Wrap Text
Unaudited condensed consolidated interim results for the six months ended 31 August 2017
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 2017
- Interim distribution of 46.40 cents per share achieved
- Distributable earnings increased 5.3%
- Debtors days at 18.1
- Renewed and concluded 120 251m2 of leases
- Vacancy at 11.3% (SAPOA: 11.8%)
Condensed consolidated statement of comprehensive income
Unaudited Audited for
for the half-year ended the year ended
R'000 31 Aug 2017 31 Aug 2016 28 Feb 2017
Revenue
Contractual rental income 782 341 757 233 1 612 481
Straight-line rental income accrual (699) 59 4 863
781 642 757 292 1 617 344
Property operating expenses (205 266) (206 707) (464 003)
Net property rental and related income 576 376 550 585 1 153 341
Other income 19 15 6 215
Administration expenses (45 949) (41 330) (68 169)
Foreign exchange gain 1 664 18 423 20 336
Net operating profit 532 110 527 693 1 111 723
Loss on fair value adjustments (86 698) (1 054) (34 887)
Profit from operations 445 412 526 639 1 076 836
Finance costs (235 967) (228 638) (470 580)
Interest income 12 840 13 583 27 168
Share of profit/(loss) in associate 19 225 (23 690) 1 526
Profit before tax 241 510 287 894 634 950
Taxation - - -
Profit for the period 241 510 287 894 634 950
Other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Share of foreign currency translation reserve of associate 2 127 44 326 44 150
Total comprehensive income for the period 243 637 332 220 679 100
Profit for the period attributable to:
Owners of the parent 241 510 287 894 634 950
Non-controlling interest - - -
241 510 287 894 634 950
Total comprehensive income for the period attributable to:
Owners of the parent 243 637 332 220 679 100
Non-controlling interests - - -
243 637 332 220 679 100
Reconciliation of earnings, headline earnings and distributable earnings
Unaudited Audited for
for the half-year ended the year ended
R'000 31 Aug 2017 31 Aug 2016 28 Feb 2017
Profit for the period attributable to owners of the parent 241 510 287 894 634 950
Headline earnings
Profit for the period from continuing operations 241 510 287 894 634 950
Change in fair values of investment properties and investment 57 399 78 793 103 922
Fair value loss on investment property 13 909 8 250 43 817
Fair value loss on investment property of associate 2 009 70 543 60 105
Fair value loss on disposal of investment 41 481 - -
Headline earnings from operations 298 909 366 687 738 872
Headline earnings from operations 298 909 366 687 738 872
Fair value loss/(gain) on derivative financial instruments 31 308 (7 196) (8 930)
Straight-line rental income accrual (net of deferred taxation) 699 (59) (4 863)
Dividend income 18 587 18 851 37 990
Share of (profit)/loss in associate (19 225) 23 690 (1 526)
Unrealised foreign exchange gain (1 923) (18 311) (20 336)
Fair value loss on investment property of associate (2 009) (70 543) (60 105)
Prior year retained distribution declared 3 378 - -
Distributable earnings attributable to owners of the parent 329 724 313 119 681 102
Less: distribution declared 329 724 313 119 677 724
Interim 329 724 313 119 313 119
Final - - 364 605
Distributable earnings retained - - 3 378
Number of shares in issue (R'000) 710 632 710 632 710 632
Weighted average number of shares in issue (R'000) 710 632 663 042 709 531
Shares in issue entitled to distribution (R'000) 710 632 681 723 710 632
Basic and diluted earnings per share (cents) 33.99 43.42 89.49
Basic and diluted headline earnings per share (cents) 42.06 55.30 104.14
Distribution per share (cents)
Distribution per share - interim 46.40 45.93 45.93
Distribution per share - final - - 51.31
46.40 45.93 97.24
Condensed consolidated segmental analysis
Unaudited Audited for
for the half-year ended the year ended
R'000 31 Aug 2017 31 Aug 2016 28 Feb 2017
Contractual rental income
Office - Sovereign 607 206 592 035 1 302 985
Office - Non-sovereign 138 036 113 489 216 403
Retail 24 210 40 745 71 198
Industrial 12 889 10 964 21 895
782 341 757 233 1 612 481
Net property rental and related income
Office - Sovereign 464 913 440 273 957 386
Office - Non-sovereign 84 927 75 398 139 333
Retail 17 348 27 616 41 374
Industrial 9 188 7 298 15 248
576 376 550 585 1 153 341
Investment property including non-current assets held-for-sale
Office - Sovereign 8 651 470 9 141 335 9 258 112
Office - Non-sovereign 2 112 384 1 603 125 1 516 772
Retail 349 020 435 383 448 537
Industrial 217 555 177 947 158 000
11 330 429 11 357 790 11 381 421
Condensed consolidated statement of changes in equity
Foreign
currency Deferred
Share translation consideration Retained Total
R'000 capital reserve reserve income equity
Balance at 1 March 2016 3 450 593 (43 796) 259 720 1 990 112 5 656 629
Profit for the year - - - 634 950 634 950
Other comprehensive income - 44 150 - - 44 150
Total comprehensive income for the year - 44 150 - 634 950 679 100
Issue of shares - issued as
consideration for investment property 1 394 655 - - - 1 394 655
Deferred consideration - - (120 295) - (120 295)
Dividends paid - - - (568 473) (568 473)
Balance at 28 February 2017 4 845 248 354 139 425 2 056 589 7 041 616
Profit for the period - - - 241 510 241 510
Other comprehensive income - 2 127 - - 2 127
Total comprehensive income for the year - 2 127 - 241 510 243 637
Distribution paid - - - (364 605) (364 605)
Balance at 31 August 2017 4 845 248 2 481 139 425 1 933 494 6 920 648
Condensed consolidated statement of cash flows
Unaudited Audited for
for the half-year ended the year ended
R'000 31 Aug 2017 31 Aug 2016 28 Feb 2017
Cash generated from operations 505 583 505 336 1 016 482
Tax received 627 - -
Finance costs (232 772) (224 524) (482 090)
Interest received 12 194 5 144 7 823
Dividends received 14 062 - 18 851
Dividends paid (364 650) (255 399) (568 473)
Net cash from operating activities (64 956) 30 557 (7 407)
Purchase of property, plant and equipment (430) (96) (260)
Acquisition of investment properties - (4 126) (60 300)
Capital expenditure (90 143) (111 221) (202 965)
Proceeds on disposal of investment properties 105 526 206 000 268 500
Loans repaid from related parties 28 835 7 573 18 634
Net cash from investing activities 43 788 98 130 23 609
Capital issue expenses - (604) (604)
Repayment of derivative financial instrument (9 024) - -
Increase in interest-bearing borrowings 42 037 200 000 418 800
Repayment of interest-bearing borrowings (108 825) (331 482) (387 313)
Net cash from financing activities (75 812) (132 086) 30 883
Net movement in cash and cash equivalents (96 980) (3 399) 47 085
Cash at the beginning of the period 152 838 105 753 105 753
Total cash at the end of the period 55 858 102 354 152 838
Condensed consolidated statement of financial position
Unaudited Audited for
for the half-year ended the year ended
R'000 31 Aug 2017 31 Aug 2016 28 Feb 2017
Assets
Non-current assets
Investment property 10 124 585 10 155 844 10 053 921
Fair value of investment property 9 934 190 9 969 666 9 861 449
Straight-line rental income accrual 190 395 186 178 192 472
Property, plant and equipment 3 090 3 790 3 302
Investment in associate 398 304 403 954 391 013
Derivative financial instruments - 4 213 35
10 525 979 10 567 801 10 448 271
Current assets
Loans receivable 66 861 131 432 108 483
Current tax receivable 526 1 153 1 153
Trade and other receivables 285 123 238 502 276 091
Derivative financial instruments 164 732 1 721
Cash and cash equivalents 60 772 134 461 196 115
413 446 506 280 583 563
Non-current assets held-for-sale 1 205 844 1 201 946 1 327 500
Total assets 12 145 269 12 276 027 12 359 334
Equity
Share capital 4 845 248 4 845 248 4 845 248
Reserves 141 906 139 955 139 779
Retained income 1 933 494 2 022 607 2 056 589
Total equity 6 920 648 7 007 810 7 041 616
Liabilities
Non-current liabilities
Interest-bearing borrowings 3 039 048 3 994 346 4 112 646
Cash-settled share-based payment arrangement - 559 -
Derivative financial instruments 39 989 44 463 29 623
3 079 037 4 039 368 4 142 269
Current liabilities
Interest-bearing borrowings 1 996 696 1 009 772 986 581
Derivative financial instruments 34 094 19 353 23 768
Trade and other payables 109 880 167 617 121 823
Bank overdraft 4 914 32 107 43 277
2 145 584 1 228 849 1 175 449
Total liabilities 5 224 621 5 268 217 5 317 718
Total equity and liabilities 12 145 269 12 276 027 12 359 334
COMMENTARY
Company profile
Delta is a JSE listed Real Estate Investment Trust ("REIT") with a property portfolio of R11.3 billion and a
market capitalisation of R5.3 billion as at 31 August 2017. Delta is the dominant sovereign listed property
fund in South Africa, is black managed and with its level 2 B-BBEE contributor status is one of the highest
empowered funds in the sector. 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 of directors ("the Board") has declared a half-year distribution of 46.40 cents per share which
represents a 1.02% increase to the comparable prior period.
Contractual rental income increased by 3.3% and property operating expenses decreased by 0.7%, negatively
impacted by 3.4% and 5.3% respectively due to disposals. Net cost to income ratio increased from 10.2% to
11.0% during the period due to higher operating costs incurred on the portfolio. Like-for-like net property
income increased by 6.8% in line with the contractual weighted average escalations.
Administrative expenses increased by 11.2% due to inflationary increases together with the fulfilment of
Executive and Board vacancies. The disposal of Delta's investment in UK based Baystone Holdings Limited
("Baystone") and losses on its swap contracts during the period, respectively contributed R41 million
and R31.3 million to the R86.7 million loss on fair value adjustments.
Net finance costs increased marginally by 3.8% due to higher debt levels coupled with more expensive
longer-term interest rate swap contracts concluded.
Profit from associate GRIT (previously known as Mara Delta) improved significantly as its prior year
results were negatively impacted by fair value losses on investment properties. Delta received a US dollar
denominated distribution which translated into R18.6 million from its 11.5% shareholding.
Property portfolio
Delta's portfolio of R11.3 billion consists of 108 properties with a total GLA of 973 431m2, which
includes assets held-for-sale comprising 14 properties with a total GLA of 111 358m2 and a combined
value of R1.2 billion.
Detailed tenant breakdown by GLA (%) Detailed tenant breakdown by rental (%)
- National government 33.6% - National government 37.0%
- Office - other 15.8% - Provincial government 20.8%
- Provincial government 13.7% - Office - other 15.2%
- Vacant 11.3% - State-owned enterprise 11.8%
- State-owned enterprise 11.1% - Retail 7.1%
- Retail 6.0% - Local government 6.3%
- Local government 5.1% - Industrial 1.8%
- Industrial 3.4%
Geographic profile by GLA (%) Geographic profile by rental (%)
- Gauteng 43.8% - Gauteng 44.5%
- KwaZulu-Natal 28.6% - KwaZulu-Natal 25.2%
- Free State 8.8% - Limpopo 8.9%
- Limpopo 4.6% - Free State 6.4%
- Western Cape 4.3% - Western Cape 5.3%
- Northern Cape 3.8% - Northern Cape 3.4%
- Mpumalanga 3.1% - Mpumalanga 2.9%
- Eastern Cape 2.4% - Eastern Cape 2.9%
- North West 0.6% - North West 0.5%
Acquisitions
No acquisitions were concluded during the current period with management focusing its efforts on lease
renewals and marketing of existing vacancies on the portfolio.
Major capital projects
Delta will continue to invest capital in its property portfolio to ensure that it maintains a higher
quality and grade of assets that meets the requirements of its tenants. The following major capital
projects progressed during the current period:
- 88 Field Street (Durban) - completed at an estimated cost of R89 million.
- Sleepy Hollow (PMB) - completed at an estimated cost of R4.5 million.
- Embassy Building (Durban) - nearing completion October 2017 at an estimated cost of R28 million and is
strategic to securing future leases.
- Beacon Hill (King Williams Town) - investment of R40 million due to a five-year lease.
- Commission House (Pretoria) - nearing completion November 2017 at an estimated cost of R32 million with
negotiations for a 10-year lease extension in progress.
- 17 Harrison Street Building and Kay Street Parkade (Johannesburg) - investment of R11 million due to a
four-year lease.
Disposals
During the financial year, the Group concluded sale agreements and disposed of four properties, namely;
Samora House, 1 & 3 Ferreira Street and the Damelin Building, with a total GLA of 14 785m2, for an
aggregate R139.1 million. Sale agreements for Block G, Broadcast House and Presidia with a total GLA
of 25 502m2 and fair value of R373.8 million were concluded as at 28 February 2017 and are in the
process of being transferred.
Disposal proceeds will be used to reduce gearing, supplement capital expenditure and invest in higher
yielding assets.
Letting and vacancies
Building sectoral split by GLA
Month Beyond
to 28 Feb 28 Feb 29 Feb 28 Feb 28 Feb 28 Feb
Vacant month 2018 2019 2020 2021 2022 2022
Lease expiry % % % % % % % %
Office sovereign 10.2 33.4 9.4 9.3 9.3 19.5 5.5 3.4
Office-other 14.0 6.8 6.8 25.2 18.8 14.6 4.5 9.3
Retail 3.6 9.7 1.8 11.4 14.4 2.9 1.0 55.1
Industrial 19.0 0.0 14.2 27.8 0.0 39.1 0.0 0.0
Vacancies increased to 11.3% with a GLA of 110 049m2, which is slightly lower than the SAPOA national
average vacancy of 11.8% for Q2: 2017. Vacancies in our major nodes, being Pretoria CBD and Durban CBD
are 8.1% and 15.0% respectively, in line with The Rode Report 2017:3, in Pretoria, and better in Durban
(18.5%). The weighted average in-force escalation at year-end is 7.3% with a weighted average rental
of 108.09/m2.
Lease renewals of 71 661m2 were concluded, with 24 726m2 relating to post-reporting period. New deals
totalling 48 590m2 were also concluded during the year, of which 27 114m2 commenced post-reporting period.
The National Department of Public Works ("DPW") is still in the process of finalising its Leasing Policy,
which will largely address Delta's current 33.4% monthly leases. There has been restructuring within the
DPW and Property Management Trading Entity ("PMTE") space, resulting in the delay in finalising the bulk
renewal proposals. The new team consists of professionals who have been in the DPW environment for a long
time and are well acquainted with the internal processes. The DPW have advised us that all evaluations and
assessments of the submitted proposals have been completed and they await the final negotiations with the
various landlords. Delta remains confident that these negotiations will be concluded by the end of
this financial year.
Funding
Delta's loan to value ratio has increased to 42.3% (2016: 41.0%), impacted by the disposal of its investment
in Baystone and devaluation of its investment in GRIT. Proceeds from disposals have been utilised on capital
expenditure and working capital.
The weighted average all-in cost of funding increased to 9.2% (2016: 9.0%) and was impacted by higher
rates incurred on facility renewals and longer-term interest rate swap contracts concluded. Interest
rate exposure remains hedged with 82.3% (2016: 84.1%) of borrowings being fixed through a combination
of swap contracts and fixed rate loans for an average period of 1.9 years (2016: 2.1 years). The average
debt facility expiry period is 1.6 years (2016: 2.1 years) with the interest cover ratio at 2.4 (2016: 2.5).
Provision of financial assistance
Delta provided the following financial assistance as at the date of the Board resolution passed on
27 October 2017, which is in aggregate greater than 0.1% of Delta's net worth:
- Somnipoint Proprietary Limited - R39.9 million in respect of a loan to a company with common directors.
- GRIT Real Estate Income Group Limited - R5.6 million in respect of a guarantee fee charged.
- Hestitrix Proprietary Limited - R248.9 million in the ordinary course of business.
- K2014000273 Proprietary Limited - R139.7 million in the ordinary course of business.
- 277 Vermeulen Street Properties Proprietary Limited - R18.1 million in the ordinary course of business.
- Hendisa Investments Proprietary Limited - R33 614 in the ordinary course of business.
The Board confirms that immediately after providing the financial assistance, the Company continues to
satisfy the solvency and liquidity test as contemplated in section 4 of the Companies Act 71 of 2008
and that the terms and conditions of the financial assistance are fair and reasonable to the Company.
Changes to directorate during the period
There have been no changes to directorate since the release of the 2017 year-end results.
Events subsequent to the reporting period
Global Credit Rating reaffirmed Delta's National Credit Rating as stable on long term and short term at
BBB+(za) and A2(za) respectively as at 28 September 2017, with the outlook accorded as Evolving.
Prospects
The economic environment is expected to remain pressurised due to continued risk of sovereign rating
downgrades combined with low economic growth and uncertain political risks.
Delta will continue to focus its efforts on the basic property fundamentals to create a healthy and
sustainable business for all stakeholders. Significant progress has been made to date and a further
initiative, as detailed in our cautionary of 3 July 2017, is currently in its final stages to inject
much needed capital and achieve significant direct black ownership of the Fund which will qualify Delta
for the long-term leases awarded by DPW. This will assist to recapitalise the business, reduce reliance
on debt funding and facilitate the growth of the Fund with yield accretive acquisitions.
Despite the current challenging and tough trading climate we remain committed to Delta's sovereign
strategy and expect to achieve flat full-year distribution growth as communicated to the market.
This forecast is based on the current trading environment prevailing with no major changes in
operating conditions. The Group's independent auditors have not reviewed nor reported on this forecast.
Declaration of interim dividend ("the cash dividend") with the election to reinvest the dividend
Shareholders are advised that dividend number 10 of 46.39874 cents per share for the six months ended
31 August 2017 has been declared. The source of the cash dividend is from distributable 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 dividend reinvestment alternative"), failing which
they will receive the cash dividend in respect of all or part of their shareholding. The number of Delta
shares to which shareholders are entitled will be determined with reference to the ratio that 46.39874
cents per Delta 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 Tuesday, 7 November 2017.
The Board of directors of Delta, at its discretion, may withdraw the dividend reinvestment alternative
should market conditions warrant such action and such withdrawal will be communicated to shareholders
prior to the finalisation announcement to be published by 11:00 on Tuesday, 7 November 2017.
Salient dates relating to the cash dividend and the dividend reinvestment alternative:
2017
Circular and form of election posted to Delta shareholders Tuesday, 31 October
Announcement of dividend reinvestment alternative issue price
and finalisation information Tuesday, 7 November
Last day to trade ("LDT") cum dividend Tuesday, 21 November
Delta shares to trade ex dividend and dividend reinvestment alternative Wednesday, 22 November
Listing of maximum possible number of dividend reinvestment alternative
Delta shares commences on the JSE Friday, 24 November
Last day to elect to receive the dividend reinvestment alternative
(no late forms of election will be accepted) by 12:00 Friday, 24 November
Record date for the cash dividend and dividend reinvestment alternative Friday, 24 November
Announcement of results of cash dividend and dividend reinvestment
alternative on SENS Monday, 27 November
Cheques posted to certificated shareholders and accounts credited by CSDP
or broker to dematerialised shareholders electing the cash dividend on or about Monday, 27 November
Announcement of results of cash dividend and dividend reinvestment alternative
in the press Tuesday, 28 November
Share certificates posted to certificated shareholders and accounts credited by
CSDP or broker to dematerialised shareholders electing the dividend
reinvestment alternative on or about Wednesday, 29 November
Adjustment to Delta shares listed on or about Friday, 1 December
Notes:
1. All dates and times indicated are South African dates and times.
2. All dates and times indicated are subject to change. Any change will be announced on SENS.
3. Shares may not be dematerialised or rematerialised between commencement of trade on
Wednesday, 22 November 2017 and the close of trade on Friday, 24 November 2017, both dates included.
4. Shareholders electing the dividend reinvestment alternative are alerted to the fact that the new
Delta shares will be listed on LDT + 3 and that these new Delta shares can only be traded on LDT + 3,
due to the fact that settlement of the Delta shares will be three days after record date, which differs
from the conventional one day after record date settlement process.
Trading in the Strate environment does not permit fractions or fractional entitlements. Accordingly, where a
shareholder's entitlement to the Delta shares in relation to the dividend reinvestment alternative calculated
in accordance with the formula mentioned above gives rise to a fraction of a new Delta share, such fraction
will be rounded down to the nearest whole number and the cash balance will be paid to the shareholder.
The distribution of the circular and/or accompanying documents and the right to elect the dividend
reinvestment alternative in jurisdictions other than the Republic of South Africa may be restricted by law
and failure to comply with any of these restrictions may constitute a violation of the securities laws of any
such jurisdictions. The Delta shares have not been and will not be registered for the purposes of the election
under the securities laws of the United Kingdom, European Economic Area ("EEA"), Canada, United States of
America, Japan or Australia and accordingly are not being offered, sold, taken up, resold or delivered
directly or indirectly to recipients with registered addresses in such jurisdictions.
In accordance with Delta's status as a REIT, shareholders are advised that the cash 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. Delta has complied with IFRS and JSE Listings Requirements by
disclosing earnings and headline earnings per share. Distribution per share has been disclosed additionally.
By order of the Board
JB Magwaza (Chairman) SH Nomvete (Chief Executive Officer)
31 October 2017
Directors: JB Magwaza* (Chairman), SH Nomvete~ (CEO), S Maharaj~ (CFO), ON Tshabalala~ (COO),
MJN Njeke#, DN Motau*, ID Macleod*, NN Afolayan*, C Rampheri*, BA Corbett^, N Khan^
~Executive; #Lead independent director; *Independent non-executive; ^Non-executive
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: 31/10/2017 07:05:00 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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