Delta Property Fund says it will continue to sell noncore assets to reduce debt while it is targeting state-owned entities to lease their vacant buildings.
For the period to the end of February, Delta sold seven properties for R208.9m. After the reporting period, another asset was sold for R42m. Delta had shareholder approval to dispose of Capital Towers in Pietermaritzburg for R57m. The fund also concluded agreements to sell five other properties valued at R71.8m.
Continued load-shedding, high energy costs, rising costs coupled with low economic growth, illiquid financial markets, and higher interest rates would continue to put the fund under pressure, interim CEO Bongi Masinga said.
The JSE-listed real estate investment trust (Reit) owns a diversified portfolio of 92 properties valued at R6.9bn.
During the reporting period, the loan-to-value (LTV) ratio — a key measure of the financial health of a property company — rose from 57% in 2022 to 61.4% mainly due to the R833.6m reduction in fair value of the portfolio.
Debt reduced from R4.5bn in 2022 to R4.2bn, with overall debt repayment amounting to R352.9m.
“The focus for the next 12 months will be debt reduction and vacancies reduction — and disposals are key to achieving this target,” Masinga said.
She said this would mean a slightly reduced portfolio, giving the fund a chance to re-evaluate whether it needs to sell more assets.
Of about 37 assets earmarked for sale, seven have already been disposed of. “We continue to negotiate hard and we are not prepared to sell at 15%-30% discount to book value.”
The increase in interest rates has resulted in the group’s weighted average cost of funding increasing from 7.4% in 2022 to 8.8%, thus negatively affecting the interest cover ratio (ICR), which has reduced from 1.9 times to 1.4 times. Finance costs were 11.3% higher, rising from R411.5m to R457.9m.
Debt refinancing remained a priority and the fund continued to engage funders to improve its debt portfolio. Nedbank agreed to reduce the margin on the fund’s facility to 3% from 3.5%.
Its debt facilities with Standard Bank mature in November 2024. Its debt facilities with Investec are being finalised, with one facility extended for 18 months and the other for 24 months.
Delta intended selling properties with negative ICRs and those in localities that it wished to exit including the Free State, Northern Cape, Eastern Cape and North West, Masinga said.
The company renewed 81 leases, most of which were for the national department of public works & infrastructure, state-owned entities and private commercial and retail tenants. It also signed 137 new leases.
Still, vacancies rose slightly from 31.3% in 2022 to 32.9% due to lease terminations.
Delta used R79m of capex to focus on tenant retention and tenant installation costs to retain tenants — and sees this as a means to reduce vacancies across its portfolio.
Through various initiatives including tenders, Delta has found ways to target state-owned entities for its vacant buildings and has enjoyed some successes with more expected to sign new leases.
Rental income decreased by R159.6m from R1.39bn to R1.23bn due to a decline in contractual rental income and rental reversions relating to the rebasing of a number of government-tenanted properties to market-related rentals.
With CFO Marelise de Lange leaving at the end of July, Delta is set to name a new CFO on or before August 1.
Regarding the CEO position, Masinga said she was brought back as interim CEO to oversee completion of the turnaround strategy.
“We are committed to see Delta stabilise and achieve its objective goals,” said Masinga.
Update: June 13 2022
This article has been updated with new information from Delta interim CEO.
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