Delta sees good traction with state tenants lease renewals
The property company, which leases mostly to state tenants, has renewed nearly 90,000m² of office space with the department of public works
Delta Property Fund, the group which earns about 80% of its revenue from state tenants, looks set to turn a corner now that it has renewed more than half of its leases with the department of public works.
In recent years many government tenants have been reluctant or slow to commit to new leases and when they have signed them they have tended to want shorter-term agreements , sometimes only a few months long. This has made it harder for Delta and other government landlords to forecast earnings and dividends and to provide accurate lease profiles to banks when seeking funding. Debt has also been secured at higher interest rates for these funds than for their peers.
Delta Property Fund CEO Sandile Nomvete talks to Business Day TV about the group's latest results.
Delta’s COO Otis Tshabalala said on Monday, at a presentation for the company’s financial year to February, that over the past few months 88,000m² of office space had been renewed with the department of public works at lease terms of between three and five years.
A further 63,018m² had been renewed with other government departments and state-owned entities.
As much as 79% of Delta's R1.5bn revenue was earned from state tenants in the year to February, its financial results showed. About 40% of the R1.5bn was earned from the department of public works.
“We have been working closely with the DPW [department of public works] executive negotiation team to clear the leasing backlog. Negotiations took time to conclude as we had to look at providing savings to the user departments and balance this with achieving market-related rentals," Tshabalala said.
"We are very encouraged by the traction gained with the bulk of our leases being renewed and remain optimistic that the remaining leases will be renewed within the next two months," he said.
Delta also successfully renewed the majority of leases with the SA Revenue Service and Eskom at mostly market-related rentals.
The chief investment officer at Bridge Fund Managers, Ian Anderson, said the government could save R1bn a year by entering the new leases, which were at lower rentals.
Delta CEO Sandile Nomvete meanwhile said that the 2019 financial year had been the worst and toughest for the fund since it listed in 2012.
Net property income declined 9.7% in the year. The company said its property valuations decreased by R227m.
Nomvete said Delta had decided to retain 25% of its earnings to facilitate capital expenditure and short-term working capital in the group. This had caused its dividend for the year to February 2019 to have fallen 43% to 55.39c per share from 97.24c previously.
Delta expected its earnings to fall between 8% and 10% in the 2020 financial year.
Delta's board said the company intended to “reduce its concentration risk within SA by responsibly exploring feasible and accretive opportunities in the Southern African Development Community”.
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,” he said.