Wrap Text
Voluntary pre-close operational update
Delta Property Fund Limited
(Incorporated in the Republic of South Africa)
(Registration number 2002/005129/06)
Share code: DLT ISIN: ZAE000194049
(“Delta” or “the Company” or “the Group”)
REIT status approved
VOLUNTARY PRE-CLOSE OPERATIONAL UPDATE
Shareholders are advised that the Company’s closed period with
respect to the six months ended 31 August 2022 (“the interim
period”), commences on 1 September 2022 and is anticipated to
conclude on or about 08 November 2022, with the publication of the
half-year results.
Strategy Implementation
In the interim period, the Board of Directors of Delta approved a
refined strategy. This strategy is currently being implemented with
notable progress being made. The strategy identifies certain
strategic pillars to focus on, for example, portfolio and capital
structure optimisation, operational efficiency as well as leasing
and business development. The strategy is aimed at driving Delta’s
turnaround and ensuring that the Group returns to declaration and
payment of sustainable distributions as soon as possible.
Portfolio Optimisation
Part of the Group’s portfolio optimisation strategy includes the
disposal of non-core assets, which are largely vacant. A total of 26
assets with a value of R767 million have been earmarked for
disposals in the current financial year. In line with this
objective, an aggregate 58 345m2 of GLA was disposed of during the
period for a total amount of R259.2 million.
Proceeds from disposals will be utilised to reduce debt levels;
consequently, we expect an improvement in the interest cover ratio
as a result of reduced interest payments. Other benefits of the
proceeds include an improvement to the portfolio occupancy rate and
a marginal improvement on the cost-to-income ratio on the back of
lower operational costs (such as repairs and maintenance, security
and cleaning costs).
Although portfolio vacancies increased from 31,3% to approximately
33,9% this interim period, vacancies are expected to reduce to
approximately 32,1%, as a result of the abovementioned disposals,
once transfer of the properties take place. The overall Loan-to-
Value (“LTV”) will reduce by approximately 1,4% (compared to
February 2022) as a result of the disposals. Interest savings are
expected to amount to approximately R22.7 million per annum based on
Delta’s current cost of debt.
The list below provides details of the properties that have either
been transferred post the sale or those where a sale agreement has
been signed:
No Property name Disposal value GLA
(m2)
1 Delta House* R 74 000 000 11 439
2 Cape Road R 38 000 000 5 135
3 3 Simba R 15 500 000 3 696
4 5 Simba (Lobedu) R 22 500 000 5 375
5 Fort Drury & Katleho** R 64 000 000 16 386
6 CNA building R 3 800 000 2 306
7 WB Centre R 31 000 000 7 639
8 Trustfontein & Transtel*** R 10 400 000 6 369
Total: R 259 200 000 58 345
Notes:
* Delta House was transferred on 13th July 2022.
** Fort Drury and Katleho are separate properties that are
notarially tied, therefore, have been sold as a package.
*** Trustfontein and Transtel are adjacent properties that have been
sold as a package.
Debt Reduction
During the interim period Delta reduced debt by approximately R177.1
million. Approximately R72.3 million of this is due to the disposal
of Delta House and the balance of R104.8 million being the repayment
of capital.
Rental Collections
Delta’s ongoing focus on rental arrear recoveries continues to
result in strong collections that have averaged in excess of 100%
per month during the interim period. This has had a positive impact
on cashflow and assisted in the reduction in arrears.
Lease renewals
During the interim period, approximately 6,500m2 of new leases were
concluded with an additional 156,032m2 renewed. The majority of
renewed leases were with the Department of Public Works &
Infrastructure (“DPWI”) which resulted in month-to-month leases
substantially reducing from 28% to 12,3%. The average term of these
leases range from 12 to 24 months. Negotiations for the renewal of
the balance of the outstanding month to month leases and the
extension of the recently renewed 12 to 24 months leases with DPWI
are ongoing.
Capital expenditure
Capex projects continue to be a major focal point for Delta. Capex
amounting to approximately R31 million was spent in the interim
reporting period.
Sustainability and ESG
Delta has completed the first phase of its ESG framework development
process; the expectation is for phase two to be completed by
November 2022. The first phase included conducting peer benchmarking
research. Phase two includes the development of a fit for purpose
ESG framework.
Grit Shares
The disposal of Delta’s non-core interest in Grit Real Estate Income
Group remains a priority. In order to facilitate the disposal, Delta
intends migrating its holding from the Stock Exchange of Mauritius
to the London Stock Exchange.
Litigation
Delta issued summons against the liquidators of Somnipoint (Pty) Ltd
(In liquidation) for payment of the sum of R27,1 million plus
interest that it owes Delta. Somnipoint’s liquidators subsequently
filed a counterclaim against Delta seeking the sum of R91,3 million.
Delta raised an exception to the counterclaim. The matter is
pending.
Outlook
The office sector is expected to remain under pressure considering
the current oversupply, tenants upgrading to premium space at highly
competitive rentals and lease terms and the move to a hybrid work
model.
Rising inflation and interest rates will put additional pressure on
landlords. These macro-economic headwinds are expected to constrain
the filling of vacancies as well as the disposal of assets at
desired disposal values. Management and the Board will continue to
apply a prudent approach to disposals, based on the long-term
holding costs of especially largely vacant assets.
The above pre-close operational update has not been reviewed or
reported on by the Company’s external auditors.
Johannesburg
31 August 2022
Sponsor
Nedbank Corporate and Investment Banking, a division of Nedbank
Limited
Date: 31-08-2022 05:06:00
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