Delta Property Fund distribution surges on tight management

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Delta Property Fund yesterday reported distributable earnings of R180.5 million with CEO Sandile Nomvete attributing the leaps to careful cost management and substantial growth of the group's portfolio. Delta Property Fund yesterday reported distributable earnings of R180.5 million with CEO Sandile Nomvete attributing the leaps to careful cost management and substantial growth of the group's portfolio.

Black-managed Delta Property Fund was upbeat about its interim results for the six months ended August 2014 and declared 23.1% increase in distribution to 40.01 cents per linked unit.

The group yesterday reported distributable earnings of R180.5 million with CEO Sandile Nomvete attributing the leaps to careful cost management and substantial growth of the group's portfolio.

This comes on the back of a much larger portfolio which has grown from R2.1 billion at listing in 2012 to R7.3 billion today.

During the review period, Delta decided to abandon a merger with two other broad-based black economic empowerment funds‚ Rebosis Property Fund and Ascension Properties. This allowed it to focus on managing its assets and also to launch Delta International‚ the first pan African property fund which would pay dollar-based distributions to investors‚ the company said.

“I’m very pleased with the results. Following our decision not to proceed with the tripartite merger in June this year, the team refocused on delivering against its high-growth mandate," says Nomvete.

“We actively managed our debt by renegotiating funding margins and further diversified the Fund through a R501 million US Dollar linked investment in Delta International.” Nomvete explained.

The group also internalised its management team on a cost recovery basis. This lead to a saving from 2.5% to 1.8% across the portfolio.

“The decision to in-source our management team resulted in a cost saving as we are able to negotiate from a position of strength on service contracts such as security and facilities management on a national basis and to deal with our government relationship from a fund perspective.

The company increased its overall portfolio occupancy from 94.7% to 95.3% and remained consistent in its strategy to operate as a predominantly government tenanted fund with 63% of gross rental income being derived from the government office sector. The remaining 37% is split between other offices (28%), retail (6.1%) and industrial (2.9%).

Nomvete remarked that the South African property market finds itself in a challenging position, with low economic growth and rising costs.

Analysts Comment

Grindrod Asset Management chief investment officer Ian Anderson said Delta’s results were in line with expectations‚ given management’s revised guidance of about 14% for the year as a whole.

“What was pleasing was the company’s efforts to increase the fixed portion of debt to 70% from just over 50% six months ago.

“It did raise the average cost of capital by just over 50 basis points‚ but creates more certainty for investors as interest rates continue rising in SA.

“Acquisitive activity in the business has slowed‚ a function of the share price trading at a deep discount to net asset value‚ which should give management the opportunity to bed down the acquisitions since listing and focus on expanding the Delta International portfolio.”

Nesi Chetty‚ head of property at Momentum‚ said he was impressed with Delta International and recognised that Delta would decrease its funding in the fund. “The share (Delta Property Fund) is cheap and on a high yield.

“Delta is likely to target an equity stake of between 20% and 30% for Delta International from their current 50%. Foreign investors are definitely on the radar screen for Delta International.”

An offshore base allowed Delta International to raise the relevant dollar funding. “Delta international has an attractive pipeline across retail‚ office and select hotel assets without the management contracts‚” Mr Chetty said.

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Listed Property / REITs  |  Rebosis Property Fund  |  Ascension Properties Limited  |  Real Estate Investment Trusts (REITs)  |  Delta Property Fund  |  Sandile Nomvete  |  Delta Africa Property Fund