Delta Property Fund forecasts lower earnings
The landlord blames the expected 8%-10% earnings fall on ongoing lease renewals
Delta Property Fund expects earnings to fall again in the year to end-February 2020 due to pressure on rentals, the landlord said in its annual financial report on Monday.
“While ongoing lease renewals provide much-needed stability and certainty of income over a longer tenure, it does translate into short-term sacrifice in the form of negative reversions,” the group said.
Delta expects earnings to fall 8%-10% in the 2020 financial year.
In the year to end-February 2019, Delta’s distributable earnings declined to 73.84c a share from 97.24c previously.
The company said it will retain a quarter of its distributable earnings “to facilitate capital expenditure and working capital requirements in the business”.
As a result, it will pay a full-year distribution of 55.39c per share for financial year 2019, from 97.24c previously.
Net property income declined 9.7% in the year. The company said its property valuations decreased by R227m, partly because of the slow pace of lease renewals by the department of public works.
Meanwhile, Delta said the conclusion of SA’s national elections in May is expected to provide “much-needed political stability and improved business confidence within the economy”.
“We expect this transition to materialise within the next twelve months, whereby we envisage positive capital inflow and further stability to interest rates.”
The landlord, headed by Sandile Nomvete, said it plans to reduce its concentration risk within SA by exploring investment opportunities in other countries in southern Africa.
But Rahgib Davids, investment analyst at Kagiso Asset Management, said management should rather focus “on the big issues they face in SA”.
“Renewing leases and managing debt should be their primary concern,” Davids said.
The sharp decline in distributable earnings in the year was attributable to declining property income as costs and vacancies increased, and higher funding costs as banks “notched up interest rates” on rolling debt facilities until the bulk lease renewals with the department of public works are finalised, he added.
“Positively, progress is being made with 40% of bulk leases renewed and the remainder in the final stages of negotiation,” Davids said.
Delta’s shares were 3.5% up at R2.05 on Monday afternoon.