Delta Property Fund, a black-managed and substantially black-owned REIT with a significant sovereign underpin, sold seven properties in the year to February 28 as its disposals and debt reduction strategy gained traction.
The group, which has properties valued at R6.9 billion, said yesterday the properties were sold for R208.9 million in total, and debt totalling R352.9m that was repaid.
Considering the lower revenue and increased interest rates, the board resolved not to declare a dividend for the year.
The positive impact of the disposals and debt repayments was diminished by substantial interest rate increases.
Finance costs were 11.3% higher than in the prior financial year, as the group felt the full impact of increasing interest rates.
“The prime lending rate increased by 4.25% since the beginning of the financial year, which had a similar impact on the JIBAR rate,” said CEO Bongi Masinga.
Load shedding, the high cost of energy, rising costs, low economic growth, illiquid financial markets, and higher interest rates, however, were expected to continue to put the Fund under pressure.
“This environment heightens the need to accelerate disposals,” Masinga said.
Post the reporting date, Delta transferred an additional asset of 14 188 square metres for a purchase price of R42m and received shareholder approval to dispose of Capital Towers for R57m.
Sale agreements for an additional five properties to the value of R71.8m were concluded.
“Our strategic focus on portfolio optimisation through disposals has enabled us to reduce debt and optimise the portfolio. To address our liquidity constraints, we have identified assets that are a cash drain on the business, negatively impacting our interest cover ratio. Further disposals have been earmarked,” he said.
Disposals during the year reduced vacancies by 29 143 square metres, while new lettings reduced vacancies by a further 13 312 square metres .
Looking forward, he said asset disposals would continue to be a focus, as would debt and vacancy reduction as well as to satisfy covenant requirements.
As a result of higher finance costs, the interest cover ratio (ICR) declined from 1.9 times in the prior financial year to 1.4 times.
More positively the average rental collection rate as 101%, despite the challenging economic environment.
Rental income decreased by R159.6m to R1.23bn from R1.39bn primarily due to a decline in contractual rent income as a result of rental reversions relating to the rebasing of several government-tenanted properties to market-related rentals.
The weighted average rental across the portfolio decreased to R104.05 per square metre from R107 per square metre in the prior financial period.
Despite the positive impact of disposals and new lettings, overall vacancy rate increased from 31.3% in the prior period to 32.9% by the end of the 2023 year, mainly as a result of lease terminations.
SA REIT loan-to-value (LTV) increased to 61.4% from 57% due mainly to the reduction in fair value of the portfolio by R833.6m to R6.9bn.
“The group expects LTV to improve as the disposal programme continues to gain momentum,” said Masinga.
Lettings and lease renewals remained a priority. The company renewed 81 leases totalling194 545 square metres, with the majority being government and state-owned entity tenants.
Some 137 new leases, comprising a lettable area of 13 312 square metres, were concluded during the period, primarily with private commercial tenants and state-owned entities.
Delta was engaging with funders to extend debt facilities and improve debt portfolio tenure and pricing. Post year-end, Nedbank agreed to reduce the margin on their facility by 0.5% to 3%. Facilities with Standard Bank mature at the end of 2024, while the facilities with Investec were being finalised, with one facility extended for 18 months and the other for 24 months.
Delta’s SA REIT Funds from operations amounted to 11.2 cents per share, down from 36.91c a share in the comparative period. This was mainly attributable to reduced revenue following reversions, coupled with higher interest rates.
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