BUSINESS DAY TV: Delta targets solid balance sheet
Delta Property Fund CEO Sandile Nomvete takes BDTV through full-year results
Sandile Nomvete is Delta Property Fund CEO
BUSINESS DAY TV: Delta Property Fund which is mainly in the government leased office space has reported a 7.1% rise in total distribution to 97.24c in the year to the end of February. That’s compared to a year ago. CEO, Sandile Nomvete joins us in the studio now to take us through more of the detail. Thanks so much Sandile for your time today.
So you have this sovereign underpin to your portfolio, it’s a handle that Vukile Property Fund has let go of saying it’s just too risky in the current climate. So what’s the appeal? How are you making this work for you because its 76.4% of revenue that’s coming from that arena?
SANDILE NOMVETE: Going back, we’ve been listed now on the JSE for the past four and a half years, it will be five years this November, so we’ve basically carved out a very unique niche for ourselves and it’s certainly not an easy area to operate out of.
Vukile’s not alone and there are others that we’ve basically befitted from having the relationship and we’ve bought properties from other peers out of the sector. But if you look at the stats and if you look at the numbers, the numbers speak for themselves. My chief financial officer will always tell you that we’re one as a management team. If you look at our debtor days, in our debtor days from government perspective are no more than 20 days which is phenomenal.
We basically have a total rental bill of R1.6bn, you’ve just mentioned the number that we are able to extrapolate the type of distribution that the board has declared. What is interesting with that number is that we actually achieved a 7.6% distribution growth. The board was a bit more prudent.
Obviously there has been a lot of noise with the ratings agencies and obviously with potentially one more to downgrade the sovereign, which may add further complication into the sovereign underpin space. So it’s something that we have honed our skills on. Government is made up of people and at the end of the day we have to interact with them, like we would any potential tenant but it’s also understanding the nodes that they are — that they want and need to be there to provide those services to the taxpayer.
BDTV: You highlighted that distribution growth number. You actually achieved 7.6% growth. Is that enough of a capital buffer to withstand some of the tough times ahead because one wonders about this political noise and the subsequent ratings downgrades that we’ve seen and how that comes to bear on your business moving forward, cost of capital for one should be an immediate concern.
SN: Another excellent question. We issued a SENS announcement about three weeks ago, particularly in addressing some of those concerns. We don’t think that that buffer is enough. There is a management-led BEE consortium which is looking to basically deploy quite a significant amount of capital into Delta’s balance sheet, to act as a defensive strategy in going into some significant uncertain economic environment. And once we get final board approval and subsequent to that, the proposal will need 75% shareholder support, we are pretty certain that we will end up with a firm and a solid balance sheet and obviously position us with further growth given that our target is to actually achieve a 51% plus black empowerment shareholding.
On that note, we have reached an agreement between the Delta board and Redefine Properties which was our largest shareholder where they’ve agreed to sell their 22.8% shareholding to a woman-led and management-led consortium, in facilitating that uplifting of a direct black ownership in the fund and it’s becoming quite important for us to be competitive in this space.
BDTV: And you stand as a benefactor of that. A long term lease though is something that you are going to want more so to secure that rental revenue and settle any shareholder nervousness I guess, around where you’re at. Do you think that’s going to be an easy win if you’re offering cheaper rentals as an incentive?
SN: It’s not only about rentals, as we’ve alerted to our shareholder, there’s no single bullet solution to the current impasse. We will obviously need policy guidance from our biggest tenant being the National Department of Public Works. There is a draft lease and policy out at the moment, I think we’re at version nine which has been out in the public domain for comment which basically is looking at bringing back long term leases. Equally we need to make sure that we are investing in the right nodes where government needs to be, otherwise if we’re bang in the wrong areas, we obviously will not attract government.
BDTV: What are some of those nodes?
SN: Certainly Pretoria is a classic example. Pretoria is where you will find most government headquarters and they need to be there from an administrative perspective. Provincially, you look at cities like Pietermaritzburg come into place, Free State in Bloemfontein. So you need to basically understand where government wants to be and needs to be to be accessible to the masses as they try and basically provide services to people.
BDTV: Even with those opportunities, Sandile, your forecasting earnings are coming in flat in the 2018 financial year, so why is that? What are some of the pressure points you see being exerted more heavily moving forward?
SN: The benefit of having short term leases as the landlord, the practice in the property sector is that you can charge higher rentals. Now the given that we’re budgeting for more certainty around long term leases, we are obviously budgeting that the negotiations with government will entail that we need to lower our rental. The number that we anticipate and that is in our numbers is an average rental per square metre, particularly for the Pretoria region of over R95 per square metre which is somewhat lower than some of the renewals that we are doing at about R105 a square metre at the moment. And this is part of the incentive, where it needs to be give and take, where they’re given more certainty in terms of their lease tenure and we need to come to the party to facilitate some of their savings. You will know that National Treasury has obviously been very effective in some of the austerity measures and we need to do our part to retain those tenants going forward, and it’s a good competitive advantage.