South Africa has a hidden shopping mall giant 

Dipula Income Fund has grown strongly to become one of the largest shopping mall operators in South Africa. Its R10 billion property portfolio is focused on townships and rural centres. 

The company was formed when Redefine joined forces with Dijalo Property Services in 2006, creating a small-cap Real Estate Investment Trust (REIT). 

Over time, Dipula has reinvented itself as a property developer that focuses on convenience retail centres across urban, rural, and township areas in South Africa. 

Its portfolio is currently valued at R9.8 billion, and it has 166 properties across the country, with a significant portion located in Gauteng. 

The company also has exposure to offices and industrial properties and a growing presence in the South African residential market. 

Tsholofelo Maretela, an analyst at Camissa Asset Management, explained that Dipula has rapidly grown in the past decade through acquisitions. 

These acquisitions have been coupled with strategic disposals to focus the company on its core assets of convenience shopping centres. 

This emphasises a strategic focus on improving the quality and average value of its property assets, which have increased from R13.6 million to R56 million over the past ten years.

Additionally, gross rentals across the portfolio have grown at an annual rate of 8% over the last decade, highlighting the quality of Dipula’s assets. 

Dipula has focused immensely on optimising its tenant mix to suit regional needs. Most of its shopping centres service the needs of a single community. 

This also allows the company to tailor its management strategies to address local needs. For example, Gezina Galleries in Pretoria has been refocused on serving the younger government-employed demographic. 

Dipula did this by introducing more apparel stores, beauty salons, and fast-food outlets, capturing the disposable income of these government employees at its convenience centre. 

This has resulted in the value of the shopping centre soaring over the past decade and has enabled Dipula to drive strong rental growth. 

When Dipula was listed on the JSE in 2011, their portfolio of retail property assets contained a higher percentage of smaller (less than 2,000 m²) single-tenant facilities facing various individual operational challenges – shown by high vacancy rates. 

Dipula has since shifted focus to reduce exposure to these types of properties and invest in more sustainably higher-yielding assets like their community centres. 

These typically house between five and 25 tenants – fostering a more diversified tenant mix.

Dipula Income Fund growth

Dipula has grown relatively unimpeded over the past decade due to its focus on underserved areas, such as townships like Soweto and Hammanskraal. 

Maretela said residents in these areas typically spend a large portion of their monthly income on transport, meaning that convenience is key.  

Dipula focuses on building its malls within communities, making them easy to access and tailored to the needs of the people who live there. 

In effect, the company’s convenience retail centres monopolise that community’s spending on essential goods by taking transport out of the equation. 

Its malls have also become extremely attractive for retailers because of their accessible locations in densely populated areas. 

They act as a hub for regular, predictable spending, with reduced transportation costs for staff and consumers. 

Much of the areas in which Dipula operates have people who receive state-income subsidies, ensuring a resilient demand base for its tenants. 

The functional format of these community malls, prioritising convenience and access, also translates into lower overall capital expenditure and maintenance costs than those of larger, more design-centric shopping malls.

An anchor tenant (usually a grocer) draws consistent foot traffic, further supported by a well-considered tenant mix that typically includes ATMs, fast food outlets and essential services like clinics, beauty salons and internet cafés. 

This creates strong trading density, reflecting the mall’s ability to generate revenue. 

Unlike larger malls that often feature underperforming department stores, Dipula’s community malls have shown turnover growth rates that surpass those of regional malls, highlighting a sustainable business model that benefits tenants and the surrounding community.

Crucially, eCommerce penetration in the rural and urban areas in which Dipula operates is very low and unlikely to expand in the coming years, making it a relatively low threat to the company, Maretela said. 

The rest of the portfolio

Outside of convenience retail, the portfolio is also fairly strong, with much of Dipula’s office properties occupied by government tenants. 

A significant number of these leases were recently adjusted downwards to reflect current market rates, with extended longer duration terms. 

While longer-duration contracts ensure greater income stability, this has resulted in lower rental income compared to the preceding short-term, month-to-month leases. 

The expectation is, however, that future rental income will grow steadily from this base, given the extended lease terms. 

Notably, government tenants represent a stable occupancy profile with low turnover rates because of the long-term nature of their employment commitments.

In the industrial sector, the combination of strong demand for space and limited supply has reinforced market growth. 

Dipula’s industrial properties make up 14% of the portfolio, with notable performance in their mid-sized properties – evidenced by low vacancy rates (around 4%) and steady rental growth. 

Over the past decade, Dipula’s property investments have consistently delivered an average return on invested capital, surpassing most industry peers, Maretela said.  

Furthermore, with a loan-to-value ratio of 35% – well below industry norms – Dipula’s conservative use of debt means financial resilience, strengthening its platform for growth. 

As interest rates are reduced by the Reserve Bank, property companies stand to benefit from a less restrictive interest rate environment. 

Dipula’s recent debt syndication and prudent financial strategy demonstrate proactive debt management capabilities, allowing the company to capitalise on improved cash flows in this more favourable climate.

Additionally, its R200 million portfolio revamps, including R50 million investment in solar projects and non-core asset disposal efforts, highlight a commitment to operational efficiency and sustainable growth.