News that Delta Property Fund’s distributable income for the year to February would be between 19% and 24% lower than the R691.6 million it reported last year sent the share 7% lower by mid-afternoon trade, bringing its decline over the past year to more than 65%.
The real estate investment trust (Reit) furnished no reasons, but its expectations and share price performance chime with the general bloodbath in the property sector over the past year or more.
The bleeding share price adds to the concerns of a shareholder who had alerted Moneyweb and the JSE to some red flags prior to the issue of the trading update.
These included an unusual share trade on August 31, 2018 under directors’ dealings. The single deal, which at first seems to point to two identical trades by chief financial officer Shaneel Maharaj and chief operating officer Otis Tshabalala, referred to the purchase by an entity called Cornwall Crescent of 162 043 079 shares in Delprop at R9 a share, at a time when the share was trading at a little more than R6.
Delprop said in a written reply to questions that the shares were bought in June 2017 off-market from Redefine Properties, which sold Cornwall its 22.8% stake in Delprop for R1.46 billion. This is, incidentally, just shy of the company’s total market cap today of just under R1.5 billion.
Delprop said the deal was negotiated and concluded between a consortium and Redefine when the share price “was trading closer to the R9 level”.
“Unfortunately, as disclosed in the related Sens announcement, the company was in an extended closed period due to a potential BEE transaction that was under consideration, therefore, the directors’ dealings in the Redefine transaction could not be announced.
“Once the closed period was lifted, the transaction was then announced at which point the shares were trading at around R6.”
Cornwall’s shareholders include Maharaj and Tshabalala, who own 13.5% each, and Phumzile Langeni, executive chair of Afropulse, chair of Primedia and one of President Cyril Ramaphosa’s four envoys looking for investment money for him, who also has 13.5%.
Other major shareholders are the Nooraya Khan Trust (Khan is a director) with 20%, Portia Sekau Trust 10%, Sonja Sebotsa 7.5%, asset management staff 17.71% and Delta Property Services staff 4.29%.
Delprop said the disposal allowed Redefine to facilitate the sale of an illiquid counter in a single transaction and eliminate a potential overhang in the market. It also “reinforced both Redefine and Delta’s transformation initiatives to support the development of female leaders in the property sector, while also boosting broader empowerment”.
Delprop is the only government-focused landlord on the JSE, and the transaction allowed Delta “to achieve a higher broad-based BEE rating essential for government requirements to secure long-term leases”.
No exposure to shareholders
Delprop said the R1.45 billion is vendor-funded by Redefine. “There is therefore no exposure to Delta shareholders. The vendor loan obligation is partially settled through dividend payments and, at the consortium’s election, the loan can be extended for a further three years.”
As the loan agreement is between Redefine and the consortium, there is no exposure to Delta shareholders. Additionally, Redefine was an existing shareholder in Delta and did not require shareholder approval to dispose of shares on the secondary market.
Delprop said the loss in value in share price “does imply erosion in value for the BEE consortium as the dividend payments ultimately service the interest obligation on the vendor loan”.
Asked why the share price was under such pressure, Delprop told Moneyweb the renewal of leases by the Department of Public Works is taking longer than anticipated “and the market is concerned about pressures from financiers on refinancing expiring debt”.
At the September interim, Delta’s portfolio of 105 properties was worth R11.5 billion. It reported a distribution of 39.4c a share, a 15.1% decrease on the prior period, and directors were not that bullish on prospects. Today’s trading update is therefore not way off expectations.