Delta shares surge 11.5%, despite reducing dividend payout
MONEYWEB / 05 NOVEMBER 2019 - 10.30 / SUREN NAIDOO
CEO attributes increase to the group reporting improvements on several key trading metrics in a tough market.
The share price of the biggest black-owned and managed real estate investment trust (Reit) listed on the JSE, Delta Property Fund, rallied more than 11.5% on Monday following the release of the group’s interim results which showed some improved key trading metrics.
This comes despite the group reporting a decline in distributions per share and opting to reduce its dividend payout ratio to 40% for the half-year ending August 31. Delta, which is currently in takeover talks with Rebosis Property Fund, announced that distributions of 30.48 cents per share were achieved, compared to 39.40 cents for its corresponding 2018 interim period.
However, the Reit declared an interim dividend of 12.2 cents per share as it looks to conserve cash for operating expenses. It will need to spend cash on tenant installations and upgrades within its office property portfolio, where it has finally made headway in renewing largely government-related leases to the tune of 156 846m2 during the period.
Speaking to Moneyweb, Delta CEO Sandile Nomvete said the surge in the group’s share price following the release of its latest results is linked to it reporting improvements on several key trading metrics in a tough market.
“The best news is progress on government leases, which we have been struggling to finalise over the past few years,” he says.
“Having renewed and concluded 156 846m2 of leases during this interim period, we believe we are turning the corner. These newly signed leases have resulted in Delta’s weighted average lease expiry (Wale) effectively doubling to 1.7 years.”
Nomvete adds that Delta has also managed to bring down its debt, with its loan-to-value (LTV) ratio improving to 44.3% from 45.1% at the end of its 2018 financial year. “We are working hard to reduce LTV further in the short term and our longer-term target is to bring it down to below the 40% mark.”
According to the fund, the period saw it renew 40 leases with the Department of Public Works (DPW) totalling 95 523m2. Some two-thirds of these are for a five-year period and the balance for three years. More than 60% of Delta’s office space is leased to government, either through the DPW for national departments and state-owned entities, or to provincial and local government.
Nomvete says another 18 leases are still to be finalised with the DPW, four of which are in three buildings that total a combined 96 502m2. “We are negotiating at senior managerial and ministerial level on these renewals and are confident that they will be concluded soon. While vacancies across Delta’s core portfolio increased to 15.4% during the period, we expect this to decline in the coming period following renewals of the remaining leases.”
He notes that Delta also successfully extended its expiring debt facilities of R2.8 billion in the short term. “We are on a stronger footing now and Delta is looking at diversifying its funding sources and renegotiating more market-related terms on the back of its longer Wale following the conclusion of the remainder of bulk leases with the national DPW.”
Delta has a R13 billion property portfolio across the country, predominantly in the Pretoria and Durban city centres. The group’s share price has been under pressure in recent years, hit by trying macroeconomic conditions and issues around finalising its government-related leases.
While its share price was up 11.54% on Monday and closed at R1.16, the property counter is still down more than 76% year to date. At the start of the year, Delta’s share price stood at R4.40.
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