Delta Property Fund Limited has published its audited condensed annual results for the year ending 29 February 2024. The results depict a significant turnaround for the Group, showcasing strategic strides in portfolio optimization, debt reduction, and cost management.
Salient Features and Financial Highlights
Weighted Average Lease Expiry and Profit from Operations
Delta’s weighted average lease expiry improved to 15.3 months, up from 13.2 months in February 2023. This positive shift reflects the Group’s efforts in renewing and securing new leases. Profit from operations saw a dramatic rise to R399.2 million, a stark contrast to the R226.1 million loss reported in February 2023.
Covenant Loan to Value and Net Asset Value
The covenant loan to value (LTV) slightly improved to 59.4%, down from 59.9% in the previous year. The SA REIT Net Asset Value (NAV) per share decreased marginally to R3.5 from R3.6.
Cost-to-Income Ratio and Interest Cover Ratio
The cost-to-income ratio significantly improved to 49.6% from 54.3%, indicating effective cost management. However, the interest cover ratio slightly dipped to 1.3 times from 1.4 times, reflecting high finance costs.
Vacancy Rate and Property Disposals
The vacancy rate increased marginally to 33.4% from 32.9%, although it stands at 24.2% when excluding non-current assets held for sale. This indicates ongoing efforts to optimize the portfolio by disposing of non-core properties.
Strategic Initiatives and Financial Results
Rental Income and Profit from Operations
Delta’s rental income decreased by 5.4% to R1,162.6 million, down from R1,229.1 million in the previous year. Despite this, the Group’s profit from operations surged to R399.2 million, thanks to reduced administrative expenses, improved recoveries, and a lower fair value adjustment loss on the property portfolio.
Loss Reduction and Headline Earnings
The Group reported a significantly reduced loss of R77.6 million, compared to a loss of R749.7 million in the previous year. Basic and diluted loss per share improved to (9.3) cents from (102.0) cents, while headline earnings per share increased by 7.4% to 15.9 cents.
Cost Optimization and Fair Value Adjustments
Administrative expenses decreased by 11.5%, reflecting effective cost containment strategies. Property operating expenses increased marginally by 0.2%, well below inflation. The fair value adjustment loss on the property portfolio was R180.1 million, down significantly from R833.6 million in the previous year.
Cash Flow and Debt Management
The Group generated strong cash inflows from rental income and successful arrears collection, totaling R658.9 million. This, combined with interest income and proceeds from property disposals, was used to pay finance costs, taxation, net capital expenditure, and net debt repayment.
Debt Refinancing and Reduction
Delta successfully renewed debt facilities with Nedbank and Investec, extending them to 2025. The Group also secured a revolving credit facility of R37.5 million with Nedbank. Overall, Delta reduced its debt by R183.2 million, funded through property disposals and cash flow.
Portfolio Optimization and Lease Management
Property Disposals and Debt Reduction
The Group disposed of three properties during the year for R88.4 million, with additional disposals post year-end totaling R144.9 million. These proceeds will be used to further reduce debt facilities, contributing to the Group’s financial stability.
Lease Renewals and New Leases
Delta renewed 55 leases totaling 154,888m² with an average lease term of three years. New leases totaling 11,542m² were concluded with an average term of 3.4 years. These efforts have positively impacted the weighted average lease expiry, increasing it to 15.3 months.
Going Concern and Future Prospects
Solvency and Liquidity Assessment
The Board has conducted a thorough review of the Group’s solvency and liquidity. Despite a material uncertainty related to going concern highlighted by the auditors, the Board concluded that Delta is in a financial position to meet its cash requirements for the foreseeable future.
Market Challenges and Disposal Program
The disposal of non-core properties remains challenging due to the economic climate. However, Delta remains engaged with credible property buyers and is optimistic about the success of its disposal program.
Future Strategy and Stakeholder Engagement
The Group is actively implementing its strategy, focusing on portfolio optimization, debt reduction, and cost management. Delta has revived stakeholder engagements and is negotiating new leases and renewals, aiming to enhance cash generation and lease expiry.
Conclusion
Delta Property Fund Limited has demonstrated resilience and strategic acumen in navigating a challenging economic environment. The significant improvement in financial performance, driven by effective cost management, debt reduction, and lease renewals, positions the Group for a more stable and prosperous future. With ongoing efforts to optimize the portfolio and engage stakeholders, Delta is on a promising trajectory towards sustained profitability and growth.
Key Financial Metrics
| Metric | FY 2024 | FY 2023 | % Change |
|---|---|---|---|
| Weighted Average Lease Expiry | 15.3 months | 13.2 months | +15.9% |
| Profit from Operations | R399.2 million | (R226.1 million) | +276.5% |
| Covenant Loan to Value | 59.4% | 59.9% | -0.5% |
| SA REIT NAV per Share | R3.5 | R3.6 | -2.8% |
| Cost-to-Income Ratio | 49.6% | 54.3% | -8.7% |
| Interest Cover Ratio | 1.3 times | 1.4 times | -7.1% |
| Vacancy Rate | 33.4% | 32.9% | +1.5% |
| Rental Income | R1,162.6 million | R1,229.1 million | -5.4% |
| Loss for the Period | R77.6 million | R749.7 million | -89.6% |
| Headline Earnings per Share | 15.9 cents | 14.8 cents | +7.4% |