Delta Property Fund delivers solid distribution growth in volatile economy; efforts on lease renewals and lower gearing gain traction

Posted On Monday, 29 May 2017 14:50 Published by
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Delta Property Fund, a specialist black-managed and substantially black-owned REIT with a significant sovereign underpin, today reported sound results for the financial year ended 28 February 2017, declaring a dividend of 97.24 cents per share, up 7,1% on the prior financial year and in line with the Group’s growth forecast. 

Sandile Nomvete, CEO of Delta commented, “These results are testimony of our ongoing efforts to focus on our strategy of long-term investment in quality, rental income-generating properties in strategic nodes attractive to sovereign entities and other tenants requiring empowered landlords.

“Given government’s implementation of radical economic transformation initiatives, the board is currently reviewing various strategies that will bolster our black ownership and impact positively on our ability to secure long-term sovereign leases.

“The successful conclusion of the ongoing corporate action will allow us to renew debt at favourable rates and lower our gearing to significantly below 40%.”

The Company’s LTV improved to 41.5% from 47.2% mainly as a result of the acquisition of the Redefine portfolio settled in shares as well as the settlement of debt from disposals. 85.1% of the Fund’s debt is fixed through a combination of swap contracts and fixed rate loans over an average period of 2.2 years.

“Our weighted average all-in cost of funding is 9.2%. The potential downgrade of South Africa’s credit rating by Moody’s is expected to have an impact on interest rates and we are considering numerous alternatives to improve both gearing and debt expiry profiles.

“During the year, we successfully refinanced debt worth R1.2 billion and believe that the expected implementation of the DPW’s leasing policy and concomitant longer lease terms will allow us to negotiate more favourable debt facilities,” said Shaneel Maharaj, CFO of Delta.  

Disposals of non-current assets held for sale totalling 33 409m2 for an aggregate R268.5 million were concluded during the year under review. In addition, disposals for a further seven assets with a combined GLA of 40 287m2 and a fair value of R558.1 million were concluded as at 28 February 2017 and are in the process of being transferred.

The net proceeds from these disposals will be used to reduce gearing, invested in yield accretive capital expenditure or for the acquisition of higher yielding assets.

Delta indicated that the much anticipated new leasing framework by National Treasury and the Department of Public Works for the procurement of leases is reaching finality:

Commented COO, Otis Tshabalala: “National Treasury with DPW are well advanced in the process of finalising a new framework for the procurement of leases.

“We have submitted a bulk proposal to renew 62 leases totalling approximately 243 000m2 and are bullish that the framework will be implemented shortly.

Notwithstanding this, we have successfully managed to renew approximately 100 000m2 at market related rentals.”                                                                                            

The Group indicated that it expects earnings to remain flat for the 2018 financial year primarily due to once-off lease adjustments being traded for longer term leases and disposal of non-current assets held for sale.

“We believe that political risks will remain elevated this year and that policy shifts are likely. Despite the challenging economic outlook and the possibility of rising interest rates in the medium-term, we believe the Group’s portfolio is defensively positioned to weather the storm,” concluded Nomvete. 

Last modified on Monday, 29 May 2017 15:03
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