Specialist black-managed and substantially black-owned REIT, Delta Property Fund, has published its financial results for the six months ended August 2021 with the board resolving not to declare an interim dividend for the reporting period.
“The first half of the 2022 financial year saw Delta resume trading following the suspension on the JSE in December 2020. We are pleased to announce that we achieved a Level 1 B-BBEE scorecard”, commented interim CEO, Bongi Masinga.
“The board-approved strategy will address the execution of our capex programme as well as prioritising tenant needs that will support lease renewals and attracting new tenants”.
“We have increased our focus on both renewal of long outstanding leases together with the filling of vacancies. We are delighted to have achieved an average collection rate of 93.3% in a period that has proven challenging for tenants in this strenuous economy. Our efforts to rebuild trust is underpinned by our ongoing delivery on capital expenditure commitments, which remain a top priority to ensure that assets meet our tenants’ requirements. We thank the board for their support and our teams for their dedication and commitment.”
During the reporting period, capital expenditure on investment property totalled R62 million with management on track with its capex programme of R183 million. The REIT expects to return to distribution payments through its key strategic pillars which evolve around the completion of its capex programme and the conclusion of outstanding leases with DPW, its capital recycling programme (which includes the reduction of the portfolio vacancy rate) and the collection of outstanding arrears.
The Domus property in Pretoria, which comprises of 5 454m2 of gross lettable area, was disposed of for R25 million with proceeds used to settle debt. Post the reporting period, the company concluded sales agreements on three properties at an aggregate sales price of R150.5 million with proceeds from these disposals also allocated towards settling debt.
Rental income decreased marginally from R724.7 million to R724 million, largely driven by a R24.1 million decline in contractual rent income due to rental reversions mainly relating to the rebasing of the Polokwane portfolio to market related rentals. This decrease has been countered by an increase of R15.1 million in recoveries resulting from a return to the office post the Covid-19 related lockdowns.
“Our weighted average rental across our portfolio increased to R129.84 per m2 from R127.98 per m2 in the prior comparative period as rental escalations were offset by rental reversions predominantly related to the Polokwane portfolio”, added Masinga.
Property operating expenses were well contained, reducing by 1.7% from R277.6 million to R272.8 million. The increase in utilities and the repair and maintenance costs were reduced by the decreased provision for bad debt compared to the prior period. Administrative expenses contracted marginally by 1.8%. The primary contributors to this were an increase in audit and professional fees of R7.1 million, off-set by lower directors’ fees of R6 million.
Vacancies increased during the reporting period from 23.6% to 27.2% (including buildings to be renovated before letting). However, asset disposals and other letting activities are expected to reduce vacancies significantly in the near term. The company’s property portfolio consisted of 99 properties with a total investment value of R8.3 billion with a gross lettable area of 904 528m2.
“We had a R3 million loss on foreign exchange due to our investment in Grit Real Estate Income Group. In the comparative period, we reported a foreign exchange loss of R11.3 million, which included fluctuations relating to the dollar denominated loan from the Bank of China”.
“We converted the Bank of China loan to a rand-denominated facility and extended its expiry from November 2020 to December 2026. We also received dividend income of R3.2 million from our investment in Grit for the period,” commented CFO Marelise de Lange.
Finance costs continued to decrease by 14.5% from R238.3 million to R203.8 million in the review period, mainly due to ongoing amortisation of debt and the lower interest environment from April 2020. Interest income of R9.9 million was also marginally lower than the R10.2 million reported in the prior comparative period.
The weighted average all-in cost of funding continued to reduce to 7.1% (FY21: 8.2%) with the interest cover ratio encouragingly increasing to 2.1 times (FY21: 1.9 times). This improvement is attributed to the low interest rate environment following the reduction in the repo rate and the ongoing amortisation of debt by the group.
Loan-to-value improved marginally from 56.5% to 55.7% and is expected to reduce to approximately 54.7% in the current reporting period following the successful transfer of disposals and it is expected to benefit further from cash generated by operations and repayment of debt facilities.
“We have seen significant improvements in our operations during the period, we have stabilised the business and leadership with the appointment of the permanent CEO expected soon. Our SA REIT Funds from operations per share improved to 24.86 cents during the period from 21.51 cents per share in the prior comparable period”.
“Portfolio optimisation through disposals is a key strategic focus to address the reduction of debt and the concomitant reduction of loan-to-value”.
“Going forward, we will continue to intensify our efforts on successfully implementing capital expenditure on our portfolio in line with contractual lease obligations and to enhance the quality of our assets to meet tenants’ requirements,” Masinga concluded.