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Delta’s high-growth strategy yields positive results

FY distribution increases by 15.7% following a change in capital structure and conversion to REIT status.

SIKI MGABADELI: Specialist black managed and substantially black owned property fund, Delta Property Fund says s full year distribution for the year to end February increased by 15.7% to 84.07 cents a share following their change in capital structure and conversion to a real estate investment trust (REIT) during the year under review. The group achieving R1bn in revenue and their portfolio grew by 23.7% to R8.4bn. Sandile Nomvete, CEO joins us now.

Sandile thanks for your time this evening, and we all know the property sector is in a really challenging environment right now. What’s been your experience in the past year?

SANDILE NOMVETE: Siki good evening and thank you for having me, and good evening to your listeners. Correct, it has been an extremely challenging year. It’s been a year of consolidation for us. We’ve been very much focused internally in getting our efficiencies correct. You mentioned a figure of 23.7% by which we managed to grow our portfolio from R6.9bn to R8.4bn. This was very understated given that when we listed in November 2012 we came onto the market with a portfolio of R2.1bn. So as we grow bigger, the base from which we’re coming from is obviously stabilising and we are obviously focusing more on our cost to income ratios which have slightly gone up. We are basically looking at our average rent per square metre, historically we had average rental per square metre at just over R105 per square metre. That has dropped slightly this year to R95.84 and obviously we were very pleased to receive our maiden Delta International distribution during the year.

Now just going forward, we are obviously being very cautious and conservative in terms of our estimates, in terms of our targeted growth. We’ve basically given the market an 8% target in terms of the growth and distribution. This number I must just add, Siki, does not include any potential new acquisition or any movement in the rand vis-à-vis the dollar based Delta International that we have a 25% shareholding. And just lastly from my side, the very positive net asset value per share has moved up from R9.28 to just over R10 which again makes for a good set of results. As a management team, we are very pleased with the results.

SIKI MGABADELI: The last time we spoke, you said that Delta had debt to the value of around 48% and that your stated objective was to reduce that to 40% or even below. So where do you stand now on that?

SANDILE NOMVETE: You’ve got a good memory. Thank you for – we have in fact the debt – we did quite an extensive capital raising exercise of about R500m. This capital raising was significantly over subscribed. We eventually got in R688m which enabled us to reduce our gearing. The gearing since we last spoke had spiked up to about 49.5%. We’ve now basically managed to reduce this significantly to 46% and our target for February this year is to have that closer to 40% which is the band that we had always mentioned as a comfortable debt to equity ratio.

SIKI MGABADELI: All right, so let’s talk about your diversification strategy then. Obviously you’ve got Delta International in there, but you’ve obviously still got your government tenanted fund and I think that’s still kind of the bulk of your business, and then you’ve got offices, retail and industrial. Are you happy with the percentage contribution of each of those or are you looking at further diversification?

SANDILE NOMVETE: I think we’ve always ideally mentioned that we would like to be 60% sovereign and 40% other and as we sit now at financial year end, that number is sitting at 50-50 so ideally we would like to do more government or quasi-government related transactions. We particularly see value in parastatals or state owned enterprises and it’s something that we will obviously be pursuing. From a contribution perspective, we are anticipating that our Delta International investment will yield good results, and it’s probably early days yet. The fund is still basically bedding down its initial acquisitions which – basically Delta International did a capital raise about two months ago. It raised about $39m to further deploy towards acquisitions. So we anticipate that the influence that Delta International will have in our diversification strategy will continue to obviously improve. So I think we’re quite happy given that it’s still early days yet from a Delta International perspective.

As far as private sector perspective we’re quite proud that over the seven years prior to listing we’ve never written off any government debt. Government does pay which bodes well for a fund of our size. Where we have some challenges is actually with our private clients – some of them have obviously experienced low levels of growth and we’ve basically had to focus some management time in making sure that we don’t lose some of our private clients tenants.

SIKI MGABADELI: I see. Now the change in capital structure and conversion to REIT status, what do you expect that to do for you going forward?

SANDILE NOMVETE: I think the benefit for the unitholders to be honest, or the shareholders as they’re now called under the REIT legislation in terms of how the tax is treated. Historically obviously the sector itself in terms of the listed property sector has long been in discussion with government in terms of going to the more normalised way of globally understood REIT legislation which basically allows investors to compare a South African REIT with any other listed REIT around the globe. So we do anticipate that there will be some further foreign direct shareholders investing in our listed properties and obviously that will translate more liquidity into the sector.

SIKI MGABADELI: All right, we’ll leave it there…Sandile Nomvete, CEO of Delta Property Fund.

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