Investors are concerned that Delta Property Fund will miss out on an empowerment deal that would reinvigorate the broad-based black economic empowerment fund that has had to navigate numerous headwinds over the past few years.
Delta, which owns a number of state-tenanted assets, announced in May 2017 that a women-led consortium funded by the Public Investment Corporation (PIC) would invest R5bn in the group, but this has not come to fruition. The investment was meant to enhance Delta’s market capitalisation, which is about R4.14bn.
Nesi Chetty, head of property at MMI Investments, said on the sidelines of the South African Property Owner’s Association national conference that Delta’s shares had been expected to rerate but the black economic empowerment deal that would drive this was overdue.
Delta was trading at a yield of close to 17%, one of the highest yields in the sector. The stock is trading at a discount of more than 40% to net asset value.
It is understood that all due diligence and approval processes have been completed and the deal itself has been approved by the PIC.
The delay had occurred because the Government Employees Pension Fund had not yet ratified the deal. The fund has to ratify all PIC transactions over a certain threshold.
Delta CEO Sandile Nomvete said he could not comment on reasons for the delays.
"Delta remains under cautionary and the board will update the market through Sens (the JSE Share Network Service) and other platforms as and when further information becomes available," he said.
Delta has also come under pressure because the state has been reluctant to sign leases with term lengths that are market related.
Some government departments have argued that their offices are not receiving enough investment and upgrades, and had not been prepared to pay escalations.
Nomvete said its latest financial results for the year to February showed that as much as 77.9% of the group’s total revenue came from sovereign tenants. As much as 21.6% of sovereign leases were month to month compared with 26.8% in the comparative 2017 period.
Nomvete said Delta’s dividend was expected to shrink by 2% to 4% in the financial year to end-February 2019.
The Department of Public Works is finalising a new leasing policy framework, which is expected to result in a reduction of leased rent-per-square-metre rates, but with longer lease lengths and a more secure income stream, but no release date for the policy has been established.