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Delta resilient in tough trading conditions in SA

Africa Global Funds
Nov. 4, 2019, 1:36 p.m.
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Delta Property Fund, a specialist black-managed and substantially black-owned REIT with a significant sovereign underpin, has reported results for the six months ended August 31, 2019 reflecting continued headwinds facing the macro-economy and the commercial office sector. 

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Delta Property Fund, a specialist black-managed and substantially black-owned REIT with a significant sovereign underpin, has reported results for the six months ended August 31, 2019 reflecting continued headwinds facing the macro-economy and the commercial office sector. 

Contractual rental income decreased by 3.5% mainly due to increased vacancies, disposal of assets held for sale and the reversion of renewed leases.

“It’s been a trying past six months from a macro perspective, but we’re encouraged by the progress we’re making with lease renewals,” said Delta CEO, Sandile Nomvete.

“During the period, we renewed 40 leases with the National Department of Public Works totalling 95 523m2, two-thirds of which are for a five-year period and the balance for three years.”

“There are still 18 leases to be finalised - four of these leases are in three buildings that totals a combined 96 502m2. We are negotiating at senior managerial and ministerial level on these renewals and are confident that they will be concluded soon,” he said.

Delta successfully extended expiring debt facilities of R2.8bn in the short-term with a view of diversifying its funding sources and renegotiating more market related terms on the back of longer weighted average lease term (WALE) following the conclusion of the remainder of bulk leases with the National Department of Public Works.

The Company’s WALE increased to 1.7 years on the back of renegotiated and new leases concluded.

Finance costs increased by 19.3% due to higher interest rates and restructuring fees incurred on the debt facilities extended during the period.

The all-in cost of debt reduced to 10% from 10.2% at the prior year-end.

 Loan to value improved to 44.3% from 45.1% at the prior year end, mainly as a result of cash generated by operations and repayment of debt facilities.

“We are working hard at reducing the loan to value further in the short-term and anticipate positive momentum from disposals and value enhancing capital expenditure on our assets, following the conclusion of the bulk leases. Our long-term target is to reduce the loan to value to below 40%,” added Nomvete.

Vacancies across the core portfolio increased to 15.4%.

In the Pretoria and Durban CBD nodes where Delta has a dominant footprint, the Company’s vacancies were 10% and 19% respectively (SAPOA 9% and 14% respectively). 

“Notwithstanding the possible corporate action, our primary focus for the next six months is on concluding the bulk lease renewals and the longer-term financing of our debt at market related levels, which are contingent on a longer weighted average lease profile,” said Nomvete.

Recycling of capital remains a further focal area with proceeds to be used for working capital requirements, capital expenditure and to lower debt.

Delta achieved distribution per share of 30.48 cents for the interim period.

The board, however decided to declare an interim distribution of 12.2 cents per share after careful consideration of the investment required for capital commitments aligned to lease renewals, working capital and the business’ liquidity requirements.

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