Home | Investing | Delta set to acquire two office buildings in a R488m deal

Delta set to acquire two office buildings in a R488m deal

2014-04-23 12:09:00 SA Commercial Prop News
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JSE-listed black-controlled Delta Property Fund will spend nearly half a billion rand for two office buildings in Durban: the Old Mutual Centre and The Marine from Old Mutual Life Assurance Company.

Office buildings are becoming increasingly available for sale as vacancies are high in South Africa’s struggling economy.

This creates opportunities for listed property companies on the prowl for assets.

The total consideration for the acquisitions is R487.2m, comprising R291m in respect of Old Mutual Centre Durban and R196.2m in respect of The Marine and its parking area.

The Old Mutual Centre Durban is underpinned by a rental guarantee from the seller for a two-year period.

Delta chief operations officer and chief financial officer Bronwyn Corbett said the deal was a "big coup" for the company given the 11% yield on each property.

"Strategically, we are very happy with the acquisitions. These were not core assets for Old Mutual. They faced challenges in adding value to the CBD. We have done well with our government parastatal clients and are confident that this can continue. Right now we are trading at a yield of just above 10% so finding things to buy at 11% is an achievement for us," she says.

Analysts agreed the deal was in line with a sound strategy.

"This deal is a good one for them. They have a very good track record of buying in the CBD, and then leasing offices out to the government on a long-term basis. They have done similar deals in the Pretoria CBD and in Durban CBD already," said Grindrod Asset Management chief investment officer Ian Anderson.

The announcement comes while Delta is in the middle of a three-way merger between itself, Rebosis Property Fund and Ascension Properties.

Under the proposed merger, Delta and Rebosis would become one fund which would hold their own and also Ascension’s assets.

There are a number of smaller illiquid property stocks on the JSE and a merged, larger, empowered property company would have the clout to attract investors.