Delta Property warns of first dividend trim
Deal delays and state’s short-term leases worsened challenging six months for the property fund, says CEO Sandile Nomvete
Delta Property Fund has warned investors that its dividend will shrink for the first time, as it struggles to get the state to sign long-term leases.
CEO Sandile Nomvete said the company, which released financial results for the year to February 2018 on Monday, had been held back by many delays that were out of its control, and that it needed more certainty to appease investors.
“It was a very challenging past six months. Our continued focus on property fundamentals paid dividends as we renewed 93,144m² of existing leases and signed 53,774m² new leases,” Nomvete said.
The company’s weighted average lease term had been weak for two years and Nomvete and his team were trying to get tenants from the government to sign longer-term leases and to pay escalations. As much as 77.9% of the group’s total revenue came from sovereign tenants in the reporting period. As much as 21.6% of sovereign leases were month-to-month compared with 26.8% in the comparative 2017 period.
“We are trying to get government tenants to sign longer leases as this will make it easier to finance projects. In this past financial year we refinanced R941m but our average debt facility expiry period has contracted to 1.5 years compared with 1.9 years in 2017,” he said.
The Department of Public Works is finalising a new leasing policy framework, expected to result in a reduction of leased rent-per-square-metre rates, but with a longer lease length and a more secure income stream, said Liliane Barnard of Metope Investment Managers.
Delta, the dominant landlord for state agencies, is also making slow progress with a black economic empowerment deal it announced a year ago. This would see it gain R4.5bn in capital from a consortium, providing a large boost to the company, which had a market capitalisation of R4.3bn at the end of the reporting period and R11.9bn in assets under management.
Nomvete said that despite a significant effect on its weighted average lease term, policy uncertainty during the period and a resultant higher cost of finance, the company declared distributable earnings of R691.6m in the year to the end of February 2018, an increase of 2.1% over the prior year comparative period.
This translated into a second-half dividend of 50.84c a share and a full-year distribution of 97.24c. However, Nomvete said Delta’s dividend was expected to shrink by 2% to 4% in the financial year to end-February 2019. “As we renegotiate leases with government tenants there will be some reversions and incentives for them, which will put pressure on our dividend growth.” He said he expected a pick-up “from about 2020”.
Changes to personnel in key government positions tended to slow operations for Delta as the company often had to build relationships with incoming staff.