Delta trims dividend to fund capex


Delta trims dividend to fund capex


Published Date: 2019-06-04 | Source: Stephen Gunnion | Author: Stephen Gunnion

Delta trims dividend to fund capex

The property fund has forecast short-term pressure on earnings as it finalises bulk lease renewals and negotiates long-term financing of debt.

Delta Property Fund has reported a rise in vacancies, partly due to the Free State provincial government giving preference to local landlords with empowerment credentials. As a result, the real estate investment trust (REIT) has marked 10 buildings worth R483.4 million in its Bloemfontein provincial portfolio for sale. That's on top of a further 20 properties valued at R1.4 billion in its R11.4 billion portfolio which are currently held for sale.

The REIT's main source of business is renting offices to the government and it says it has had a constant stream of unsolicited offers on the Bloemfontein assets from potential buyers. Given increased vacancies and competition in the node, it's considered selling some of the properties.

The fund didn't make any acquisitions in the year to end-March as it focused on renewing government leases, with many departments signing five-year agreements, providing it with more predictable earnings going forward. However, in line with its diversification strategy, it has been exploring opportunities with the Southern African Development Community Region and will update the market when it makes any progress.

It has also spent R115 million on upgrades to attract and retain clients, with more planned. As such, its retaining a quarter of distributable earnings for the year to fund capital expenditure and working capital requirements. That means from distributable earnings of 73.84c for the year it's paying a total distribution of 55.39c per share, down 43% from last year. It said current short-term refinance of debt due to the low weighted average lease expiry over the year had resulted in higher finance costs, which had diluted its earnings.

Following what it described as the toughest year since listing, it said bulk lease renewals with the government remained its priority for now, as well as the longer-term financing of debt at market-related rates. It expects earnings to decrease by between 8% and 10% in the year ahead.

Its shares rose 2.5% to R2.03 yesterday.


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