Delta Property Fund, a specialist black-managed and substantially black-owned REIT with a significant sovereign underpin, today published its financial results for the year ended 28 February 2025. The Group reported ongoing momentum across key metrics, despite challenging macro-economic headwinds prevailing in the commercial office sector.
WORDS & PHOTOS: SUPPLIED
CEO Ms Bongi Masinga commented: “Our turn-around strategy continues to gain momentum, notwithstanding macro-economic pressures. The office segment we operate in remains exceptionally competitive, and it is pleasing to see the impact of our disposal strategy, prudent debt management, rigorous cost control measures, lease renewals and concerted efforts to reduce property vacancies making an impact.”
Net operating income as a result of these initiatives, increased by 10.34% to R721.4 million from R653.9 million in the prior financial year. Revenue remained relatively stable, tracking 2% down at R1.14 billion, mainly as a result of rental reversions and a single vacancy of 16 005m2 from the third quarter of the year under review.
Non-cash fair value adjustment losses of R222.2 million (FY24: R217.2 million), higher expected credit losses of R25.5 million (FY24: R2.5 million), and taxation of R33.3 million (FY24: R3.0 million contributed to the Group reporting a net loss of R104.2 million, up from a net loss of R77.6 million in the prior financial year.
Grit Real Estate Income Group
The fair value adjustment includes a R43.5 million decline (FY24: R30.3 million decline) in the valuation of the Group’s investment in Grit Real Estate Income Group, reflecting a sustained share price pressure, driven by weak emerging market sentiment, and currency volatility.
As a result of the Group’s ongoing cost optimisation efforts, property operating expenses were reduced by 12.8% year-on-year, from R483.9 million to R422.0 million. This saving was mainly driven by a reduction in assessment rates, following the successful challenge of municipal property valuations. Further savings were as a result of cost containment measures, including supplier changes, contract renegotiations, and the disposal of non-core properties.
Administrative expenses increased by 5.4%, from R96.6m in FY2024 to R101.7m mainly driven by inflationary pressures and higher legal costs related to ongoing legacy litigation.
The Group continued to generate strong cash inflow from operations of R565.4 million. The cash was predominantly utilised to repay finance costs of R446.4 million during the period, taxation of R27.2 million, net capital expenditure of R44.6 million, lease liability settlements of R3.9 million, and net debt repayments of R92.9 million.
Renewal of maturing debt facilities
During the reporting period, the Group successfully renewed maturing debt facilities with its funders. These included Nedbank (extended to 7 April 2025 and subsequently to 7 April 2026), Standard Bank (to 31 May 2026), Bank of China (to 31 December 2026), and State Bank of India (to 7 June 2027). The Group also consolidated three Investec facilities into a single facility, which was renewed to 7 March 2027.
Mr Fikile Mhlontlo, Group CFO commented: “The weighted average cost of funding for the period was 11.2% (FY24: 11.4%). The Group’s ICR improved slightly to 1.4 times, with disposals that are currently in the transfer stage expected to have a further positive impact on the ratio.
“In line with our capital management strategy, we continue to engage with our lenders regarding more favourable pricing, extending debt maturities, and restructuring amortisation profiles. The short-term objective remains to achieve a debt maturity profile of between two and three years.
Renewal of leases
During the reporting period, Delta successfully renewed 79 leases covering a total Gross Lettable Area (GLA) of 110 723m2, with a weighted average lease term of 2.4 years. In addition, the Group signed new leases for 22 068m2 of space, with a weighted average lease term of 3.1 years. The weighted average rental across the portfolio declined to R106.4/m² from R114.6/m² in the prior year, primarily due to rental reversions.
Despite a challenging market, Delta disposed of and transferred six properties with a combined fair value of R154.9m and GLA of 41 782m² for a total gross consideration of R157.0m
Subsequent to year-end, further four properties with a fair value of R32.2m and GLA of 9 673m² were transferred for a gross consideration of R33.1m. A further eight properties with a combined fair value of R264.3m and GLA 76 298 m² have also been disposed of for a total gross consideration of R214.8m and are pending transfer.
These new leases and disposals supported a reduction in the overall portfolio vacancy rate from 33.4% in FY24 to 31.9%
“It is increasingly important to de-couple the non-core portfolio from our core operations,” Ms Masinga said.
“For instance, the vacancy rate in the core portfolio improved to 18.4% from 24.2% last year. We anticipate these metrics to continue to improve as we dispose of the remaining R1 billion assets currently held for sale.
“Looking ahead to the medium term, Delta will transform into a more streamlined and sustainable REIT, with a core portfolio valued just over R4 billion, providing ample room for future growth.
“Although demand for B-grade office space is anticipated to remain under pressure in the short-term, further improvements in the macro-economic landscape, fuelled by increased investor confidence, a stable power grid, and potential further gradual decreases in the prime lending rate, are likely to enhance business sentiment and support macro-economic growth in the medium term.
Delta is committed to executing its strategy, and remains confident of its trajectory, which it believes could be accelerated through an improved macro-economic outlook, especially regarding disposals, with an increased interest from potential buyers,” Ms Masinga concluded.
To view the Delta Property Fund Group and Company Annual Financial Statements for the year ending 28 February, 2025, see here.
