Wrap Text
Unaudited condensed consolidated interim results for the six months ended 31 August 2016
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)
UNAUDITED CONDENSED CONSOLIDATED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 AUGUST 2016
Highlights
- Increased half-year distribution by 7.1% to 45.93 cents per share
- Reduced gearing to 41.0% from 47.2% at year-end
- Property operating margin maintained at 72.7%
- Successfully refinanced and settled R832m in debt
- Vacancy of 9.2% below the SAPOA national average of 10.5%
Consolidated Statement of Comprehensive Income
Unaudited for the Unaudited for the Audited for the
half year ended half year ended year ended
31 Aug 16 31 Aug 15 29 Feb 16
R'000 R'000 R'000
Revenue
Contractual rental income 757 233 578 502 1 220 632
Straight-line rental income accrual 59 8 658 26 950
757 292 587 160 1 247 582
Property operating expenses (206 707) (158 018) (322 051)
Net property rental and related income 550 585 429 142 925 531
Other income 15 6 080 7 266
Administrative expenses (41 330) (36 366) (82 744)
Profit/(loss) on foreign exchange differences 18 423 51 175 (57 834)
Net operating profit 527 693 450 031 792 219
(Loss)/gain from fair value adjustments (1 054) (16 513) 259 124
Profit from operations 526 639 433 518 1 051 343
Net finance costs (215 055) (184 047) (386 120)
Finance costs (228 638) (194 701) (412 713)
Interest income 13 583 10 654 26 593
Cancellation fee - (11 542) (11 542)
Share of (loss)/profit in associate (23 690) 118 33 537
Share of loss in joint venture - - (2)
Loss on disposal of subsidiary - (104 749) -
Profit before taxation 287 894 133 298 687 216
Taxation - - -
Profit from continuing operations 287 894 133 298 687 216
Loss from discontinued operations - (4 368) (38 089)
Profit for the period 287 894 128 930 649 127
Other comprehensive income
Items that may subsequently be classified to profit
or loss
Exchange gain on translation of foreign entities - 83 111 83 649
Reclassification of foreign currency translation reserve - - (43 843)
Share of foreign currency translation gain/(loss) of
associate 44 326 - (43 796)
Total comprehensive profit for the period 332 220 212 041 645 137
Profit for the period attributable to:
Owners of the parent:
Profit for the period from continuing operations 287 894 133 298 687 216
Loss for the period from discontinued operations - (2 290) (36 011)
287 894 131 008 651 205
Non-controlling interest:
Loss for the year from discontinued operations - (2 078) (2 078)
287 894 128 930 649 127
Total comprehensive income attributable to:
Equity shareholders of Delta Property Fund Limited 332 220 174 313 607 409
Non-controlling interests - 37 728 37 728
332 220 212 041 645 137
Reconciliation of earnings, headline earnings and distributable earnings
Unaudited for the Unaudited for the Audited for the
half year ended half year ended year ended
31 Aug 16 31 Aug 15 29 Feb 16
R'000 R'000 R'000
Profit for the period from continuing operations
attributable to equity shareholders 287 894 133 298 687 216
Earnings 287 894 133 298 687 216
Loss for the period from discontinued operations
attributable to equity shareholders - (2 290) (36 011)
Profit for the period attributable to equity shareholders 287 894 131 008 651 205
Headline earnings - continuing operations
Attributable earnings from continuing operations 287 894 133 298 687 216
Change in fair value of investment property 78 793 4 858 (373 286)
Fair value loss/(gain) of investment property 8 250 4 858 (304 200)
Fair value loss/(gain) of investment property
of associate 70 543 - (69 086)
Loss on change in control of subsidiary - 104 749 -
Realisation of foreign currency translation reserve on
loss of control of subsidiary - (71 028) -
Headline earnings - continuing operations 366 687 171 877 313 930
Headline earnings - continuing and discontinued
operations
Attributable earnings from continuing and discontinued
operations 287 894 131 008 651 205
Change in fair value of investment property 78 793 4 858 (373 286)
Fair value loss/(gain) of investment property 8 250 4 858 (304 200)
Fair value loss/(gain) of investment property of
associate 70 543 - (69 086)
Loss on change in control of subsidiary - 104 749 -
Realisation of foreign currency translation reserve on
loss of control of subsidiary - (71 028) -
Non-controlling interest - 2 078 -
Headline earnings from continuing and discontinued
operations 366 687 171 665 277 919
Headline earnings - continuing operations 366 687 171 877 313 930
Fair value (gain)/loss of financial instruments (7 196) 11 655 45 076
Straight line rental income accrual (59) (8 658) (26 950)
Antecedent dividend - 9 010 9 010
Cancellation fee - 11 542 11 542
Dividend income 18 851 14 057 36 779
Share of loss/(profit) in associate 23 690 (118) (33 537)
Share of loss in joint venture - - 2
Unrealised foreign exchange (gain)/loss (18 311) 19 922 57 795
Amortisation of debt structuring fee - 3 321 6 141
Fair value (loss)/gain of investment property of
associate (70 543) - 69 086
Retained prior distributable income distributed - - -
Distributable earnings attributable to equity
shareholders 313 119 232 608 488 874
Less: distribution declared 313 119 232 608 487 962
Interim 313 119 232 608 232 608
Final - - 255 354
Retained distribution - - 912
Actual number of shares in issue (R'000) 710 632 542 317 533 097
Weighted average number of shares in issue (R'000) 663 042 525 007 535 183
Shares in issue entitled to distribution (R'000) 681 723 542 317 533 097
Basic and diluted earnings per share (cents)
Basic and diluted earnings per share from continuing
operations 43,42 25,39 128,41
Basic and diluted earnings per share from discontinued
operations - (0,44) (6,73)
43,42 24,95 121,68
Basic and diluted headline earnings per share (cents)
Basic and diluted headline earnings per share from
continuing operations 55,30 32,74 58,66
Basic and diluted headline earnings per share from
discontinued operations - (0,04) (6,73)
55,30 32,70 51,93
Distribution per share (cents)
Distribution per share - interim 45,93 42,89 42,89
Distribution per share - year end - - 47,90
Distribution per share - full year 45,93 42,89 90,79
Consolidated Statement of Financial Position
Unaudited for the Unaudited for the Audited for the
half year ended half year ended year ended
31 Aug 16 31 Aug 15 29 Feb 16
R'000 R'000 R'000
Assets
Non-current assets
Investment property 10 155 844 8 816 434 8 684 700
Fair value of property portfolio 9 969 666 8 633 026 8 500 183
Straight-line rental income accrual 186 178 183 408 184 517
Property, plant and equipment 3 790 4 523 4 331
Investment in associate 403 954 406 825 383 327
Derivative financial instruments 4 213 - 13 401
Total non-current assets 10 567 801 9 227 782 9 085 759
Current assets
Loans receivable 131 432 - 77 115
Current tax receivable 1 153 1 153 1 153
Trade and other receivables 238 502 241 535 252 938
Derivative financial instruments 732 545
Cash and cash equivalents 134 461 213 951 187 362
Total current assets 506 280 456 639 519 113
Non-current assets held for sale 1 201 946 265 630 1 410 481
Total assets 12 276 027 9 950 051 11 015 353
Equity and liabilities
Total equity attributable to equity holders
Share capital 4 845 248 3 523 065 3 450 593
Reserves 139 955 (538) 215 924
Retained income 2 022 607 1 708 476 1 990 112
Total equity 7 007 810 5 231 003 5 656 629
Liabilities
Non-current liabilities
Interest-bearing borrowings 3 994 346 3 750 469 3 560 275
Share-based payment liability 559 - 559
Derivative financial instruments 44 463 32 646 49 981
Total non-current liabilities 4 039 368 3 783 115 3 610 815
Current liabilities
Interest-bearing borrowings 1 009 772 819 794 1 534 035
Trade and other payables 167 617 116 139 102 233
Derivative financial instruments 19 353 30 032
Bank overdraft 32 107 - 81 609
Total current liabilities 1 228 849 935 933 1 747 909
Total liabilities 5 268 217 4 719 048 5 358 724
Total equity and liabilities 12 276 027 9 950 051 11 015 353
Consolidated statement of Changes in Equity
Foreign
currency Deferred
Share translation consideration Retained Total
capital reserve reserve income equity
R'000 R'000 R'000 R'000 R'000
Balance at 31 August 2015 3 523 065 (538) - 1 708 476 5 231 003
Profit for the year - - - 520 197 520 197
Other comprehensive income - (43 258) - - (43 258)
Total comprehensive income for
the year - (43 258) - 520 197 476 939
Issue of shares 2 849 - - (5 971) (3 122)
Share buy-back (75 321) - - - (75 321)
Deferred consideration - - 259 720 - 259 720
Dividends paid - - - (232 590) (232 590)
Balance at 29 February 2016 3 450 593 (43 796) 259 720 1 990 112 5 656 629
Profit for the period - - - 287 894 287 894
Other comprehensive income - 44 326 - - 44 326
Total comprehensive income for
the year - 44 326 - 287 894 332 220
Issue of shares 1 394 655 - - - 1 394 655
Deferred consideration - - (120 295) - (120 295)
Dividends paid - - - (255 399) (255 399)
Balance at 31 August 2016 4 845 248 530 139 425 2 022 607 7 007 810
Consolidated Statement of Cash flows
Unaudited for the Unaudited for the Audited for the
half year ended half year ended year ended
31 Aug 16 31 Aug 15 29 Feb 16
R'000 R'000 R'000
Cash generated in operations 505 336 415 603 827 846
Finance costs (224 524) (194 701) (374 449)
Interest received 5 144 10 654 10 227
Dividends received - 14 057 36 837
Dividends paid (255 399) (238 264) (470 854)
Net cash from operating activities 30 557 7 349 29 607
Acquisition of investment property (4 126) (531 931) (801 449)
Capital expenditure on investment property (111 221) (147 573) (304 073)
Proceeds on disposal of investment property 206 000 21 643 104 859
Loans received/(advanced) 7 573 - (77 115)
Acquisition of property, plant and equipment (96) (2 945) (4 449)
Acquisition of shares in associate - - (9 123)
Acquisition of shares in joint venture - - (2)
Net cash from investing activities 98 130 (660 806) (1 091 352)
Proceeds from issue of shares - 780 326 703 376
Share buy back - (22 933) (98 254)
Capital issue expenses (604) (12 392) (15 514)
Proceeds from interest-bearing borrowings 200 000 61 698 1 376 946
Repayment of interest-bearing borrowings (331 482) - (859 765)
Net cash from financing activities (132 086) 806 699 1 106 789
Net movement in cash and cash equivalents (3 399) 153 242 45 044
Cash at the beginning of the period 105 753 60 709 60 709
Total cash at the end of the period 102 354 213 951 105 753
Condensed consolidated segmental analysis
Unaudited for the Unaudited for the Audited for the
half year ended half year ended year ended
31 Aug 16 31 Aug 15 29 Feb 16
R'000 R'000 R'000
Net property rental and related income
Office - Sovereign 440 273 262 159 721 372
Office - Non-sovereign 75 398 155 371 130 352
Retail 27 616 8 788 66 866
Industrial 7 298 2 824 6 941
550 585 429 142 925 531
Investment property (including non-current
assets held for sale)
Office - Sovereign 9 141 335 5 411 265 7 733 442
Office - Non-sovereign 1 603 125 3 002 075 1 551 849
Retail 435 383 529 551 632 590
Industrial 177 947 139 173 177 300
11 357 790 9 082 064 10 095 181
Commentary
Company profile
Delta is a JSE listed Real Estate Investment Trust ("REIT") with a property portfolio of R11.4 billion and a market
capitalisation of R4.6 billion as at 31 August 2016. The Fund is black managed with a Level 2 B-BBEE contributor
status which is the highest in the sector. Delta continues to be the dominant sovereign listed property fund in South Africa.
The primary focus of the Fund is long-term investment in quality, rental income generating properties situated in strategic nodes
attractive to sovereign entities and other tenants requiring empowered landlords.
Financial results
The Board has declared an interim distribution of 45.93 cents per share which represents a 7.1% increase to the
comparable period in the prior year.
Contractual rental income increased 30.9% from the prior period, benefiting substantially from acquisitions concluded
during the period. Property operating expenses increased 30.8% in line with the growth in the portfolio, with net
cost to income ratio reducing from 11.4% to 10.2% due to higher cost recoveries on recent acquisitions. Like-for-like
net property income increased by 5.2%.
Administrative expenses for the period increased 13.7%, primarily due to the larger portfolio which resulted in
increased asset management fees and related costs. The foreign exchange gain of R18.4 million is attributable to
the Bank of China loan which provides Delta with significantly lower interest rates than is accessible in local debt
markets. Fair value adjustment of R1.1 million represents the net movement of swap contracts and assets disposed.
Delta's property portfolio will be revalued at financial year end.
Net finance costs increased 16.9% and was largely driven by acquisitions during the period combined with total
interest rate hikes of 100 basis points.
The share of loss in associate is attributable to fair value adjustments by Mara Delta on its property portfolio. Delta
continues to benefit from its 23.9% shareholding in Mara Delta, having received a US dollar denominated distribution
which translated into R18.8 million.
Property portfolio
As at 31 August 2016 Delta's assets including non-current assets held for sale were valued at R11.4 billion, consisting
of 115 properties with a combined GLA of 1 003 028 m2.
The segmental and geographic breakdown of the portfolio (per tenant) at the reporting date was as follows:
Tenant profile by GLA
% GLA
National Government 40.4%
Provincial Government 14.7%
Local Government 4.2%
State-Owned Enterprise 11.8%
Retail 6.8%
Industrial 3.1%
Office - other 19.0%
100.0%
Tenant profile by rental
% Rental
National Government 39.9%
Provincial Government 20.1%
Local Government 4.5%
State-Owned Enterprise 11.7%
Retail 6.9%
Industrial 1.5%
Office - other 15.4%
100.0%
Geographical profile by GLA
% GLA
Gauteng 43.3%
KwaZulu-Natal 29.2%
Free State 8.5%
Limpopo 4.5%
Western Cape 4.2%
Northern Cape 4.0%
Mpumalanga 3.3%
Eastern Cape 2.4%
North West 0.6%
100.0%
Geographical profile by rental
% Rental
Gauteng 43.8%
KwaZulu-Natal 23.9%
Limpopo 9.0%
Free State 7.2%
Western Cape 4.9%
Northern Cape 4.4%
Mpumalanga 3.5%
Eastern Cape 2.8%
North West 0.5%
100.0%
Acquisitions
Delta did not embark on any new acquisitions during the current period but continues to focus on strengthening the
underlying portfolio's property fundamentals by renewing leases, managing gearing and filling vacancies. Acquisitions concluded
in the previous financial year totalling 17 properties, valued at R1.3 billion with a total GLA of 199 355 m(2), transferred during the
current period.
Major capital projects
Delta continues to invest substantial capital in its property portfolio to ensure it maintains a higher quality and grade
of assets that meets the requirements of its tenants. The following major capital projects are currently in progress:
- 88 Field Street (Durban) - total estimated capital spend of R89 million which is expected to be completed by
financial year end.
- Embassy Building (Durban) - undertaken at an estimated cost of R28 million and is strategic to securing future
leases.
- Beacon Hill (King Williams Town) - approved at an estimated cost of R40 million due to a newly secured five-year
lease.
- Commission House (Pretoria) - currently in progress at an estimated cost of R28 million and is intended to
upgrade the asset which is well positioned near the Union Buildings.
Disposals
At the prior financial year end 17 non-core properties, with a total GLA of 134 754 m2 and amounting to R1.4 billion,
were classified as non-current assets held for sale. Of these assets the disposal and transfer of Tembisa
Megamart for R206.0 million was concluded at half year, with sale agreements currently being concluded for
a further 10 properties. Management's intention is to utilise the net disposal proceeds to either reduce gearing or
invest in higher yielding strategically located assets.
Letting and vacancies
The lease expiry profile of the portfolio per segment based on GLA at 31 August 2016 was as follows:
Beyond
Vacant Feb Feb Feb Feb Feb 28 Feb
Segment Aug 16 2017 2018 2019 2020 2021 2021
Office Sovereign 7.3% 32.9% 24.1% 9.0% 7.3% 12.6% 6.8%
Office other 12.6% 19.6% 23.2% 24.2% 11.8% 2.7% 5.9%
Retail 3.4% 9.0% 4.0% 11.4% 14.4% 1.6% 56.2%
Industrial 28.8% 0.0% 28.3% 0.0% 0.0% 42.9% 0.0%
Vacancies were largely unchanged at to 9.2% of gross lettable area (2016: 9.0%) and is expected to reduce to 8.0% once
disposals of non-current assets held for sale are completed. The weighted average escalation in force at half-year was 7.1%
with a weighted average rental per m(2) of R102.69.
Leases totalling 59 815 m(2) were renewed during the period, with a further 10 860 m(2) of new leases being concluded.
DPW is working on a revised Leasing Procurement Policy which will entail registration of all landlords on a centralised
database. The intention is to drive transformation and bring back long-term leases, with policy implementation
expected in April 2017.
Funding
Delta's loan to value ratio at 31 August 2016 improved significantly to 41.0% (2016: 47.2%), benefiting from
acquisitions funded with equity and the settlement of debt on disposals. This ratio is expected to further improve to
ca. 40.5% upon the migration of our shareholding in Mara Delta from the Johannesburg Stock Exchange to the Stock
exchange of Mauritius.
The weighted average all-in cost of funding is 9.0% (2016: 8.8%), with 84.1% (2016: 83.5%) of borrowings
being fixed through a combination of swap contracts and fixed rate loans for an average period of 2.1 years
(2016: 2.1 years). The average debt facility expiry period is 2.1 years (2016: 2.3 years) with the interest cover
ratio at 2.4 (2016: 2.4).
Global Credit Rating re-affirmed Delta's National Credit Rating as stable on long term and short term at BBB+(za) and
A2(za) respectively as at 31 July 2016. They further re-affirmed the A+(za) rating on our Senior Secured Notes -
DLTB02 at 31 August 2016.
Management remains strongly focused on initiatives to further improve gearing, obtain competitive funding rates and
improve the debt expiry profile.
Changes to directorate during the period
Jorge da Costa stepped down as Chairman of the Investment Committee, member of the Remuneration and
Nomination Committee and as an independent non-executive director of the Board with effect from 20 July 2016.
We thank Jorge for his contribution to Delta and wish him well in his future endeavours.
Events subsequent to the reporting period
The directors are not aware of any matters or circumstances arising subsequent to 31 August 2016 that require any
additional disclosure or adjustment to these financial statements.
Prospects
The domestic property market is expected to remain challenging amidst a weak economy compounded by
inflationary pressures and a volatile interest rate outlook. Management and the Board, however, remain positive that
the defensive nature of Delta's portfolio will continue to provide value for investors in the form of stable distribution
growth.
The primary effort in the business remains focused on lease renewals, renewing debt facilities and further lowering
gearing to below 40.0%. The recent roadshows and communication by DPW pertaining to re-emergence of long-term
leases provides significant opportunity for value-enhancement to Delta's positioning and ability to implement thereon.
Management remains confident of achieving a full-year distribution growth of between 7.0% and 7.5% for the full
2017 financial year. This forecast is based on the assumption that the current trading environment prevails with no
major setbacks in current operating conditions. The Group's independent auditors have not reviewed or reported on
the forecast.
Declaration of interim dividend ("the cash dividend")
Shareholders are advised that dividend No. 8 of 45.93057 cents per share for the six months ended
31 August 2016 has been declared. The source of the cash dividend is from distributable income. The abbreviated
timetable is as follows:
Last day to trade cum-dividend Tuesday, 15 November 2016
Shares to trade ex-dividend Wednesday, 16 November 2016
Record date Friday, 18 November 2016
Payment date Monday, 21 November 2016
Shareholders may not dematerialise or rematerialise their shares between Wednesday, 16 November 2016 and
Friday, 18 November 2016, 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.
Basis of preparation and accounting policies
The unaudited condensed consolidated interim results have been prepared in accordance with the International
Financial Reporting Standards (IFRS), IAS 34: Interim Financial Reporting, the SAICA Financial Reporting Guides as
issued by the Accounting Practices Committee and Financial Pronouncements as issued by the Financial Reporting
Standards Council, the JSE Listings Requirements and the requirements of the Companies Act of South Africa. The
accounting policies applied in the preparation of these interim results are in terms of IFRS and are consistent with
those applied in the previous annual financial statements.
The condensed consolidated interim results have been prepared under the supervision of the Chief Financial Officer,
Mr Shaneel Maharaj CA(SA)/HDipTax, and have not been reviewed or audited by the independent external auditors
BDO South Africa Incorporated.
By order of the Board:
JB Magwaza (Chairman) SH Nomvete (Chief Executive Officer)
26 October 2016
Directors: JB Magwaza^ (Chairman), SH Nomvete* (CEO), ON Tshabalala* (COO),
S Maharaj* (CFO), N Khan^#, DN Motau^, ID Macleod^, M de Lange^, NN Afolayan^,
BA Corbett~, AJ König~
*Executive; ^Independent Non-executive; ~ 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 Corporate and Investment Banking
www.deltafund.co.za
Date: 27/10/2016 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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