Views Article – Sharenet Wealth

Share Picks, South Africa

Delta Property Struggles On In A Tough Environment

Delta Property Fund Limited (Delta) is a JSE-listed REIT that owns and manages an R11.5 billion property portfolio. The company is black managed and boasts that it is among the highest empowered funds in the sector. The long term focus of the REIT is to acquire and manage quality, income generating properties aimed at government (national and local) related tenancies and other tenants requiring empowered landlords.

Delta released their reviewed provisional condensed consolidated results for the year ended 28 February 2018 on Monday, 4th June 2018. The highlights reel follows below:

Summary of Delta’s financial performance

As at 28 February 2018, Delta managed property investments to the value (fair value assessment) of R10.34 billion, up 4.87% from the previous year (R9.86 billion). The portfolio consists of 105 properties with a gross lettable area (GLA) of 952,428sqm. Delta did not acquire any new properties during this period, but did dispose of seven properties for a total value of R316 million.

A major concern to shareholders will be the increase in vacancy rates to 11.8% (bringing the total vacant GLA to 112,225sqm). Continued “challenges” in the Free State Provincial portfolio and the Eskom Sunninghill portfolio were cited as contributing factors by the board in their SENS statement release. The weighted average of escalation at year end amounted to 6%.

Management are engaging with the National Department of Public Works over 59 leases and expectations are that these will be finalised by the end of the year (2018).

On the dividend front, the situation remains worrying for investors looking for income growth. Shareholders have been advised that a dividend of 50.84210 cents per share for the year ended 28 February 2018 has been declared. This brings the total distributions for the year to 97.24 cents per share, exactly the same as the previous year’s number.

Rental income decreased by 3.1% mostly due to disposals, with like-for-like income growth faring better, coming in at a positive 5.2%. Net operating profit, benefiting from improved cost management, increased by 2% while finance costs increased by 2.5%.


Source: Delta Property Fund Limited website (Delta SENS booklet June 2018)

Delta renewed and concluded 146,918sqm of leases during the financial year, and were pleased to report that they managed (for a third consecutive year) to reduce the gearing of the fund to 41.3% (from 41.5% in 2017). This value remains high however compared to peers.


What does the future hold?

Capital investments remain a high priority for Delta as they look to improve the quality of their portfolio. In this respect, three key projects are nearing completion:

  • Embassy Building (Durban) – expected completion in October 2018 at an estimated cost of R28 million
  • Commission House (Pretoria) – expected completion in June 2018 at an estimated cost of R12 million
  • 17 Harrison Street Building and Kay Street Parkade (Johannesburg) – expected completion in May already at an estimated cost of R4.5 million due to a four-year lease renewal.

In the words of the CEO SH Nomvete and Chairman JB Magwaza, “Delta continues to focus on property fundamentals by renewing leases, reducing vacancies, refinancing debt at market- related rates and investing in both defensive and accretive capital in its property portfolio.”

“Efforts to recapitalise the business are underway and the proposed transaction with the empowerment consortium, once successfully concluded, will inject much-needed capital into the business and achieve significant direct black ownership of Delta.”

The board of directors expect the business to face continued headwinds in the lead up to the national elections next year as perceptions around South Africa will be affected by politics, and in turn, given that their portfolio is so heavily weighted toward sovereign tenancies, the expectation is for tougher times ahead.

Further, the report indicates that “The Board anticipates earnings to decrease by between 2% and 4% for the 2019 financial year primarily due to once-off lease adjustments being traded off for longer-term leases, disposal of assets held-for-sale and issue of shares for acquisition of the Free State portfolio.”


Source: Sharenet



Mark Mayer 
Investment Specialist at Discovery Invest

Mark graduated with a Business Science Degree from the University of Cape Town in 2007. He then joined Sharenet, during which time he also completed his B.Com Honours through UNISA. Mark has helped to build, launch and manage derivative and share trading brokerage businesses. He is also a JSE Registered Securities Trader, and has worked on the trading desk at Sharenet. After seven-and-a-half years at Sharenet Mark then moved to Reitway Global (a specialist Global Listed Property Fund Manager) where his passion for property was further kindled. Mark currently works for Discovery Invest as an Investment Specialist on their Investec Managed fund offering. He has over ten years of experience in the equity and asset management sector and can be reached at:

The views and opinions (where expressed) in this article are those of the author and do not necessarily reflect the official policy or position of Discovery Invest.

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