Wrap Text
Unaudited condensed consolidated interim results for the six months ended 31 August 2015
Delta Property Fund Limited
(Incorporated in the Republic of South Africa)
(Registration number 2002/005129/06)
Share code: DLT ISIN: ZAE000172052
("Delta" or "the Fund" or "the Group")
(REIT status approved)
UNAUDITED
condensed consolidated interim results
for the six months ended 31 August 2015
Highlights
- 42.89 cents per share interim distribution representing
an increase of 7.2% from the comparable period in 2014
- On track to achieve 8% growth in distribution for full year
- Capital raise of R 780.3 million during the period
- Gearing ratio reduced from 49.9% to 46.0%
- Level 2 B-BBEE rating achieved – best rated listed
property fund
- Achieved A2 (ZA) short-term GCR credit rating
Consolidated Statement of Comprehensive Income
Unaudited Unaudited
For the For the Audited
half year half year For the
ended ended year ended
31-Aug-15 31-Aug-14 28-Feb-15
R' 000 R' 000 R' 000
Revenue
Contractual rental income 578 502 442 291 940 623
Straight-line rental income accrual 8 658 37 902 68 584
587 160 480 193 1 009 207
Property operating expenses (158 018) (116 701) (244 323)
Net property rental and related income 429 142 363 492 764 884
Profit on disposal of investment – – 20 425
Gain from bargain purchase – – 127
Other income 6 080 464 13 590
Administrative expenses (36 366) (25 213) (51 008)
Foreign exchange profit/(loss) 51 175 (1 450) (12 366)
Net operating profit 450 031 337 293 735 652
Fair value adjustments (16 513) (12 802) 458 985
Profit from operations 433 518 324 491 1 194 637
Finance costs (194 701) (141 329) (316 380)
Interest received 10 654 1 441 3 965
Amortisation of debenture premium – 158 930 264 883
Cancellation fee (11 542) (41 200) (41 200)
Impairment of development right – – (15 582)
Share of profit in associate 118 4 180 –
Loss on disposal of subsidiary (104 749) – –
Profit before debenture interest and taxation 133 298 306 513 1 090 323
Debenture interest – (166 767) (177 044)
Profit for the period before tax 133 298 139 746 913 279
Taxation – 9 517 (2 211)
Profit from continuing operations 133 298 149 263 911 068
Loss from discontinued operations (4 368) – (45 070)
Profit for the period 128 930 149 263 865 998
Other comprehensive income
Items that may subsequently be classified to profit or loss
Translation of foreign entities 83 111 – 63 813
Total comprehensive profit for the period 212 041 149 263 929 811
Profit for the period attributable to:
Equity shareholders of Delta Property Fund Limited 131 008 149 263 885 420
Non-controlling interests (2 078) – (19 422)
128 930 149 263 865 998
Total comprehensive income attributable to:
Equity shareholders of Delta Property Fund Limited 174 313 149 263 912 605
Non-controlling interests 37 728 – 17 206
212 041 149 263 929 811
Reconciliation of earnings, headline earnings and
distributable earnings
Profit for the period from continuing operations attributable to
equity shareholders 133 298 149 263 911 068
Debenture interest – 166 767 177 044
Earnings 133 298 316 030 1 088 112
Loss for the period from discontinued operations attributable
to equity shareholders (2 290) – (25 648)
Profit for the period attributable to equity shareholders 131 008 316 030 1 062 464
Headline earnings – continuing operations
Attributable earnings from continuing operations 133 298 316 030 1 088 112
Change in fair value of investment property 4 858 – (485 224)
Change in fair value of investment property 4 858 – (485 224)
Deferred taxation – – –
Gain from bargain purchase – – (127)
Impairment of development right – – 15 582
Loss on change in control of subsidiary 104 749 – –
Realisation of foreign currency translation reserve on disposal
of subsidiary (71 028) – –
171 877 316 030 618 343
Headline earnings – continuing and discontinued operations
Attributable earnings from continuing and discontinued
operations 131 008 316 030 1 062 464
Change in fair value of investment property 4 858 – (542 838)
Change in fair value of investment property 4 858 – (570 208)
Deferred taxation – – 27 370
Gain from bargain purchase – – (127)
Impairment of development right – – 15 582
Loss on change in control of subsidiary 104 749 – –
Realisation of foreign currency translation reserve on disposal
of subsidiary (71 028) – –
Non-controlling interest 2 078 – 27 419
Headline earnings from continuing and discontinued
operations 171 665 316 030 562 500
Headline earnings – continuing operations 171 877 316 030 618 343
Change in fair value of financial instruments (net of deferred
taxation) 11 655 11 570 20 990
Change in fair value of financial instrument 11 655 16 069 20 990
Deferred taxation – (4 499) –
Straight line rental income accrual (net of deferred taxation) (8 658) (37 902) (68 584)
Straight line rental income accrual (8 658) (37 902) (68 584)
Deferred taxation – – –
Antecedent interest 9 010 13 702 3 425
Cancellation fee 11 542 41 200 41 200
Deferred taxation – other adjustments – (3 384) 4 592
Fair value (gain)/loss on investments – (3 267) 5 249
Dividend received 14 057 – 18 247
Share of profit in associate (118) – –
Foreign exchange loss 19 922 1 450 12 366
Amortisation of debenture premium – (158 930) (264 883)
Profit on disposal of listed investments – – (20 425)
Accrued distribution from listed investments – – 11 905
Amortisation of debt structuring fee 3 321 – –
Distributable earnings attributable to equity shareholders 232 608 180 469 382 425
Less: distribution declared 232 608 180 469 382 425
Interim 232 608 180 469 180 469
Final – – 201 956
Number of shares in issue at interim 542 316 733 451 042 442 451 042 442
Number of shares in issue at year-end N/A N/A 458 409 836
Weighted average number of shares in issue 525 007 164 442 207 400 448 263 938
Basic and diluted earnings per share*
Basic and diluted earnings per share from continuing
operations 25,39 71,47 242,74
Basic and diluted earnings per share from discontinued
operations (0,44) – (5,72)
24,95 71,47 237,02
Basic and diluted headline earnings per share*
Basic and diluted headline earnings per share from continuing
operations 32,74 71,47 137,94
Basic and diluted headline earnings per share from
discontinued operations (0,04) – (12,46)
32,70 71,47 125,48
Distribution per share – interim 42,89 40,01 40,01
Distribution per share – year-end N/A N/A 44,06
Distribution per share – full year 42,89 40,01 84,07
* The Fund has no dilutionary instruments in issue
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
Balance at 1 March 2014 924 311 317 544 – – 1 241 855
Issue of linked units as consideration for – 161 966 – – 161 966
investment property
Non-controlling interest on acquisition of – – – 457 747 457 747
disposal group
Capital issue expenses – (14 139) – – (14 139)
Antecedent interest – number 03 – (5 836) – – (5 836)
Antecedent interest – 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
Issue of shares during the period – 780 326 – – 780 326
Capital issue expenses – (12 392) – – (12 392)
Repurchase of shares – (22 933) – – (22 933)
Distribution paid (238 264) – – – (238 264)
Other comprehensive income for the period – – 43 305 39 806 83 111
Profit for the period 131 008 – – (2 078) 128 930
Disposal of subsidiary – – (71 028) (490 918) (561 946)
Balance at 31 August 2015 1 708 476 3 523 065 (538) – 5 231 003
Consolidated statement of financial position
Unaudited Unaudited Audited
for the for the for the
half year ended half year ended year ended
31 August 31 August 28 Febuary
2015 2014 2015
R'000 R'000 R'000
Assets
Non-current assets
Investment property 8 816 434 7 180 373 8 393 900
Fair value of property portfolio 8 633 026 7 030 190 8 213 035
Straight-line rental income accrual 183 408 150 183 180 865
Property, plant and equipment 4 523 3 437 2 923
Investment in associate 406 825 505 442 –
Deferred tax – 12 455 –
Total non-current assets 9 227 782 7 701 707 8 396 823
Current assets
Other financial assets – 41 036 –
Current tax receivable 1 153 – 1 153
Trade and other receivables 241 535 96 864 284 036
Cash and cash equivalents 213 951 59 297 60 730
Total current assets 456 639 197 197 345 919
Non-current assets held for sale 265 630 – 26 500
Assets associated with disposal group held for sale – – 2 110 030
Total assets 9 950 051 7 898 904 10 879 272
Equity and liabilities
Total equity attributable to equity holders
Share capital 3 523 065 449 379 2 778 064
Foreign currency translation reserve (538) – 27 185
Retained income 1 708 476 1 073 574 1 815 732
5 231 003 1 522 954 4 620 981
Non-controlling interest – – 453 190
Total equity 5 231 003 1 522 954 5 074 171
Liabilities
Non-current liabilities
Interest-bearing borrowings 3 750 469 3 060 121 3 652 300
Debentures and debenture premium – 2 386 938 –
Deferred tax – – 19
Derivative financial instruments 32 646 16 070 20 990
Total non-current liabilities 3 783 115 5 463 129 3 673 309
Current liabilities
Interest-bearing borrowings 819 794 641 476 856 265
Trade and other payables 116 139 89 868 103 163
Current tax payable – 1 008 –
Shareholders for distribution – 180 469 –
Bank overdraft – – 21
Total current liabilities 935 933 912 821 959 449
Liabilities associated with disposal groups held for sale – – 1 172 343
Total liabilities 4 719 048 6 375 950 5 805 101
Total equity and liabilities 9 950 051 7 898 904 10 879 272
Consolidated statement of cash flows
Unaudited Unaudited Audited
For the half For the half For the
year ended year ended year ended
31 August 31 August 28 February
2015 2014 2015
R' 000 R'000 R'000
Cash generated from operations 415 603 301 858 483 116
Interest received 10 654 1 441 3 965
Finance costs (194 701) (141 329) (315 593)
Taxation paid – (3 500) (4 914)
Distribution paid (238 264) – –
Dividends received 14 057 – –
Net cash from operating activities 7 349 158 470 166 574
Acquisition of investment property (531 931) (126 825) (572 108)
Proceeds on disposal of investment property 21 643 – –
Refurbishment and renovations capitalised (147 573) (49 916) (148 134)
Purchase of property, plant and equipment (2 945) (641) (1 027)
Payments of other financial assets – (25 454) –
Proceeds from disposal of listed securities – 348 809 348 809
Acquisition of listed securities – (501 262) –
Net cash outflow on acquisition of subsidiary – – (8 720)
Net cash from investing activities (660 806) (355 289) (381 180)
Proceeds from issue of shares 780 326 118 000 –
Capital issue expenses (12 392) (2 687) (8 168)
Cash outflow on repurchase of shares (22 933) – –
Debenture interest paid – (178 453) (349 622)
Proceeds from interest-bearing borrowings 61 698 503 855 1 310 036
Repayment of other financial liabilities – (266 656) (266 656)
Changes in shareholding of subsidiary – – (492 335)
Net cash from financing activities 806 699 174 059 193 255
Net movement in cash and cash equivalents 153 242 (22 760) (21 351)
Cash at the beginning of the period 60 709 82 057 82 060
Total cash at the end of the period 213 951 59 297 60 709
Abridged consolidated segmental analysis
Admin and
Unaudited Office Office corporate
For the six months ended Retail government other Industrial costs Total
31 August 2015 R'000 R'000 R'000 R'000 R'000 R'000
Contractual rental income 12 653 333 864 219 296 12 689 – 578 502
Straight-line rental income 761 5 211 9 340 (6 654) – 8 658
accrual
Property operating expenses (4 626) (76 916) (73 265) (3 211) – (158 018)
Net property rental and 8 788 262 159 155 371 2 824 – 429 142
related income
Fair value adjustments – – (4 858) – (11 655) (16 513)
Investment property – – (4 858) – – (4 858)
Derivative instruments – – – – (11 655) (11 655)
Assets
Investment property 529 551 5 411 266 3 002 075 139 173 – 9 082 064
Fair value of property 524 381 5 262 287 2 969 074 136 917 – 8 892 658
portfolio
Straight-line rental income 5 170 148 979 33 001 2 256 – 189 406
accrual
Admin and
Unaudited Office Office corporate
For the six months ended Retail government other Industrial costs Total
31 August 2014 R'000 R'000 R'000 R'000 R'000 R'000
Contractual rental income 11 716 286 698 128 089 15 788 – 442 291
Straight-line rental income 627 28 475 5 812 2 988 – 37 902
accrual
Property operating expenses (4 564) (65 491) (43 438) (3 208) – (116 701)
Net property rental and related 7 779 249 682 90 463 15 568 – 363 492
income
Fair value adjustments – – – – (12 802) (12 802)
Investment property – – – – – –
Investments – – – – 3 267 3 267
Derivative instruments – – – – (16 069) (16 069)
Assets
Investment property 178 833 4 830 315 1 932 373 7 735 – 6 949 256
Fair value of property 177 288 4 705 707 1 916 078 – – 6 799 073
portfolio
Straight-line rental income 1 545 124 608 16 295 7 735 – 150 183
accrual
Admin and
Audited Office Office corporate
For the year ended Retail government other Industrial costs Total
28 February 2015 R'000 R'000 R'000 R'000 R'000 R'000
Contractual rental income 25 102 588 251 296 169 31 101 – 940 623
Straight-line rental income 260 48 914 13 830 5 580 – 68 584
accrual
Property operating expenses (7 021) (136 188) (95 383) (5 731) – (244 323)
Net property rental and related 18 341 500 977 214 616 30 950 – 764 884
income
Fair value adjustments – – – – (52 478) 432 746
Investment property (8 286) 317 817 190 365 (14 672) (26 239) 458 985
Investments – – – – (5 249) (5 249)
Derivative instruments – – – – (20 990) (20 990)
Assets
Investment property 207 800 5 206 800 2 751 400 227 900 – 8 393 900
Fair value of property 206 622 5 061 754 2 727 088 217 572 – 8 213 036
portfolio
Straight-line rental income 1 178 145 046 24 312 10 328 – 180 864
accrual
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 Works' B-BBEE policy.
2. Strategy
Delta will continue to be the dominant sovereign listed property fund in South Africa. This will be achieved by delivering above
industry average distributions and capital growth through a portfolio comprising predominantly sovereign underpinned properties.
A significant interest will be maintained in Delta Africa (formerly known as Delta International) to benefit from exposure to the high
growth opportunities on the African continent.
3. Distributable earnings and commentary on results
Delta has declared a distribution of 42.89154 cents per share for the six months ended 28 February 2015. This is a 7.2% increase on
the distribution for the comparable period in 2014.
Despite the difficult economic environment, property operating expenses were contained with the net cost-to-income ratio
marginally higher at 11.63% (August 2014: 10.16%). The increase is as a result of new properties that have been acquired that are
yet to stabilise in terms of their operational activities and costs.
Distributable earnings include a dividend received from Delta Africa of R14.1 million for the period ended 30 June 2015.
Other income of R6.1 million primarily comprises of a fee charged to recoup the associated net interest expense on a cash deposit
provided on behalf of Delta Africa.
The net foreign exchange gain of R51.2 million relates to accumulated foreign exchange gains of R71.1 million on the Delta Africa
investment which were reclassified from other comprehensive income to profit and loss upon the change in control of the subsidiary.
These were offset by a R19.9 million foreign exchange loss on US Dollar denominated debt.
In line with Group policy, the property portfolio is valued at financial year-end and has therefore not been revalued for interim reporting
purposes. The fair value loss of R16.5 million relates primarily to fair value fluctuations on interest rate hedges and cross currency
swaps.
Trade and other receivables includes deposits paid of R100 million on acquisitions yet to transfer.
4. Property portfolio
As at 31 August 2015 Delta's portfolio (inclusive of assets held for sale), valued at R9.1 billion, consisted of 85 properties with a
total GLA of 723,929 m(2).
The segmental and geographic breakdown of the portfolio at the reporting date was as follows:
See press for details.
4.1 Acquisitions
R492.3 million worth of direct property acquisitions transferred during the reporting period. These were acquired at an
aggregate yield of 9.99% adding a total GLA of 31,782 m(2) to the portfolio.
As announced on SENS on 02 June 2015, the Company has entered into various agreements with Orthotouch Limited for
the acquisition of 15 properties for a total consideration of R507 million. These properties are expected to transfer by the
end of November 2015 and the purchase consideration will be settled through a combination of debt funding and the issue of
additional Delta shares to the vendor.
4.2 Disposals
Management has embarked on a strategy to dispose of assets deemed to be non-core in terms of its strategy. The proceeds
from the disposals will be primarily used to reduce gearing levels. Opportunities will also be considered where capital from the
disposal of core assets can be better deployed to higher yielding assets.
At 31 August 2015 the Company had entered into agreements for the disposal of three properties. These properties are
expected to transfer within 12 months and have been classified as held for sale.
4.3 Property extensions and refurbishments
Current projects include:
CMH House, Durban
This project, being the redevelopment of the building to accommodate a CMH show room and 450 parking bays, is nearing
completion and the new lease with CMH is expected to commence on 01 November 2015.
Commission House, Pretoria
The scope of this project has been reviewed and while an extension to the building will not be included as previously anticipated,
the full refurbishment will continue. The total approved cost of the revised scope is R30 million and once completed the
Company anticipates a long lease with a suitable user at rentals in excess of the previous lease commitment. Negotiations with
a suitable tenant have commenced.
4.4 Lettings and vacancies
GLA Revenue
Details % %
vacant 8.4% –
28-Feb-16 15.1% 15.1%
28-Feb-17 20.7% 24.5%
28-Feb-18 20.6% 19.5%
28-Feb-19 11.3% 14.7%
28-Feb-20 8.1% 7.7%
28-Feb-21 9.4% 11.4%
> 28-Feb-21 6.4% 7.1%
Total 100.0% 100.0%
During the period, leases in respect of 24,666 m2 were renewed, and brought forward or acquired vacancies of 6,566
m(2) were filled.
The weighted average escalation rate across the portfolio was 7.88% at period end and the weighted average rental per
m(2) for the full portfolio was R101.49.
Vacancies in the Delta portfolio at 31 August 2015 amounted to 8.4% of gross lettable area compared with 7.1% at
28 February 2015.
5. Investment in Delta Africa
The holding in Delta Africa (formerly known as Delta International) was diluted from 52.41% at 28 February 2015 to 31.78%
at reporting date which has resulted in the investment being equity accounted as an associate. The fair value of the investment
retained by Delta on the date of dilution was R421.3 million.
The accounting loss of R104.7 million which was added back in the calculation of distributable earnings follows the change
in accounting of the investment from a subsidiary controlled by Delta to an associate over which Delta exercises significant
influence.
6. Borrowings and hedging
Delta's gearing ratio has decreased from 49.9% at February 2015 to 46.0% at 31 August 2015. This is in line with the
Company's strategy to gradually reduce its debt levels to 40% relative to income producing assets. The weighted average
expiry of Delta's total facilities is 2.60 years, compared to 2.37 years at February 2015 with short-term bridge funding being
settled or converted to long-term facilities.
The weighted average expiry of fixed debt is 1.91 years and represents 69% of total debt. Delta's policy is to fix between 70%
– 75% of its total interest-bearing debt, and will conclude further swap contracts before February 2016. The total value of
available facilities is R4.67 billion of which R4.53 billion has been utilised. The weighted average cost of debt funding is 8.09%.
Delta intends on further utilising its DMTN programme with both secured and unsecured instruments in the future to diversify
its sources of funding and to maintain its competitive low cost of debt.
7. Repurchase of securities
During the period, the Company embarked on a strategy to repurchase Delta shares. At the date of this report, 3 692 000
shares have been repurchased at an average price of R8.12 per share. This represents a 15.9% discount to net asset value
per share at 31 August 2015. Management will continue to utilise excess capital for the repurchase of Delta shares where
they believe that current market prices do not reflect the intrinsic value of the share.
8. Events subsequent to the reporting period
As announced on SENS on 02 October 2015, shareholders were advised that Greg Booyens has resigned as the Chief Financial
Officer of Delta to pursue new interests. Greg will remain with Delta until the end of December 2015 to ensure a smooth
handover of his responsibilities.
The board of directors has embarked upon a process of appointing a suitable replacement and expects to make an
announcement in this regard in the near future.
The Board wishes to thank Greg for his contribution to the Company since 2012 and wishes him well in his future endeavours.
9. Prospects
While the domestic economy continues to face increasing headwinds and 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 opportunities
in line with its strategy.
Delta is on track to deliver combined distribution growth for the 2016 financial year of 8% from February 2015. This forecast
is based on the assumption that trading conditions and the macroeconomic environment remains stable.
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)
26 October 2015
Notes
1. Basis of preparation and accounting policies
The unaudited condensed consolidated interim results of Delta have been 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 the Financial
Reporting Standards Council and contain the information required by IAS 34: Interim Financial Reporting, the JSE Listings
Requirements and the requirements of the Companies Act of South Africa. This report has been compiled under the supervision of
Greg Booyens CA (SA), the Chief Financial Officer of Delta.
The accounting policies adopted in the preparation of these results are consistent with those applied in the preparation of the
financial statements for the year ended 28 February 2015. The results have not been reviewed or audited by Delta's auditors,
BDO South Africa Incorporated.
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.
2. Declaration of interim dividend ("the cash dividend")
Shareholders are advised that dividend no. 6 of 42.89154 cents per share for the six months ended 31 August 2015 has been
declared. The source of the cash dividend is from income. The abbreviated timetable is as follows:
Last day to trade cum-dividend Friday, 13 November 2015
Shares to trade ex-dividend Monday, 16 November 2015
Record date Friday, 20 November 2015
Payment date Monday, 23 November 2015
Shareholders may not dematerialise or rematerialise their shares between Monday, 16 November 2015 and Friday, 20 November
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* (COO), GS Booyens* (CFO), JJG Da Costa^,
N Khan^#, PD Simpson^, DN Motau^, ID Macleod^,
*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 CIB
www.deltafund.co.za
Date: 26/10/2015 05:50:00 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
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
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