Delta Property Fund to reduce its debt

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Delta Property Fund is on track to reduce debt, said CEO Sandile Nomvete Delta Property Fund is on track to reduce debt, said CEO Sandile Nomvete

Black-managed Delta Property Fund has raised R658m through disposal of non-core assets to be used for debt reduction, said CEO Sandile Nomvete.

The group yesterday announced financial year results ended 29 February 2016, with distribution growth of 90.79 cents per share, up 8% on the prior financial year.

Delta CEO, Sandile Nomvete commented:

“These results are indicative of our focus on doing the basics right. In line with our strategy, we reduced Delta’s loan-to-value ratio from 47.2% in the prior year to 42.3% post the Redefine transaction, and we’ll gradually reduce debt levels to within a 40% range relative to income producing assets.

“Our strategy to dispose of non-core assets further supports our focus on reducing gearing and has gained momentum over the review period with sales totalling R658 million concluded, of which R107 million transferred and R551 million are under sale agreement.

The group’s portfolio at the reporting date is valued at R10.1 billion and consists of 100 properties with a total gross lettable area of 812 574m2. The average property value in the portfolio is R101.3 million with a weighted average net rental per square meter for the full portfolio of R102.89

During the review period, Delta successfully renewed leases in respect of 62 515m2. The weighted average escalation rate during the year was 7.8% across the portfolio and the weighted average rental per m2 amounted to R102.89. Vacancies increased to 8.98% of GLA. Management is confident that the disposal of earmarked non-core assets will reduce the vacancies to 7.04% of gross GLA. Lease negotiations with national and provincial government for rental space in Delta’s Durban and Pretoria assets are currently underway and is expected to reduce vacancy levels further.

The Fund’s interest bearing borrowings increased by R585.7 million as a result of funding requirements for new acquisitions and capital projects. The Fund’s weighted average cost of debt increased from 8.10% to 8.75% mainly as a result of higher interest rates. The weighted average expiry of Delta’s total debt facilities is 2.3 years and management continues to secure long-term debt facilities as soon as a level of stability in the market is reached, as an ongoing function of managing the business.

83% of Delta’s debt is fixed for a period of 2.13 years on average, up from the 1.91 years reported at the interim results.

Delta’s focus on inner city redevelopment continued during the year under review with the conclusion of the redevelopment of CMH House, Durban in November 2015 at a cost of R156 million. The development, resulting in a new A-grade motor dealership show room and 450 parking bays resulted from a 15 year lease signed with the tenant. Due to the shortage of parking in the CBD, additional parking bays will be rented to tenants at the adjacent Liberty building.

A refurbishment of internal floors at 88 Field Street at a cost of R85 million is in progress and expected to be completed the First Quarter of 2017.

During the year under review, Delta acquired a portfolio of government tenanted properties from Redefine Properties Limited for a purchase consideration of R1.25 billion, representing a property yield of 13.27%. The portfolio consists of 15 properties with a combined GLA of 191 668m2 and was acquired through a specific share issue. The majority of properties transferred post balance sheet date in April 2016, with a final property to transfer once conditions precedent have been met.

“Most of these assets are in strategic locations and tenanted by government on a month-to-month basis. We are confident that with our significant experience in asset upgrades, combined with an appropriate capex and refurbishment strategy, we will be able to negotiate longer term leases and achieve capital uplift across the acquired portfolio.”

Despite increasing headwinds and low economic growth, Delta remains positive that its defensive sovereign underpinned portfolio and remains well positioned with minimal impact from expected further economic downturn. The Company is leveraging its Level 2 B-BBEE status and the strategic location of its assets in nodes attractive to government.

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Redefine Properties  |  Delta Property Fund  |  Sandile Nomvete