The listing will be preceded by a capital raising by way of private placement. The private placement of 98.3 million Dipula Income Fund A-linked units at R8.58 per A-linked unit and 98.3 million B-linked units at R5.53 per B-linked unit should raise a total of approximately R1.4 billion if fully subscribed.

The opening of the private placement is imminent, conditional on CIPC approval, with closing expected of the placement on Thursday, 11 August 2011. The offer is partially underwritten by Redefine Properties Limited to the amount of R860 million.

“Dipula is a high-yield income fund which offers investors an A and B unit structure. It owns a diversified property portfolio, located throughout South Africa, with a retail bias to low income households,” says CEO Izak Petersen.

“The private placement and listing will enable acquisitive growth by Dipula. The fund has appropriate levels of gearing and the asset management will be undertaken by a predominantly black owned and managed asset manager.”

As part of the listing Dipula will acquire some R700 million in investment properties from two vendors.

Dipula was established through the merger of Dipula Property Fund and Mergence Africa Property Fund. Both parties have a proven record of entrepreneurial flair, were born out of owner-managed companies and enjoy good established relationships in the property industry and the public sector. Leading JSE listed property company Redefine Properties owns a stake in each.

Dipula has exceptional BEE credentials, with a strong management team and board of directors. Mergence and Dipula Property Fund kingpins Petersen and Saul Gumede will be playing key roles in Dipula, providing favourable continuity of management.

The Dipula portfolio consists of approximately 437,000sqm with an average value per square metre of R4,829 and occupancy  levels of approximately 92%. The existing portfolio boasts an average escalation rate significantly in excess of current CPI at more than 8%.

69% of Dipula’s property portfolio is located in the commercial hub of Gauteng. It owns property assets in all nine SA provinces. Some 52% of Dipula’s portfolio by rental revenue is retail, with the rest split 16% industrial and 32% offices.

Dipula’s retail portfolio provides superior exposure to low income households, which are expected to outperform higher income households in terms of growth in the short- to medium-term. Industrial properties are located in well-established industrial nodes with good access to main roads and electrical infrastructure. Dipula’s office properties are situated in excellent office nodes, mainly in Johannesburg’s northern suburbs.

Dipula A-linked and B-linked linked units are initially being issued in equal numbers.

In line with other listed property loan stock companies, Dipula will distribute substantially all of its net income.

Dipula A-linked units will have a lower initial yield than the B-linked units, and will have virtually no risk, with similar characteristics to bonds.

The yield on Dipula A-linked units has been set at an initial forward yield of 9.25% for the year ending 31 August 2012. The distribution on A–linked units will grow at 5% per annum for the first five years (until 31 August 2017) and thereafter they will grow at the lower of 5% per annum or CPI.

Dipula B-linked units will offer a variable rate debenture with high anticipated growth. They will receive the residual distributable income after settlement of the A-linked unit distribution and are anticipated to achieve an initial forward yield of 10.73% for the year ending 31 August 2012. “This is the highest forward yield in the sector at this time,” notes Petersen.

“We are able to offer above average growth in distributions by targeting dependable and sustainable growth through focus on income quality and tight cost management,” says Petersen. Low average rentals provide scope for positive reversions.

In addition, Petersen notes that opportunities exist for yield-enhancing acquisitions.

“Leveraging off our BEE status as a black-managed fund we intend to acquire government and parastatal tenanted properties,” says Petersen. The company’s current government exposure is at about 6% of gross income. Petersen notes that Dipula will not be embarking on speculative development activity and will only consider income-enhancing acquisitions.

Dipula intends to maintain a gearing level of around its listing loan-to-value of 36% with the majority of its debt fixed – currently 66.67% for between two and four years at a current all-in rate of some 8.8%.

Dipula’s financial year end is 31 August and it will trade on the JSE under short names ‘DIA’ for the A-linked units and ‘DIB’ for the B-linked units.