Delta Property Fund, a black-managed and substantially black-owned REIT with a significant sovereign underpin, says it is making steady progress in whittling down its debt through non-core asset disposals as it posted its interim results for the period ended August 3, 2023.
It said yesterday that its debt of R3.1 billion, which was mainly on a month-to-month basis was renewed, positively impacted the group's weighted average debt maturity by 73.0%.
In addition, Delta concluded a revolving credit facility of R37.5 million with Nedbank, which would be utilised for working capital, capital expenditure and tenant installations.
The board of directors had taken a decision to dispose of Delta’s minority shareholding in the Grit Real Estate Income Group to reduce debt.
“To ensure a timeous disposal, a process is under way to move Delta’s holding in Grit Group from the Stock Exchange of Mauritius (SEM) to the London Stock Exchange (LSE) as the LSE has greater investor appetite and liquidity compared to the SEM,” it said.
Delta had successfully transferred one property for R44m during the period under review. Post the interim period, an additional property was sold for a gross consideration of R5.4m. Four properties contracted with conditions precedent were expected to transfer within the next six months for a total consideration of R118.6m The proceeds of these disposals would be used to reduce the group's debt facilities.
The group owns a portfolio of 91 properties valued at R6.9bn with a geographic diversification across all nine South African provinces.
Bongi Masinga, the CEO of Delta, said, “Notwithstanding a deteriorating macro-economic outlook and high interest rate environment during the reporting period, our consistent and unwavering focus on cost optimisation, debt reduction, lease renewal and asset recycling continued to gain traction, with an improved performance against FY23 key metrics.”
“We have a clear flight path to reduced loan-to-value and an improved interest cover ratio, that will reposition Delta for growth and the recommencement of distributions.”
The share price by 3.26pm was 4.17% higher yesterday at 25 cents on the JSE.
Rental income decreased by 9.2% to R573.8m, largely driven by a decline due to rental reversions and a marginal increase in vacancies.
The group’s weighted average lease expiry (WALE) increased to 15.8 months from 2023’s 13.2 months on the back of 23 office leases with an aggregate gross lettable area (GLA) of 97 045m² renewed and new leases totalling 5 526 m² of GLA, and 100 parking bays concluded.
Group chief financial officer Fikile Mhlontlo said, “During the reporting period, we continued to collect in excess of 100% of rentals, providing a strong cash flow underpin to the group.”
Cash generated for the period amounted to R355.2m, which was used to settle finance costs of R221.6m taxation of R49.7m, net capex of R19.6m and net debt of R60.4m
Property operating expenses contracted by 8.4% while administrative expenses increased by 1.8%, well below the inflation rate. The containment of costs was due to the cost optimisation strategy of the group.
Finance costs on borrowings increased by 13% to R234.4m due to prevailing high interest rates, which negatively increased the weighted average cost of funding by 2% to 10.1%.
The SA REIT loan-to-value (LTV) increased to 60.0% from 61.4%, while SA REIT net asset value per share fell 14% to R3.7m
Looking ahead, Masinga said, “Investors often ask what Delta will look like post the conclusion of our portfolio optimisation strategy.
“Over the medium term, we will evolve into a smaller, but much more sustainable REIT with core properties of around R4.7 billion and strong headroom for growth. Key ratios such as loan to value and interest cover will be well within covenant levels, at a projected 44.2% and 2.5 times cover respectively.
She said it was important to note is the impact that disposals would have on vacancies, with the current core portfolio occupancy rate sitting at a relatively healthy 89.6%.
“Net operating income from the core portfolio will amount to an estimated R296m in today’s terms,” Masinga added.