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DELTA PROPERTY FUND LIMITED - Reviewed provisional condensed consolidated financial results for the year ended 28 February 2015

Release Date: 22/05/2015 17:45
Code(s): DLT     PDF:  
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Reviewed provisional condensed consolidated financial results for the year ended 28 February 2015

Delta Property Fund Limited  
(Incorporated in the Republic of South Africa) 
(Registration number 2002/005129/06) 
Share code: DLT 
ISIN: ZAE000194049 
("Delta" or "the Fund" or "the Group") (REIT status approved)

REVIEWED PROVISIONAL
condensed consolidated financial results
for the year ended 28 February 2015 

Highlights

- 15.7% growth in full year distribution to 84.07 cents per share
- Loan to Value post year end decreased from 49.9% to 46.72%
- Forward guidance distribution growth 8%
- R1 billion revenue achieved
- NAV per share R10.02 (2014: R9.28)
- Maiden US$ distribution received from Delta International
- Oversubscribed capital raise of R735.1 million post year end

Consolidated statement of comprehensive income
                                                                                 Reviewed          Audited
                                                                                 for year         for year
                                                                                    ended            ended
                                                                              28 February      28 February
                                                                                     2015             2014
                                                                                    R'000            R'000
                                                                                                  Restated
Revenue
Contractual rental income                                                         940 623          594 209
Straight line rental income accrual                                                68 584           59 814
                                                                                1 009 207          654 023
Property operating expenses                                                     (244 323)        (151 520)
Net property rental and related income                                            764 884          502 503
Other income                                                                       34 015           12 300
Gain from bargain purchase                                                            127                –
Administration expenses                                                          (51 008)         (48 090)
Foreign exchange loss                                                            (12 366)                –
Net operating profit                                                              735 652          466 713
Fair value adjustments                                                            458 985          261 256
Profit from operations                                                          1 194 637          727 969
Finance costs                                                                   (316 380)        (151 149)
Interest received                                                                   3 965            5 954
Amortisation of debenture premium                                                 264 883          376 969
Cancellation fee                                                                 (41 200)                –
Impairment of development right                                                  (15 582)                –
Profit before debenture interest and taxation                                   1 090 323          959 743
Debenture interest                                                              (177 044)        (254 046)
Profit before taxation                                                            913 279          705 697
Taxation                                                                          (2 211)           56 007
Profit from continuing operations                                                 911 068          761 704
Loss from discontinued operations                                                (45 070)                –
Profit for the year                                                               865 998          761 704
Other comprehensive income
Items that may be subsequently reclassified to profit or loss
Translation of foreign entities*                                                   63 813                –
Total comprehensive income for the year                                           929 811          761 704
Profit for the year attributable to:
Equity shareholders of Delta Property Fund Limited                                885 420          761 704
Non–controlling interests                                                        (19 422)                –
                                                                                  865 998          761 704
Total comprehensive income attributable to:
Equity shareholders of Delta Property Fund Limited                                912 605          761 704
Non–controlling interests                                                          17 206                –
                                                                                  929 811          761 704
Basic and diluted earnings per share (cents)                                       237.02           294.73
Basic and diluted earnings per share from continuing operations (cents)            242.74           294.73
* There are no tax effects recognised on these items.
Reconciliation of earnings, headline earnings and distributable earnings
Profit for the year from continuing operations attributable to equity
shareholders                                                                      911 068          761 704
Debenture interest                                                                177 044          254 046
Earnings                                                                        1 088 112        1 015 750
Loss for the year from discontinued operations attributable to equity
shareholders                                                                     (25 648)                –
Profit for the year attributable to equity shareholders                         1 062 464        1 015 750
Headline earnings – continuing operations
Attributable earnings from continuing operations                                1 088 112        1 015 750
Change in fair value of investment property (net of deferred taxation)          (485 224)        (308 748)
Change in fair value of property                                                (485 224)        (264 523)
Deferred taxation                                                                       –         (44 225)
Gain from bargain purchase                                                          (127)                –
Impairment of development right (net of deferred taxation)                         11 219                –
Impairment of development right                                                    15 582                –
Deferred taxation                                                                 (4 363)                –
                                                                                  613 980          707 002
Headline earnings – continuing and discontinued operations
Attributable earnings from continuing and discontinued operations               1 062 464        1 015 750
Change in fair value of investment property (net of deferred taxation)          (542 838)        (308 748)
Change in fair value of property                                                (570 208)        (264 523)
Deferred taxation                                                                  27 370         (44 225)
Gain from bargain purchase                                                          (127)
Impairment of development right (net of taxation)                                  11 219                –
Impairment of development right                                                    15 582                –
Tax effect                                                                        (4 363)                –
Non–controlling interest                                                           27 419                –
Headline earnings from continuing and discontinued operations                     558 137          707 002
Headine earnings from continuing operations                                       613 980          707 002
Straight line rental income accrual (net of deferred taxation)                   (68 584)         (73 321)
  Straight line rental income accrual                                            (68 584)         (59 814)
  Deferred taxation                                                                     –         (13 507)
Antecedent interest                                                                 3 425           35 270
Transaction costs                                                                       –            1 048
Cancellation fee                                                                   41 200                –
Deferred taxation – other adjustments                                               8 955          (4 046)
Fair value loss on investment in securities                                         5 249            3 267
Fair value loss on derivative financial instruments                                20 990                –
Dividend received from subsidiary                                                  18 247                –
Foreign exchange loss                                                              12 366                –
Amortisation of debenture premium                                               (264 883)        (376 969)
Profit on disposal of listed investments                                         (20 425)                –
Accrued distribution from listed investments                                       11 905                –
Retained distributable earnings                                                         –          (2 935)
Distributable earnings attributable to equity shareholders                        382 425          289 316
Less: Distribution declared                                                       382 425          289 316
Interim                                                                           180 469          116 738
Final (Declared after 28 February 2015)                                           201 956          172 578
Number of shares in issue at interim                                          451 042 442      359 083 615
Number of shares in issue at year end                                         458 409 836      429 510 825
Weighted average number of shares in issue                                    448 263 938      344 639 642
Basic and diluted earnings per share (cents)
Basic and diluted earnings per share from continuing operations                    242.74           294.73
Basic and diluted earnings per share from discontinued operations                  (5.72)                –
                                                                                   237.02           294.73
Basic and diluted headline earnings per share (cents)
Basic and diluted headline earnings per share from continuing operations           136.97           205.14
Basic and diluted headline earnings per share from discontinued operations        (12.46)                –
                                                                                   124.51           205.14
The Fund has no dilutionary instruments in issue
Distribution per share (cents) – interim                                            40.01            32.51
Distribution per share (cents) – year-end (Declared after 28 February 2015)         44.06            40.18
Distribution per share (cents) – full year                                          84.07            72.69

Consolidated statement of financial position
                                                                     Reviewed       Audited        Audited
                                                                     for year      for year       for year
                                                                        ended         ended          ended
                                                                  28 February   28 February    28 February
                                                                         2015          2014           2013
                                                                        R'000         R'000          R'000
                                                                                   Restated       Restated
Assets
Non-current assets
Investment property                                                 8 393 900     6 965 730      2 119 112
  Fair value of property portfolio                                  8 213 035     6 853 449      2 070 053
  Straight line rental income accrual                                 180 865       112 281         49 059
Property, plant and equipment                                           2 923         3 555            279
Investments                                                                 –       333 637              –
Deferred tax                                                                –         4 573              –
Total non-current assets                                            8 396 823     7 307 495      2 119 391
Current assets
Other financial assets                                                      –        26 862         25 917
Current tax receivable                                                  1 153             –              –
Trade and other receivables                                           284 036       121 837         39 410
Cash and cash equivalents                                              60 730        82 179         56 828
Total current assets                                                  345 919       230 878        122 155
Assets classified as held for sale                                  2 110 030             –              –
Non-current asset held for sale                                        26 500             –              –
Total assets                                                       10 879 272     7 538 373      2 241 546
Equity and liabilities
Equity
Share capital                                                       2 778 064       317 544        144 666
Foreign currency translation reserve                                   27 185             –              –
Retained income                                                     1 815 732       924 311        162 607
                                                                    4 620 981     1 241 855        307 273
Non-controlling interest                                              453 190             –              –
                                                                    5 074 171     1 241 855        307 273
Liabilities
Non-current liabilities
Debentures and debenture premium                                            –     2 570 022        936 079
Interest-bearing borrowings                                         3 652 300     2 981 312        832 450
Deferred tax                                                               19             –         57 207
Derivative financial instruments                                       20 990             –              –
Total non–current liabilities                                       3 673 309     5 551 334      1 825 736
Current liabilities
Interest-bearing borrowings                                           856 265       216 430         33 992
Trade and other payables                                              103 163        83 256         35 477
Current tax payable                                                         –         6 142              –
Unitholders for distribution                                                –       172 578         39 068
Other financial liabilities                                                 –       266 656              –
Bank overdraft                                                             21           122              –
Total current liabilities                                             959 449       745 184        108 537
Liabilities associated with disposal group held for sale            1 172 343             –              –
Total liabilities                                                   5 805 101     6 296 518      1 934 273
Total equity and liabilities                                       10 879 272     7 538 373      2 241 546

Consolidated statement of cash flows
                                                                                                   
                                                                                  Reviewed         Audited
                                                                                  for year        for year  
                                                                                     ended           ended
                                                                               28 February     28 February       
                                                                                      2015            2014
                                                                                     R'000           R'000
                                                                                                  Restated
Cash generated from operations                                                     483 116         377 871
Interest received                                                                    3 965           5 954
Finance costs                                                                    (315 593)       (151 149)
Taxation (paid)/received                                                           (4 914)             370
Net cash from operating activities                                                 166 574         233 046
Acquisition of investment property                                               (572 108)     (4 421 950)
Refurbishment and renovations capitalised                                        (148 134)        (41 790)
Purchase of property, plant and equipment                                          (1 027)         (4 410)
Payments of other financial assets                                                       –           (945)
Proceeds from disposal/(acquisition) of listed securities                          348 809       (348 889)
Net cash outflow on acquisition of subsidiary                                      (8 720)               –
Accrued distribution on acquisition of listed securities                                 –          14 141
Net cash from investing activities                                               (381 180)     (4 803 843)
Proceeds from issue of shares                                                            –       2 226 574
Capital issue expenses                                                             (8 168)        (27 859)
Debenture interest paid                                                          (349 622)       (200 642)
Proceeds from interest-bearing borrowings                                        1 310 036       2 331 300
(Repayment)/proceeds of other financial liabilities                              (266 656)         266 656
Changes in shareholding of subsidiary                                            (492 335)               –
Net cash from financing activities                                                 193 255       4 596 029
Net movement in cash and cash equivalents                                         (21 351)          25 232
Cash at the beginning of the year                                                   82 060          56 828
Total cash at end of the year                                                       60 709          82 060

Condensed consolidated segmental analysis
Reviewed
                                                                                    Admin and
For the year ended                               Office       Office                corporate
28 February 2015 (R'000)           Retail    government        other   Industrial       costs        Total
Contractual rental income          25 102       588 251      296 169       31 101           –      940 623
Straight line rental income    
accrual                               260        48 914       13 830        5 580           –       68 584
Property operating    
expenses                          (7 021)     (136 188)     (95 383)      (5 731)           –    (244 323)
Net property rental and    
related income                     18 341       500 977      214 616       30 950           –      764 884
Fair value adjustments            (8 286)       317 817      190 365     (14 672)    (26 239)      458 985
  Investment property             (8 286)       317 817      190 365     (14 672)           –      485 224
  Investments                           –             –            –            –     (5 249)      (5 249)
  Derivative financial    
  instruments                           –             –            –            –    (20 990)     (20 990)
Investment property               207 800     5 206 800    2 751 400      227 900           –    8 393 900
  Fair value of property    
  portfolio                       206 622     5 061 753    2 727 088      217 572           –    8 213 035
  Straight line rental    
  income accrual                    1 178       145 047       24 312       10 328           –      180 865
    
Condensed segmental analysis    
Audited    
                                                                                   Admin and
For the year ended                               Office       Office               corporate
28 February 2014 (R'000)           Retail    government        other   Industrial      costs        Total
Contractual rental income          14 574       396 662      162 640       20 333           –     594 209
Straight line rental income    
accrual                               811        46 135        8 120        4 748           –       59 814
Property operating    
expenses                          (3 157)      (90 817)     (54 384)      (3 162)           –    (151 520)
Net property rental and    
related income                     12 228       351 980      116 376       21 919           –      502 503
Fair value adjustments              5 536       153 391       99 541        6 055     (3 267)      261 256
  Investment property               5 536       153 391       99 541        6 055           –      264 523
  Investments                           –             –            –            –     (3 267)      (3 267)
Investment property               175 690     4 595 321    1 959 370      235 349           –    6 965 730
  Fair value of property    
  portfolio                       174 772     4 499 187    1 948 888      230 602           –    6 853 449
  Straight line rental    
  income accrual                      918        96 134       10 482        4 747           –      112 281
    
Restated consolidated statement of changes in equity
                                                                              Foreign
                                                                             currency
                                                                          translation          Non–
                                                  Retained        Share       reserve   controlling
                                                    income      capital        (FCTR)      interest       Total
                                                     R'000        R'000         R'000         R'000       R'000
Restated balance at 01 March 2013                  162 607      144 666             –             –     307 273
Previously reported                                121 444      932 232             –             –   1 053 676
Prior period errors 
Recognition of debenture premium                         –    (787 566)             –             –   (787 566)
Amortisation of debenture premium                   41 163            –             –             –      41 163
Issue of linked units – issued as 
consideration for investment property                    –      879 851             –             –     879 851
Issue of linked units – rights issue                     –      863 095             –             –     863 095
Issue of linked units – cash                             –      179 367             –             –     179 367
Capital issue expenses                                   –     (27 859)             –             –    (27 859)
Cum distribution – distribution number 01*               –     (44 837)             –             –    (44 837)
Cum distribution – distribution number 02* and 03*       –     (25 913)             –             –    (25 913)
Profit for the period                              384 735            –             –             –     384 735
Restated balance at 01 March 2014                  924 311      317 544             –             –   1 241 855
Previously reported                                506 179    2 755 936             –             –   3 262 115
Prior period errors 
Recognition of debenture premium 2013                    –    (787 566)                               (787 566)
Amortisation of debenture premium 2013              41 163            –             –             –      41 163
Recognition of debenture premium 2014                    –  (1 657 736)             –             – (1 657 736)
Amortisation of debenture premium 2014             376 969            –             –             –     376 969
Issue of linked units – issued as 
consideration for investment property 
relating to prior year                                   –        6 910             –             –       6 910
Issue of linked units – issued as 
consideration for investment property                    –      161 966             –             –     161 966
Non-controlling interest on acquisition of      
disposal group                                           –            –             –       457 747     457 747
Capital issue expenses                                   –     (14 139)             –             –    (14 139)
Cum distribution – distribution number 03*               –      (5 836)             –             –     (5 836)
Cum distribution – distribution number 04 
and 05*                                                  –      (3 425)             –             –     (3 425)
Profit for the year                                885 420            –             –      (19 422)     865 998
REIT conversion                                          –    2 321 954             –             –   2 321 954
Other comprehensive income for the year                  –            –        27 185        36 628      63 813
Transfer between equity holders                      6 001            –             –       (6 001)           –
Dividends paid                                           –            –             –      (15 762)    (15 762)
Balance at 28 February 2015                      1 815 732    2 778 064        27 185       453 190   5 074 171

* Details of distributions 01 – 05 as announced on SENS

DIRECTORS COMMENTARY

1.  Nature of business
    Delta is a JSE main board listed Real Estate Investment Trust (REIT). Its primary focus is on long-term investment
    in quality, rental generating properties situated in strategic nodes attractive to national government and tenants
    requiring empowered landlords. The Fund is black managed and a level 2 B-BBEE contributor, qualifying for long-
    term government leases in terms of the Department of Public Work's B-BBEE policy.

2.  Capital structure
    To align the Company's capital structure with the REIT standard in South Africa and to comply with JSE Listings
    Requirements for REITs, Delta converted its linked unit capital structure into an all share capital structure within
    the scheme of arrangement framework provided for in terms of section 114 of the Companies Act of South
    Africa. The implementation date of the scheme was 12 December 2014 resulting in a R2 322 million increase
    in share capital.

3.  Strategy
    Delta is a leading empowerment player in the listed property sector. The Fund has maintained a Level 2 B-BBEE
    status. This combined with its demonstrated ability to redevelop CBD nodes and manage government tenanted
    assets, supports its growth through the inherent recessionary hedge and tenure provided by sovereign leases.

    Delta's strategy is to achieve above industry average distributions and capital growth through a portfolio
    comprising predominantly domestic and foreign based sovereign underpinned properties, with the balance of
    the portfolio exposed to non-government offices, retail, industrial and purpose-specific properties under long-
    term leases. Delta also intends to hold 25% in Delta International to maintain its exposure to the high growth
    opportunities on the African continent.

4.  Distributable earnings and commentary on results
    The release of the results were delayed to accommodate restatements arising out of JSE and FRIP
    recommendations. It should be noted that these restatements had no impact on the distributable earnings.

    Total distributions for the year ended February 2015 increased by 15.66% to 84.07 cents per share (February
    2014: 72.69 cents per share). The dividend for the final six months of the financial year is 44.06 cents per share,
    an increase of 9.66% against the comparable six-month period.

    Property operating expenses were well contained with the cost-to-income ratio marginally lower at
    10.16% (February 2014: 10.77% – restated on net basis). In line with industry practice the Fund has changed
    its method of calculating the cost-to-income ratio from a gross basis to a net basis.

    Distributable income includes once-off fees earned by Delta of R6.2 million for the commitment on its investment
    in Delta International and R6.3 million for leasing commission charged to Somnipoint Proprietary Limited in
    respect of leases concluded on Somnipoint's Absa Towers building.

    The increase in administration expenses from R48.1 million for the year ended 28 February 2014 to R51.0 million
    at 28 February 2015 is in line with the increase in the size of the portfolio.

    Delta had acquired development rights over land adjacent to the Beacon Hill property for a consideration of
    R15.5 million. These development rights never came to fruition and were impaired in the current financial year.

    The loss from discontinued operations of R45.1 million and the non-controlling interest of R19.4 million relates 
    to the consolidation of Delta International. This loss is largely driven by the unrealised forex loss which is due 
    to due to the depreciation of the United States Dollar ("USD") against the Moroccan Dirham.. The conversion of 
    Delta International's consolidated USD net income into the Fund's reporting currency (Rands) of R68.3 million 
    was positive due to the strength of the USD against the Rand.

    The NAV per share was R10.02 at year end (2014: R9.28 – restated after adjusting for distribution payable).
    The increase in NAV was predominantly as a result of an increase in the independent valuation of the investment
    property portfolio.

5.  Prior period restatement
    The restatements have arisen from the JSE pro-active monitoring process and based on the advice the JSE
    received from the FRIP. While management had followed industry practice, the restatements have been made
    based on the JSE's recommendations.

    In 2015 the following restatements were identified relating to the 2014 financial statements:

    The Group accounted for antecedent interest as income in profit or loss rather than adding the antecedent
    interest to the debentures' initial carrying amount, and subsequently reducing the liability when the cash flows of
    the debenture interest distributions are recognised on the next distribution date.

    The consideration payable in the form of linked units on acquisition of investment property was previously accounted
    for as deferred consideration instead of apportioning the amount between the liability and equity components. In
    addition, a non-cash transaction relating to the deferred consideration was included within the financing activities
    and included in the amount of acquisition of investment property within the investing activities.

    The debentures and the liability component of the deferred consideration was excluded from the non-current
    liabilities and total liabilities line items in the statement of financial position.

    The Group recognised debentures at nominal value instead of fair value. As a result the premium or discount to
    the nominal value was not amortised over the expected life of the debentures.

    The effect of the restatements are as follows:
    
                                                                                 2014        2013
    Statement of comprehensive income
    Decrease in antecedent interest income                                     35 270           –
    Decrease in debenture interest                                           (35 270)           –
    Increase in amortisation of debenture premium                           (376 969)    (41 163)
    Statement of financial position
    Increase in non-current liabilities and total liabilities               (493 937)   (189 676)
    Decrease in unitholders interests                                         493 937     189 676
    Increase in debentures                                                (2 076 085)   (746 403)
    Decrease in share capital                                               2 438 392     787 566
    Decrease in deferred consideration                                         55 825           –
    Increase in retained earnings                                           (418 132)    (41 163)
    Effect of changes in statement of cash flows
    Increase in net cash flows from investing activities                       55 825           –
    Decrease in net cash flows from financial activities                     (55 825)           –
    Effect on EPS and HEPS
    While the prior period restatements have no impact on the
    distributions to unitholders the impact on basic and diluted earnings
    and headline earnings is as follows:
                                                                             Feb 2014    Feb 2014
                                                                               Before    Restated
    Basic and diluted earnings per share (cents)                               195.58      294.73
    Basic and diluted headline earnings per share (cents)                      106.00      205.14

6.  Property portfolio
    As at 28 February 2015, the portfolio, valued at R8.4 billion (2014: R6.9 billion), a 23.7% growth, consisted of
    82 properties with a total GLA of 703,103 m².

    The segmental and geographic breakdown of the portfolio at the reporting date was as follows:
    
    SEE PRESS FOR GRAPHS

6.1  Acquisitions
     R737.3 million worth of direct property acquisitions transferred during the year. These were acquired at an
     aggregate yield of 11.06% adding a total GLA 94 918m2.

6.2  Property extensions and refurbishments
                                                                        As at
                                                                  28 February
                                                                         2015
                                                                        R'000
     Capital improvements in respect of investment property
      – Opening balance – 01 March 2014                               182 685
      – Refurbishments and renovations capitalised in the period    (148 134)
      – New approvals                                                 444 901
                                                                      479 452
     
     These commitments will be financed by a combination of available cash resources and debt financing
     facilities.
     
     Specific ongoing and completed projects include:
     
     SARS Bellville, Cape Town
     The total refurbishment of the SARS Bellville building was completed during the year at a total cost of
     R3.2 million.
     
     SARS Randburg, Johannesburg
     The construction of an additional 213 parking bays at the SARS Randburg building was completed during
     the year at a cost of R15.9 million. There are now 397 parking bays which has improved the parking ratio
     to 4.1 per 100m2.

     NPA Cape Town, Cape Town
     The total refurbishment of this building was completed during the year at a cost of R24 million and included specific tenant
     requirements, air-conditioning and external painting. This building has now re-established itself as one of the iconic buildings on
     Buitengracht Street. A new 10-year lease was concluded with the tenant, the National Prosecuting Authority.

     Commission House, Pretoria
     The total refurbishment and extension of Commission House is currently under way which will increase the buildings total GLA
     from 6 617.52m2 to 10 630.20m2. The total approved cost of the project is R71.3 million with an expected yield of 10.18%. The
     completion date is expected to be December 2015.

     CMH House, Durban
     Redevelopment of the building to accommodate a CMH show room and 450 parking bays has commenced and is expected to
     be completed by October 2015. The total approved cost of the project is R156.6 million. CMH has signed a new 15-year lease
     commencing on completion of the redevelopment.

6.3  Lettings and vacancies
     The lease expiry profile of the portfolio at 28 February 2015 was as follows:

     Details         GLA   Revenue
                       %         %
     Vacant          7.1         –
     28 Feb 16      17.7      19.0
     28 Feb 17      21.0      24.9
     28 Feb 18      22.1      21.2
     28 Feb 19       8.2      11.4
     28 Feb 20       7.8       7.7
     > 28 Feb 20    16.1      15.8
     Total         100.0     100.0
 
     During the year, leases in respect of 93 682m2 were renewed, and brought forward or acquired vacancies of 8 148m2 were
     filled.
 
     The weighted average escalation rate across the portfolio was 7.97% at year-end and the weighted average rental per square
     metre for the full portfolio was R95.84.
 
     Vacancies in the Delta portfolio at 28 February 2015 amounted to 7.1% of gross lettable area compared with 4.6% at
     28 February 2014. The increase from 28 February 2014 is primarily due to the vacancies acquired with the Marine Building
     and Delta Towers which were not paid for and once tenanted will increase the forward yield of the Fund.

7.  Investment in Delta International
    On 22 May 2014 the Company acquired 89.01% of Delta International Property Holdings Limited ("Delta International") for
    R8.7 million. Delta International is a listed property investment company offering investors direct access to high growth opportunities
    in African real estate (excluding South Africa). At acquisition date the net assets of Delta International Property Holdings Limited
    amounted to R8.8 million. The excess of net assets over the consideration paid has been recognised as a gain on bargain purchase
    in profit or loss.

    During the year Delta International concluded a capital raise in which the Company participated, resulting in Delta's interest being
    diluted. At 28 February 2015, the Company held 23 415 200 shares in Delta International for an aggregate purchase consideration
    of R501.3 million. Delays to Delta International's capital raising programme resulted in Delta temporarily holding 52.41% of Delta
    International's issued share capital. Delta's intention was to hold approximately 25% of Delta International. A capital raising exercise
    which commenced before 28 February 2015 culminated in Delta International raising a further $39.0 million in April 2015 which
    effectively diluted Delta's shareholding to 35%. Delta expects to be diluted further in the year ahead. The level of shareholding that
    existed at year-end together with the post year-end dilution has resulted in Delta International being consolidated as a disposal group
    at 28 February 2015. Going forward Delta International will be accounted for as an associate based on the fact that the Delta board
    of directors ("Board") has no control over the activities of Delta International.

    The following table summarises the fair value of identifiable assets acquired and liabilites assumed at the acquisition date:

    Assets
    Cash balances                                                          7 101
    Loans receivable                                                       2 874
                                                                           9 975
    Liabilities
    Trade and other payables                                                (34)
    Identifiable assets and liabilities before non-controlling interest    9 941
    Non-controlling interest                                             (1 094)
    Identifiable assets acquired and liabilities assumed                   8 847
    Purchase consideration                                               (8 720)
    Gain from bargain purchase                                               127
    Purchase consideration                                               (8 720)
    Cash acquired                                                              –
    Cash outlfow on acquisition of subsidiary                            (8 720)

8.  Borrowings and hedging
    During the past 12 months Delta increased the utilisation of its debt facilities from R3.2 billion to R4.5 billion, to execute on several
    key acquisitions, including The Marine and Delta Towers buildings as well as Delta's investment in Delta International. The resultant
    increase in Loan to Value ("LTV") from 47.5% to 49.9% was deemed by management to be an interim measure until further capital
    was raised. From August 2014, Delta saw liquidity in the DCM market dry up mainly as a result of the collapse of African Bank, and
    thus maturing commercial paper was replaced with vanilla funding. Despite these challenges, Delta has managed to maintain a highly
    competitive weighted average cost of debt funding of 8.10% and a fixed:floating ratio of 70%. The weighted average expiry of fixed debt
    is 2.36 years, and the weighted average expiry of Delta's total facilities is 2.37 years. The post year end issuance of a R100 million
    secured bond in March 2015 and the raising of R735.1 million of equity, assisted Delta to settle bridging facilities with Standard
    Bank of R406 million, and thereby reduced the LTV to 46.72% (as at May 2015) with the weighted average expiry profile extending
    to 2.51 years. Delta will continue to utilise the DMTN programme and other sources of funding to maintain a low cost of debt going
    forward.

9.  Non-current assets held for sale
    During the year the Group took the decision to dispose of the Richmond Forum Building this building to reduce vacancies on the Group's portfolio and utilise the funds
    to reduce the Group's gearing levels. The property will be disposed of within 12 months of the current financial period and is disclosed
    as part of the "Office-other" segment in these financial statements.

10. Events after the reporting period
    Post year-end Delta has raised R735.1 million via vendor placements (of which R503 million came from the March 2015 capital
    raise) through the issue of 82 376 138 new Delta shares. The proceeds have been used to pay down existing debt facilities and to
    fund new acquisitions.

    Subsequent to 28 February 2015, Delta has concluded the transfer of four properties for a total purchase consideration of
    R492.3 million. These acquisitions have been funded through a combination of new debt facilities and proceeds from new shares
    issued post year-end.

11. Prospects
    While South Africa has entered a period which is anticipated to deliver low economic growth, the Board and management remain
    positive that Delta's defensive portfolio is well positioned for any downturn. Delta will continue to pursue empowerment sensitive
    opportunities. Management remains committed to reducing the level of gearing in the Fund and intends to lower this to 40% by
    February 2016.

    On the assumption that trading conditions and the macroeconomic environment remains stable with no major tenant and corporate
    defaults, management anticipates combined distribution growth of 8% for the year ahead. The forecast has not been reviewed or
    reported on by the Group's auditors.

By order of the Board

JB Magwaza (Chairman)                                             SH Nomvete (Chief Executive Officer)

22 May 2015

Notes

1.    Basis of preparation and accounting policies
      The condensed consolidated financial statements are prepared in accordance with the requirements of the JSE Limited Listings Requirements for
      provisional reports and the requirements of the Companies Act of South Africa. The Listings Requirements require provisional reports to be prepared in
      accordance with the framework concepts and the measurement and recognition requirements of International Financial Reporting Standards (IFRS) and
      the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by Financial Reporting
      Standards Council and to also, as a minimum, contain the information required by IAS 34 Interim Financial Reporting. The accounting policies applied in the
      preparation of the condensed consolidated financial statements are in terms of IFRS and are consistent with those applied in the previous consolidated
      annual financial statements

      This report has been compiled under the supervision of Bronwyn Corbett CA(SA), the Chief Financial Officer of Delta.

      Delta has complied with IFRS and JSE Listings Requirements by disclosing earnings and headline earnings per share. Headline earnings includes fair value
      adjustments for financial instruments and the straight line rental income accrual which does not affect distributable earnings.

      These provisional consolidated financial statements for the year ended 28 February 2015 have been reviewed by BDO South Africa Incorporated, who
      expressed an unmodified review conclusion. The auditor's report contained the following paragraph with respect to a reportable irregularity:

      A director of the company did not declare his personal financial interest in a transaction as required by section 75 of the Companies Act. We have reason to
      believe that the director has contravened section 75 of the Companies Act and his common law duty as agent of the Company to avoid a conflict of interest.
      As at the date of this report we are satisfied that the matter has been adequately addressed by the Board of directors.

      A copy of the auditor's review report is available for inspection at the Company's registered office together with the financial statements identified in the
      auditor's report.

2.    Declaration of final dividend ("the cash dividend") with the election to reinvest the distribution
      Shareholders are advised that dividend number 5 of 44.05542 cents per share for the six months ended 28 February 2015 has been declared. The source
      of the cash dividend is from rental income.

      Shareholders will be entitled, in respect of all or part of their shareholding, to elect to reinvest the cash dividend in return for Delta shares ("the share
      re-investment alternative"), failing which they will receive the cash dividend in respect of all or part of their shareholding. The number of shares to which
      shareholders are entitled will be determined with reference to the ratio that 44.05542 cents per share bears to the five-day volume weighted average
      traded price (ex dividend) of Delta shares on the JSE prior to the finalisation date, which will be no later than Friday, 29 May 2015.

      Salient dates relating to the cash dividend and the share alternative:

      Circular and form of election posted to Delta shareholders                                                                            Friday, 22 May 2015
      Announcement of share re-investment alternative issue price and finalisation information                                              Friday, 29 May 2015
      Last day to trade cum dividend                                                                                                        Friday, 5 June 2015
      Shares trade ex dividend                                                                                                              Monday, 8 June 2015
      Listing of maximum possible number of share re-investment alternative shares commences on the JSE                                 Wednesday, 10 June 2015
      Last day to elect to receive the share re-investment alternative (no late forms of election will be accepted) by 12:00               Friday, 12 June 2015
      Record date                                                                                                                          Friday, 12 June 2015
      Announcement of results of cash dividend and share re-investment alternative on SENS                                                 Monday, 15 June 2015
      Cheques posted to certificated shareholders and accounts credited by CSDP or broker to dematerialised shareholders
      electing the cash dividend (the cash dividend payment date) on or about                                                              Monday, 15 June 2015
      Announcement of results of cash dividend and share re-investment alternative in the press                                         Wednesday, 17 June 2015
      Share certificates posted to certificated shareholders and accounts credited by CSDP or broker to dematerialised
      shareholders electing the share re-investment alternative on or about                                                              Thursday, 18 June 2015
      Adjustment to shares listed on or about                                                                                              Friday, 19 June 2015

      Shares may not be dematerialised or rematerialised between Monday, 8 June 2015 and Friday, 12 June 2015, both days included.

      In accordance with Delta's status as a REIT with effect from 8 December 2014, shareholders are advised that the dividend meets the requirements
      of a "qualifying distribution" for the purposes of section 25BB of the Income Tax Act, No. 58 of 1962 ("Income Tax Act"). An announcement informing
      shareholders of the tax treatment of the distributions will be released separately on SENS.


Directors: JB Magwaza† (Chairman), SH Nomvete* (CEO), BA Corbett* (CFO), JJG Da Costa^, N Khan^#, PD Simpson^,
I Macleod^, D Motau^
*Executive;   †Non-Executive;   ^Independent Non-Executive;   #Lead Independent Director

Registered office: Silver Stream Office Park, 10 Muswell Road South, Bryanston
(Postnet Suite 210, Private Bag X21, Bryanston, 2021)

Transfer secretaries: Computershare Investor Services Proprietary Limited

Sponsor: Nedbank Capital

www.deltafund.co.za

Date: 22/05/2015 05:45:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
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