Wrap Text
Unaudited condensed consolidated interim results for the six months ended 31 August 2019
Delta Property Fund Limited
(Registration number 2002/005129/06)
(Incorporated in the Republic of South Africa)
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 2019
Company profile
Delta is a JSE listed Real Estate Investment Trust ("REIT") with a property portfolio of
R11.3 billion and a net asset value of R6.6 billion as at 31 August 2019.
Delta is the dominant sovereign listed property fund in South Africa, is black managed
and is one of the most 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 that are attractive to sovereign entities
and other tenants requiring empowered landlords.
Performance
- Interim distribution of 12.2 cents per share
- Loan to value decreased to 44.3%
- All in cost of debt reduced to 10%
- Renewed and concluded 156 846m2 of leases
- WALE increased to 1.7 years
- Weighted average rental increased to R123.5m2
Commentary
Financial results
Delta achieved distribution per share of 30.48 cents as at 31 August 2019. The Board, however,
has decided to declare an interim distribution of 12.2 cents per share. This decision was taken after
careful consideration of the investment required for capital commitments aligned to lease renewals,
working capital of the business and the forecast liquidity position.
Contractual rental income decreased by 3.5% and was largely affected by increased vacancies in the
portfolio, disposal of assets held-for-sale and reversion on leases renewed. Property operating
expenses, excluding the impact of provisions, increased by 11% due to higher municipal and repairs
and maintenance costs.
Administrative expenses for the period decreased by 23.0% mainly due to lower asset management fees.
Dividend income of R17.4million was received from our investment in Grit. Foreign exchange movement
relating to the Bank of China dollar-denominated loan decreased by 62.3% due to lower fluctuation in
the foreign exchange rate during the period.
Finance costs increased by 19.3% and were affected by the higher interest rates and fees incurred on
debt facilities extended during the period. Interest income decreased by 11.3% and was negatively
impacted by the partial repayment of a vendor loan.
Property portfolio
Delta's property portfolio of R11.3 billion consists of 103 properties with a total GLA of 932 605m2,
which includes assets held-for-sale comprising 19 properties with a total GLA of 131 449m2 and a
combined value of R1.4 billion.
Acquisition and disposals
Delta did not conclude any acquisitions during the current year.
The disposal of 12 New Street and Top Trailers Site 1 was completed during the period for a total
consideration of R60.7 million, with proceeds utilised to settle debt and facility raising fees.
Broadcast House and Protea Coin Cape Town, with a total GLA of 10 634m2 and a fair value of R43 million,
are expected to transfer by November 2019. An unsolicited interest was also received on The Marine in
Durban from a blue-chip institute, with a detailed due diligence by the purchaser currently underway.
Major capital projects
Capital investment remains a high priority to ensure quality assets that meet the tenants' requirements.
The following projects are in progress:
- Beacon Hill (King Williams Town) - investment of R40 million due to the conclusion of a five-year lease.
- Poyntons Fire Project - fire compliance project of R32.5 million expected to be to be completed by
December 2019, with an additional R18.3 million to be spent on general capital expenditure.
With the conclusion of the bulk lease renewals, further capital projects will be initiated in respect
of tenant installations and general building upgrades. These projects are expected to be funded from a
combination of working capital, proceeds on disposals and debt facilities.
Letting and vacancies
The lease expiry profile by GLA of the portfolio at 31 August 2019 was as follows:
Beyond
Month- 29 February 28 February 28 February 28 February 29 February 29 February
Segment lease expiry to-month 2020 2021 2022 2023 2024 2024
Office sovereign 39.5 6.1 19.7 8.4 9.0 3.4 14.1
Office other 16.2 11.3 35.5 17.0 6.4 0.4 13.3
Retail 10.8 12.3 13.2 21.2 12.7 3.9 26.0
Industrial 0.0 96.7 3.3 0.0 0.0 0.0 0.0
Delta renewed 40 leases with The National Department of Public Works ("DPW") to date totalling 95 523m2,
with two-thirds concluded for five years and the balance for three years. Of the remaining 18 leases to be
renewed with DPW, four of these leases are in three buildings that constitute 96 502m2. Negotiations around
these four leases have been escalated to senior management and ministerial level. A further 61 323m2 of GLA
was renewed with other tenants, primarily the South African Revenue Services in Cape Town, Randburg and
eThekwini Municipality in Durban.
Vacancies has increased during the period to 15.4% of the core portfolio and 3.9% of assets held-for-sale,
primarily due to the loss of tenants at Unisa House, Capital Towers and within the provincial Bloemfontein
node. Vacancies in our dominant nodes of Pretoria CBD and Durban CBD are 10% (SAPOA 9%) and 19% (SAPOA 14%)
respectively.
The weighted average rental is R123.5/m2 across the portfolio. During the year under review, 156 846m2 was
renewed at an average rental of R95/m2, and 6 465m2 were concluded at average rentals of R104.7/m2.
Funding
Despite the challenging operating environment during the period, we successfully managed to extend R2.8
billion of expiring debt facilities. These facilities were further extended post the interim reporting
period to year-end, with the intention for a permanent refinance once the DPW lease renewals are concluded.
The weighted average all-in-cost of funding reduced to 10.0% (2019: 10.2%) with the interest cover ratio
("ICR") of 1.9 (2019: 2.1). The average debt facility expiry period and average fixed debt ratio decreased to
0.6 years (2019: 0.8 years) and 44.1% (2019: 59.8%) respectively, impacted by the passage of time and short-term
refinance of facilities. We intend to term out the debt expiry profile and fix at least 75% of our debt once
facilities are refinanced.
Loan to value ("LTV") decreased to 44.3% (2019: 45.1%), benefiting from cash generated by operations and
repayment of debt facilities. The conclusion of disposals together with capital expenditure on the portfolio is
envisaged to reduce the LTV in the short to medium term, with our long-term strategy still targeting 40%
and below.
Provision of financial assistance
Delta shareholders are referred to Special Resolution Number 4 relating to the provision of direct or
indirect financial assistance in terms of section 45 of the Companies Act, No 71 of 2008 ("the Companies Act")
to related or inter-related companies, which was approved at the Annual General Meeting of Delta on
21 September 2017.
Further to the above, Delta shareholders are notified in terms of section 45(5)(a) of the Companies Act,
that the Board of directors of the Company ("the Board") passed a resolution on 31 May 2019 ("the Board
resolution") granting financial assistance to the following related companies:
- Somnipoint Proprietary Limited - R24 million in respect of a loan to a company with common directors.
- Delta Property Asset Management Proprietary Limited - R28.4million in the ordinary course of business.
- Hestitrix Proprietary Limited - R245.5 million in the ordinary course of business.
- K2014000273 Proprietary Limited - R164.4 million in the ordinary course of business.
- 277 Vermeulen Street Properties Proprietary Limited - R35.8million in the ordinary course of business.
- Hendisa Investments Proprietary Limited - R33 614 in the ordinary course of business.
The financial assistance provided, as detailed above, is greater than one-tenth of 1% of Delta's net worth
as at the date of the Board resolution. The Board further 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 and that the terms and conditions of the financial assistance are fair and
reasonable to the Company.
Changes to directorate during the period
Marelise de Lange was appointed as an independent non-executive director to the Delta Board in April 2019.
Marelise is also a member of the Audit, Risk and Compliance Committee and the Investment Committee of Delta.
Prospects
While South Africa avoided a recession in the second quarter of the calendar year, the national economic
outlook remains grim. Investment levels remain subdued and businesses are struggling with weak levels of
private sector activity, and a lacklustre outlook on future business conditions.
The appointment of The Department of Public Works Minister, Patricia De Lille, has brought much needed
impetus and improved confidence in our sector. We envisage positive outcomes with regards to the renewal
of leases, which will provide further stability to our fund.
Notwithstanding possible corporate action, Delta remains focused on concluding its bulk lease renewals and
the longer-term refinancing of its debt at market-related rates which are contingent on a longer weighted
average lease profile.
Capital commitments, reduction of vacancies and refinancing of extended debt facilities also remain
priority areas, with the recycling of capital in the current tough economic environment also being a
focus area. Proceeds from disposals will be used for working capital requirements, support capital
expenditure and lower debt.
The rebasing of leases concluded, increased vacancies in the portfolio and extension of debt facilities
has negatively impacted earnings for the period. The Board anticipates distributable earnings to decrease
by between 12% and 15% for the 2020 financial year, barring any unforeseen circumstances. This information
has not been reviewed or reported on by Delta's auditors.
Declaration of interim dividend ("the cash dividend")
Shareholders are advised that dividend number 14 of 12.19300 cents per share for the six months ended
31 August 2019 has been declared. The source of the cash dividend is from distributable income.
Salient dates of the cash dividend:
2019
Declaration date of cash dividend Monday, 4 November
Last day to trade in order to be eligible for the cash dividend Tuesday, 17 December
Delta shares commence trading ex cash dividend Wednesday, 18 December
Record date of cash dividend Friday, 20 December
Cheques posted to certificated shareholders and accounts credited by
CSDP or broker to dematerialised shareholders on Monday, 23 December
Notes
1. Delta shares may not be dematerialised or rematerialised between commencement of trade on
Wednesday, 18 December 2019 and the close of trade on Friday, 20 December 2019, both dates included.
Tax implications
In accordance with Delta's REIT status, 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 full announcement has been published on the JSE News Service (SENS) at
https://senspdf.jse.co.za/documents/2019/JSE/ISSE/DLT/DeltaInt19.pdf and can be found on the Group’s website (www.deltafund.co.za).
The condensed consolidated interim results have been prepared under the supervision of the Chief Financial
Officer, Mr Shaneel Maharaj CA(SA)/HDipTax, and have neither been reviewed nor 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, with distribution per share being disclosed
voluntarily.
By order of the Board
JB Magwaza (Chairman)
SH Nomvete (Chief Executive Officer)
4 November 2019
Consolidated statement of financial position
for the period ended 31 August 2019
Unaudited for Unaudited for Audited for
the half- the half- the year
year ended year ended ended
31 August 31 August 28 February
R'000 2019 2018 2019
Assets
Non-current assets
Investment property 9 913 379 10 561 140 9 913 811
Fair value of investment property 9 762 271 10 383 457 9 755 209
Straight-line rental income accrual 151 108 177 683 158 602
Property, plant and equipment 1 434 2 069 1 714
Investment in a listed security 417 669 453 468 461 822
Total non-current assets 10 332 482 11 016 677 10 377 347
Current assets
Loans due from related parties 54 958 46 995 43 511
Loan receivable 15 789 45 835 20 906
Current tax receivable 526 526
Trade and other receivables 370 729 409 068 357 973
Cash and cash equivalents 36 516 22 648 25 339
Total current assets 478 517 525 072 447 729
Non-current assets held for sale 1 391 878 974 727 1 436 520
Fair value of investment property 1 378 657 959 558 1 421 710
Straight-line rental income accrual 13 222 15 169 14 810
Total assets 12 202 878 12 516 476 12 261 596
Equity and liabilities
Total equity attributable to equity holders
Share capital 4 868 461 4 866 080 4 868 461
Reserves - 139 425 -
Retained income 1 766 991 2 079 279 1 772 984
6 635 452 7 084 784 6 641 446
Total equity 6 635 452 7 084 784 6 641 446
Liabilities
Non-current liabilities
Derivative financial instruments 56 154 4 527 22 478
Interest-bearing borrowings 1 559 906 2 981 210 1 448 218
Total non-current liabilities 1 616 060 2 985 737 1 470 696
Current liabilities
Interest-bearing borrowings 3 650 326 2 140 744 3 810 253
Trade and other payables 232 597 166 237 172 003
Derivative financial instruments 2 226 42 410 28 625
Current tax payable 13 347 - 12 821
Bank overdraft 52 870 96 564 125 753
Total current liabilities 3 951 366 2 445 955 4 149 455
Total liabilities 5 567 426 5 431 692 5 620 152
Total equity and liabilities 12 202 878 12 516 476 12 261 596
Consolidated statement of comprehensive income
for the period ended 31 August 2019
Unaudited for Unaudited for Audited for
the half- the half- the year
year ended year ended ended
31 August 31 August 28 February
R'000 2019 2018 2019
Revenue
Rental income 766 544 794 506 1 581 669
Straight-line rental income accrual (7 514) (14 863) (34 304)
759 031 779 643 1 547 365
Property operating expenses (251 770) (254 083) (509 579)
Net property rental and related income 507 261 525 560 1 037 786
Other income 607 1 103 6 356
Foreign currency translation reserve
recognised on derecognition of associate - - 4 805
Dividend income 17 418 - 21 769
Loss on foreign exchange differences (13 405) (35 589) (28 103)
Administration expenses (35 943) (46 672) (79 727)
Net operating profit 475 937 444 402 962 886
Fair value adjustments (82 478) 72 370 (168 152)
Profit from operations 393 459 516 772 794 734
Finance costs (296 522) (248 604) (537 281)
Interest income 11 268 12 698 26 032
Profit before tax 108 205 280 866 283 485
Taxation - - (27 692)
Profit for the period 108 205 280 866 255 793
Other comprehensive income:
Share of foreign currency translation reserve
of associate transferred to profit or loss - (4 805) -
Total comprehensive income for the period 108 205 276 061 255 793
Profit for the period attributable to:
Owners of the parent 108 205 280 866
108 205 280 866 255 793
Total comprehensive income attributable to:
Owners of the parent 108 205 276 061 255 793
108 205 276 061 255 793
Basic and diluted earnings per share (cents) 15.15 39.51 39.80
Consolidated statement of changes in equity
for the period ended 31 August 2019
Foreign Deferred Total
currency conside- share-
Share translation ration Total Retained holders Total
R'000 capital reserve reserve reserves income interest equity
Balance at 1 March 2018 4 854 032 4 805 139 425 144 230 2 160 330 7 158 592 7 158 592
Total comprehensive income for the year - - - - 255 793 255 793 255 793
Profit for the year - - - - 255 793 255 793 255 793
Deferred consideration settled in cash - - (139 425) (139 425) - (139 425) (139 425)
FCTR recognised in profit or loss - (4 805) - (4 805) - (4 805) (4 805)
Distribution re-invested 14 590 - - - - 14 590 14 590
Share issue expenses (161) - - - - (161) (161)
Dividends paid - - - - (643 139) (643 139) (643 139)
Balance at 28 February 2019 4 868 461 - - - 1 772 984 6 641 445 6 641 445
Profit for the period - - - - 108 205 108 205 108 205
Dividends paid - - - - (114 198) (114 198) (114 198)
Balance at 31 August 2019 4 868 461 - - - 1 766 991 6 635 452 6 635 452
Consolidated statement of cash flows
for the period ended 31 August 2019
Unaudited for Unaudited for Audited for
the half- the half- the year
year ended year ended ended
31 August 31 August 28 February
R'000 2019 2018 2019
Cash generated from operations 529 939 377 960 905 500
Finance costs (294 229) (246 971) (486 027)
Interest received 8 437 4 992 24 544
Taxation paid - - (14 345)
Dividend received 17 418 17 080 38 849
Net cash from operating activities 261 564 153 061 468 521
Acquisition of property, plant and equipment (90) (68) (164)
Capital expenditure on investment property
and assets held-for-sale (7 441) (40 197) (114 975)
Proceeds on disposal of property, plant and
equipment - 12 -
Proceeds on disposal of assets held-for-sale 45 000 - 15 750
Gross movement in loans with related parties (8 498) 25 049 17 216
Decrease in loan receivable 5 000 5 534 33 034
Net cash from investing activities 33 971 (9 670) (49 139)
Distribution re-invested - 12 048 14 429
Dividends paid (114 198) (361 917) (643 139)
Deferred consideration settled in cash - - (140 000)
Repayment of derivative financial instrument (23 607) - -
Increase in interest-bearing borrowings 22 666 180 000 424 967
Repayment of interest-bearing borrowings (96 336) (50 500) (179 115)
Net cash from financing activities (211 475) (220 369) (522 858)
Net movement in cash and cash equivalents 84 060 (76 978) (103 476)
(Overdraft)/cash at the beginning of the period (100 414) 3 062 3 062
Total overdraft at the end of the period (16 354) (73 916) (100 414)
Reconciliation of earnings, headline earnings and distributable earnings
for the period ended 31 August 2019
Unaudited for Unaudited for Audited for
the half- the half- the year
year ended year ended ended
31 August 31 August 28 February
R'000 2019 2018 2019
Earnings, headline earnings and
distributable earnings
Profit for the period 108 205 280 866 283 485
Investment property 1 193 - 237 599
Fair value adjustment to investment property 1 193 - 237 599
Headline earnings 109 398 280 866 521 084
Derivative financial instruments
(net of deferred taxation) 37 132 (72 370) 10 507
Fair value adjustment to derivative
financial instrument 37 132 (72 370) 10 507
Investment in listed security (net of deferred
taxation) 44 154 - (79 954)
Fair value adjustment to investment in
listed security 44 154 - (79 954)
Straight-line rental income accrual
(net of deferred taxation) 7 514 14 863 34 304
Straight-line rental income accrual 7 514 14 863 34 304
Foreign currency translation reserve recognised
on derecognition of associate (4 805)
Dividend income from Grit 23 538 21 747 17 418
Dividend income from Grit pertaining to prior
year - February 2019 (17 418) - -
Loss/(gain) on foreign exchange differences 13 405 35 640 28 103
Antecedent distribution - 476 569
Distributable earnings attributable to owners
of the parent 217 722 281 222 527 226
Less: distribution declared 217 722 281 222 395 419
Interim 87 089 281 222 281 222
Final (declared after 28 February 2019) - - 114 197
Distributable earnings retained 130 633 - 131 807
Shares in issue at the beginning of the year 714 229 718 711 844 486 711 844 486
Distribution re-investment - 1 948 980 2 385 232
Number of shares in issue 714 229 718 713 793 466 714 229 718
Weighted average number of shares in issue at
the beginning of the year 714 229 718 711 844 486 710 927 785
Distribution re-investment - 309 701 1 366 459
Weighted average number of shares in issue 714 229 718 712 154 187 712 294 244
Actual number of shares in issue
Number of shares in issue at interim 714 229 718 713 793 466 713 793 466
Number of shares in issue at year-end - - 714 229 718
Basic and diluted earnings and headline
earnings per share (cents)
Basic and diluted earnings per share 15.15 39.51 39.80
Basic and diluted headline earnings per share 15.32 39.51 73.16
Distribution per share (cents)
Interim 12.19 39.40 39.40
Final - - 15.99
Distribution per share declared for the full year 12.19 39.40 55.39
The Group has no dilutionary instruments in issue.
Condensed consolidated segmental analysis
for the period ended 31 August 2019
Administration
and
Office Office corporate
R'000 Retail government other Industrial costs Total
Unaudited for the half year
ended 31 August 2019
Revenue 20 345 553 230 175 550 9 906 - 759 031
Net property rental and
related income 11 316 392 907 95 007 8 031 - 507 261
Total assets 355 884 8 427 290 2 700 979 155 767 562 958 12 202 878
Total liabilities 160 053 3 714 762 1 497 999 31 303 163 309 5 567 426
Unaudited for the half year
ended 31 August 2018
Revenue 19 738 560 328 183 672 15 905 - 779 643
Net property rental and
related income 12 311 393 641 107 818 11 790 - 525 560
Total assets 338 282 8 444 722 2 913 492 191 669 628 311 12 516 476
Total liabilities 173 620 4 336 337 1 842 247 94 192 (1 014 703) 5 431 692
Audited for the year ended
28 February 2019
Revenue 40 788 1 124 826 353 994 27 757 - 1 547 365
Net property rental and
related income 25 218 814 538 178 707 19 323 - 1 037 786
Total assets 349 121 8 298 803 2 815 109 201 735 596 827 12 261 595
Total liabilities 164 566 3 985 492 1 705 114 85 247 (320 268) 5 620 151
The segmental report has been populated based on a per building classification which is in accordance
with the majority tenant.
Directors: JB Magwaza^ (Chairman), SH Nomvete* (CEO), S Maharaj* (CFO), ON Tshabalala* (COO),
N Khan+, DN Motau^, ID Macleod^, MJN Njeke ^#, NN Afolayan^, MCR Rampheri^, M de Lange^
*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: 04/11/2019 10:11:00
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