Delta Property Fund has published its financial results for the year ended February 2022, reporting an increase in SA REIT Funds From Operations (FFO) (previously distributable earnings) of 17.8% from 31.33 cents per share to 36.91 cents per share.
Headline earnings per share increased by 352.6% from 8.78 cents per share to 39.74 cents per share.
“This is my maiden set of financial results, having joined Delta in February this year, and I am delighted to report that the turn-around strategy implemented by the board is increasingly gaining traction despite serious macro-economic and sectoral headwinds,” commented CEO Siyabonga Mbanjwa.
“We have enhanced our internal controls and bolstered our staff complement and competencies, allowing us to focus on the renewal of long outstanding leases and continued execution on our capital expenditure commitments to ensure that our assets meet our tenants’ requirements”.
During the reporting period, capital expenditure (capex) on investment property totalled R112.8 million.
Rental income (including recoveries) as well as net property income decreased by 4% and 8.1% respectively, mainly due to negative rental reversions on the lease renewal at Phomoko Towers and the Hensa building were nine-year, eleven-month and five-year leases were secured respectively. However, the group concluded new leases with a combined gross lettable area (GLA) of 17 586m2 with a further 70 548m2 renewed. Rental collections reflected 112.7% (2021: 87.03%).
“Our focus on rebuilding trust with our largest tenant, the Department of Public Works and Infrastructure (DPWI), and our capex programme yielded positive results. We negotiated expired month-to-month leases with a GLA of 126 233m2 which concluded shortly after year-end,” he added.
Property operating expenses increased slightly to R571.3 million from R556.7 million with administrative expenses decreasing from R116.4 million to R97.8 million.
Vacancies increased during the period from 27.2% to 31.3% (including buildings to be renovated before letting). However, asset disposals and other letting activities are expected to reduce vacancies significantly in the near term, with 26 properties with a market value of R787 million earmarked for disposal.
Delta’s property portfolio consisted of 99 properties with a total investment value of R7.9 billion and a GLA of 909 530m2. The portfolio value (including non-current assets held for sale) reduced by 4.1% from R8.2 billion to R7.9 billion due to slow economic growth evidenced by the capitalisation rates, exit rates and increased vacancies.
As a result, the group’s loan-to-value (LTV) increased slightly from 56.5% in the prior year to 57.0%. The interest cover ratio however remained stable at 1.9 times due to the low interest rate environment following the reduction in the repo rate during the reporting period and the ongoing amortisation of debt by the group. Based on its disposal programme and leasing initiatives, Delta is targeting an LTV of 40% for its 2025 financial year.
Net finance costs decreased by 6.1% from R413.6 million to R388.3 million. Interest bearing borrowings decreased by R210.5 million attributable to amortisations and the disposal of Domus in May 2021. The weighted average all-in cost of funding continued to reduce to 7.4% (FY21: 8.2%)
“Going forward, we will continue to intensify our efforts on business development and leasing. We are aiming to reduce our vacancy rate to be on-par or below the SAPOA average by 2025”.
“We will also optimise our portfolio by focusing on disposal of non-core assets, converting some of the assets that we own into other uses”.
“One of our strategic objectives is to diversify the portfolio by 2025 into other asset classes. Important though is that 50% of the portfolio will be anchored by sovereign tenants,” Mbanjwa concluded.
The REIT did not declare a dividend during the period. It plans to resume dividend payments based on the success of its turn-around strategy.