distribution                                                         504 181       428 159

Basis of preparation and accounting policies
These results were prepared by the Financial Director, Mr R Asmal and the Group Financial
Manager, Mrs N Kotze CA(SA).

The reviewed provisional condensed consolidated financial results for the year ended
31 August 2018 have been prepared in accordance with the requirements of the JSE Limited
Listings Requirements and the requirements of the Companies Act of South Africa. The JSE
Listings Requirements require provisional consolidated financial reports to be prepared in
accordance with the framework concepts and the measurement and recognition requirements
of International Financial Reporting Standards ("IFRS") and the SAICA Financial Reporting
Guides as issued by the Accounting Practices Committee and the Financial Pronouncements
as issued by the Financial Reporting Standards Council and to contain the information required
by IAS 34: Interim Financial Reporting. The accounting policies and methods of computations
applied are consistent with those applied in the previous year's consolidated annual financial
statements.

Auditor's report
The condensed consolidated financial statements for the year ended 31 August 2018 have been
reviewed by Deloitte & Touche, and their unmodified review conclusion report is available for
inspection at the company's registered office.

The auditor's review conclusion report does not necessarily report on all of the information
contained in these provisional condensed financial results.

Shareholders are therefore advised that in order to obtain a full understanding of the nature of
the auditor's engagement they should obtain a copy of the auditor's review conclusion report
together with the accompanying financial information from the issuer's registered office. The
directors take full responsibility for the preparation of these provisional condensed consolidated
financial results and for ensuring that this financial information has been correctly extracted
from the underlying financial statements.

Measurement of fair value
Investment property
On an annual basis, properties above R12 million (at the last valuation date) and one-third of
properties below R12 million are valued by independent registered valuers.

The remaining two-thirds are valued internally by directors.

The properties are valued using either the discounted cash flow or capitalisation methods by
the internal 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 7.8% and 13.25%. 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. 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 or indirectly;
- Level 3: Inputs for assets or liabilities that are not based on observable market data.

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 and there
were no transfers between levels.

                                                                     Reviewed      Audited
                                                                    31 August    31 August
                                                                         2018         2017
                                                                        R'000        R'000
Fair value measurements for investment                                          
properties categorised as Level 3:                                              
Balance at the beginning of the year                                6 882 691    6 963 015
Acquisitions/additions                                              2 014 350      101 151
Transferred to non-current assets held for                                      
sale/disposals                                                       (256 748)    (306 648)
Tenant installation/lease commission                                    2 781        2 237
Change in fair value and expenses incurred                       
in properties sold                                                    (35 215)     122 455
Depreciation                                                                -          481
Balance at the end of the year                                      8 607 859    6 882 691

Valuation technique and significant unobservable inputs
Investment properties
                                                      Inter-relationship
                                                      between key
                                                      unobservable inputs
                            Significant               and fair value
Valuation technique         unobservable inputs       measurement
Discounted cash flows:      - Expected rental         The estimated fair
The valuation model           growth varies between   value would increase/
considers the present         6% and 8% per           (decrease) if:
value of net cash flows       annum;                  - expected rentals
to be generated from        - Risk-adjusted             were higher/(lower);
the property taking into      discount rates vary       and
account expected              between 14% and         - risk-adjusted
rental and                    16.5%.                    discount rates and
capitalisation rates.                                   capitalisation rates
The expected net cash                                   were lower/(higher).
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
Establishes the               vary between 7.8%
market-related rental         to 13.25%.
income for the property
and applies an
appropriate
capitalisation rate.

Derivative financial instruments - Level 2:
Interest rate swaps
Valuation technique                    Significant unobservable inputs
Valued by discounting the future       - Interest rate swap curve
cash flows using the South African
swap curve at the dates when the
cash flows take place.

The fair value of other financial instruments approximate carrying values.

Subsequent events
Declaration of dividend after reporting date
The declaration of dividend occurred after the end of the reporting period, resulting in a
non-adjusting event that is not recognised in the financial statements.

Business Combination
During the year ended 31 August 2018, the group acquired 100% of the beneficial interest in its
asset management entity, Dipula Asset Management Trust ("DAMT") for R150 million. This
acquisition was in terms of the group's agreement to internalise its asset management and
obtain total control of DAMT.

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.

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

The acquisition of 100% of the beneficial interest in DAMT is accounted for in terms of IFRS 3:
Business Combinations. The asset management internalisation will better align the interests of
management with that of the group's shareholders.

                                                                                      DAMT
                                                                                 31 August
                                                                                      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
Difference recognised as - intangible asset                                        150 000
* Carrying value of trade and other                                         
  receivables approximates their fair                                       
  value, with all gross contractual                                         
  cash flows collectable.                                                   
Transaction costs of R2.54 million were                                     
incurred on the acquisition and have                                        
been reflected in the statement of                                          
comprehensive income.                                                       
Purchase consideration                                                             150 000
Add: Acquisition-related costs                                                       2 543
Less: Settled in Dipula "B" shares                                                (100 300)
Purchase consideration settled                                              
in cash                                                                             52 243
Cash and cash equivalents in                                                
trust acquired                                                                      (4 861)
Net cash outflow on acquisition                                                     47 382
Revenue of DAMT included in the                                             
statement of comprehensive income                                           
and eliminated on consolidation -                                           
1 September 2017 to 31 August 2018                                                  28 317
Profit of DAMT included in the statement                                    
of comprehensive income and eliminated                                      
on consolidation - 1 September 2017                                         
to 31 August 2018                                                                   12 118

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
12th Floor
Firestation Rosebank
16 Baker Street
Rosebank
2196

Independent auditors
Deloitte & Touche
Practice number: 902276

Registered Auditors
Deloitte Place
20 Woodlands Drive
Woodmead
Sandton
2052

Transfer secretaries
Link Market Services South Africa Proprietary Limited
(Registration number 2000/007239/07)
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

www.dipula.co.za












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