Delta keeps powder dry as it finalises leases


Delta keeps powder dry as it finalises leases


Published Date: 2019-11-05 | Source: Stephen Gunnion | Author: Stephen Gunnion

Delta keeps powder dry as it finalises leases

The property fund is wrapping up bulk lease renewals with the Department of Public Works as it refinances its debt.

Delta Property Fund is playing it safe as it finalises bulk lease renewals with the government and refinances long-term debt. It is also in advanced talks to merge with Rebosis Property Fund in a deal that will provide scale and diversification while enhancing their relationship with the Department of Public Works.

Although the fund achieved distributable income per share of 30.48c in the six months to end-August, it's paying an interim distribution of just 12.2c so it can hold back the capital it needs to put towards lease renewals and keep its business running. The rebasing of leases concluded over the period, as well as increased vacancies and the extension of debt facilities, negatively impacted its first-half earnings.

The fund's R11.3 billion portfolio consists of 103 properties, including 19 properties worth R1.4 billion that are held-for-sale. It has now renewed 40 leases with the Department of Public Works (DPW), its main client, with two-thirds concluded for five years and the balance for three years. There are 18 leases still to be renewed. The longer five-year leases will give the fund more predictable earnings going forward. Vacancies increased to 15.4% of its core portfolio due to the loss of tenants and Unisa House, Capital Towers and within the provincial Bloemfontein node.

Despite a challenging operating environment over the six months, it said it managed to extend R2.8 billion of expiring debt facilities. The intention is for a permanent refinance of its debt once all the DPW lease renewals are concluded. Higher interest rates and fees incurred on the debt facilities extended over the period resulted in a 19% rise in finance costs.

Contractual rental income fell by 3.5% due to the higher vacancies in its portfolio and the disposal of assets that are held for sale. Property operating expenses increased by 11% due to higher municipal costs, as well as repairs and maintenance.

It expects distributable earnings for the year to be between 12% and 15% lower than last year.

Its shares rose 12% to R1.16 yesterday.


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