Delta Property Fund, a specialist black-managed and substantially black-owned REIT with a significant sovereign underpin, has published its interim results for the six months ended August 2022.
“Notwithstanding significant economic headwinds in the macro-economy and especially the office sector, our portfolio performance remains robust as we continue to deliver on the turn-around of Delta,” commented CEO Siybonga Mbanjwa. “Most key financial metrics were impacted by the devaluation of the portfolio and lower rental income, however from an operational perspective we continue to deliver against our turn-around strategy with strong collections. Our disposal strategy of mainly vacant or non-strategic assets is also gaining momentum.”
During the period, the REIT successfully disposed of one asset, Delta Heights, for R74 million. Post the period end, disposals gained traction with nine properties sold for an aggregate of R232 million. A total of 37 assets are currently held for sale. R32.3 million was spent on capital projects during the period, derived from operating cash apart from R2.4 million, which is funded by a Nedbank facility specifically earmarked for the capital project at Poyntons in Pretoria.
“We are also happy to report that the weighted average rental increased to R125.3/m2 from R107.0/m2 in February 2022 as a result of lease renewals,” added Mbanjwa.
A total 156 032m2 of leases across the entire portfolio were renewed during the review period, including 127 995m2 of expired month-to-month leases with DPWI. A further 16 307m2 of leases were renewed post the reporting period, with 50 000m2 of current month-to-month DPWI leases under negotiation. New leases of 6 546m2 were concluded and a further 1 679m2 post the reporting period with a strong collections rate of 105.4%.
According to the group, the weakness in prevailing macro- and micro-economic conditions, poor growth prospects, further weakening in office sector demand and supply dynamics and deteriorating municipal infrastructure all contributed to a further R353.4 million or 4.5% reduction in the independent valuation of its portfolio, to R7.5 billion from R7.9 billion in February 2022.
This reduction in value had a significant impact on some of its key financial metrics, including an increase in its loan-to-value (LTV) from 57.8% in February 2022 to 58.2% for the period under review.
SA REIT net asset value per share decreased 46 cents to R4.27 per share compared to R4.77 in February 2022.
On a year-on-year basis, rental income decreased 12.7% from R724 million to R632 million, largely driven by a decline in contractual rental income due to rental reversions relating to the rebasing of several government-tenanted properties to market-related rentals, exacerbated by a decrease in recoveries due to vacancies.
The fund reported that vacancies throughout the SA property sector increased to 16.4% or more than 3 million m2 as at September 2022. According to the latest SAPOA Vacancy Report, in Q3 of this year, 20.5% of B-grade offices throughout the country were vacant. In this context, Delta’s vacancies increased to 33.9% from 31.3% in February 2022. Some of the vacant assets have subsequently been disposed of.
Despite the challenging operating environment, Mbanjwa remains positive on the Group’s turnaround:
“Our strategic plan is sound, with the implementation of the board’s strategic plan well underway and gaining momentum. We remain committed to taking the company to new heights by focusing on basic property fundamentals, ensuring that Delta offers quality assets to tenants and sustainable returns to investors,” he concluded.
Its share price dropped by 14.29% following the publication of its results (7th November 2022).
