Delta Property Fund has posted its interim results for the period ended 31st August 2024, with its focus remaining on meeting debt covenant requirements, signing new leases (and ensuring lease renewals) as well as disposing of non-core assets.
The Group reported net operating income of R365.8 million, a 4.3% increase on HY2024’S R350.8 million with revenue, excluding straight-line rental income accrual, increasing by 1.7% from R573.8 million to R583.7 million, mainly due to higher utility recoveries and rent escalations which were offset by rent reversions.
Profit for the period declined to R29.5 million (HY2024: R56.4 million) due to a fair value adjustment loss of R31 million (HY2024: R12.5 million gain) driven by the decline in the share price of Delta’s investment in Grit Real Estate Income Group.
Property operating expenses increased by 0.5% from R219.4 million to R220.5 million with administrative costs decreasing by 2.8% from R50.8 million to R49.4 million as a result of its cost optimisation efforts.
Cash generated for the period amounted to R308.1 million comprising R298 million (operations), R0.7 million (interest income), and net proceeds from property disposals of R9.4 million. These funds were utilised to pay finance costs (R230.9 million), taxation (R23.7 million), net capex (R16.2 million), lease liabilities (R1.8 million) and net debt repayment of R43.2 million. The cash and cash equivalent balance has declined from FY2024 due to collection challenges with the Department of Public Works and Infrastructure.
Delta renewed 43 leases totalling 62 907m2 during the period which were concluded at a weighted average lease term of 3.7 years. In addition, it concluded new leases for a total GLA of 14 864m2 with a weighted average lease term of 2.9 years. Its portfolio vacancies decreased from 33.4% in FY2024 to 30.9% due to disposals with a combined GLA of 19 626m² and 14 864m² of new leases concluded.
At the end of the period, trade receivables were R133.8 million, up from R87.9 million in FY2024. The average collection rate was 93.1% of billings compared to 103.10% in FY2024. The increase is mainly due to collection delays experienced with the Department of Public Works and Infrastructure, a major tenant accounting for approximately 50% of Delta’s revenue.
Three assets with a total GLA of 29 759m2 were disposed of during the period for a gross consideration of R106.2 million while two assets with a total GLA of 8 669m2 were disposed of post period for a gross consideration of R19.3 million. Eleven properties held for sale, with a combined fair value of R319.1 million, are anticipated to transfer before the end of the financial year.
The Group successfully renewed mature debt facilities with Nedbank and State Bank of India from 7th April 2025 and June 2027 respectively. It says it is currently engaging with Standard Bank, Investec, and Bank of China regarding renewal of facilities due to expire before financial yearend.
Debt decreased to R3.9 billion (FY2024: R4 billion) with interest rates resulting in a weighted average cost of funding of 11.4% (HY2024: 10%). Finance costs decreased from R250.7 million to R237.4 million due to capital payments made in the form of amortisation and proceeds from disposals. Consequently, its ICR has improved to 1.4 times (FY2024: 1.3 times) with its covenant LTV from 59.4% to 58.5%.
“Looking ahead to the medium term, Delta will transform into a more streamlined and sustainable REIT, with a core portfolio valued just over R4 billion, providing ample room for future growth,” commented CEO Bongi Masinga.
“Although demand for B-grade office space is anticipated to remain under pressure in the short-term, further improvements in the macro-economic landscape, fuelled by increased investor confidence, a stable power grid, and expected further gradual decreases in the prime lending rate, are likely to enhance business sentiment and support macro-economic growth in the medium term.“
Delta is committed to executing its strategy, and remains confident of its trajectory, which it believes could be accelerated through an improved macro-economic outlook, especially regarding disposals, with an increased interest from potential buyers.”
Delta’s SA REIT funds from operations (FFO) per share amounts to 8.1 cents, unchanged for the current reporting period. Its Board resolved not to declare a dividend following the solvency and liquidity test conducted in terms of Section 46 of the Companies Act (HY2024: nil).
