Delta Property Fund, a sovereign underpinned company, has increased the number of noncore assets to be disposed of in a bid to pay off debt and get the best out of its remaining portfolio.
For the financial year ended February, Delta said it had earmarked 26 properties for disposals with a market value of R787m. “We have revised this number to 37 properties valued at R877m — and already, one property has been transferred with the disposal progress gaining momentum,” CEO Siyabonga Mbanjwa told Business Day.
He said disposing of noncore assets and optimising the property portfolio is part of the company’s turnaround strategy.
For the six month to end-August, one property — Delta Heights — was sold for R74m, and following the review period, nine others were sold for a combined R232m.
Sale proceeds were used to reduce debt which was sitting at R4.545bn in February to R4.361bn at the end of August. The remaining disposals are expected to reduce debt and loan-to-value (LTV) from 58.2% to about 50% by 2025.
Delta is a JSE-listed real estate investment trust (Reit) with a diversified property portfolio valued at R7.5bn from R7.9bn in February 2022. The fall was due to macroeconomic conditions, poor growth prospects and further weakening of office sector demand.
The black managed fund is one of the most empowered funds in the sector with a level 1 broad-based BEE rating, maintaining its status as the dominant sovereign listed property fund in SA.
In August, Mbanjwa told Business Day that the disposals could mean a smaller but quality portfolio. The noncore assets are mainly B- and C-grade buildings that are costly to maintain. “As part of our turnaround strategy, we are exiting regions including the Free State and Northern Cape as these markets no longer serve us.”
In the Johannesburg central business district, Delta is selling off offices as vacancies have reached above 35% with smaller properties in the Eastern Cape and North West considered noncore for the company.
“Our focus is bedding these assets, efficiently manage what we have, and we are not looking at acquiring any assets at the moment,” he said.
Despite a tough operating environment, Delta, which has been listed for 10 years, managed to renew leases on more than 150,000m2 of space. Collections have remained high, a positive sign that the business is cash generative, said Mbanjwa.
On a year-on-year basis, rental income decreased 12.7% from R724m to R632m, driven mainly by a decline in contractual rental income due to rental reversions relating to the rebasing of several government-tenanted properties to market-related rentals.
Vacancies increased from 31.3% in February to 33.9%, with some of the vacant assets already sold. The SA Reit’s net asset value (NAV) per share between February and August fell 46c to R4.27.
“We remain committed to drastically improving our balance sheet and reducing our LTV to healthier levels while focusing on basic property fundamentals, ensuring that Delta offers quality assets to tenants and sustainable returns to investors,” said Mbanjwa.
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