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Office landlord Delta’s vacancies top 31%

Share price slides over 10% as group declares no dividend and sees weakening performance in several key metrics.
Delta Property Fund's Hallmark Building in Pretoria, one of the properties leased to the Department of Public Works. Image: Supplied

JSE-listed office landlord Delta Property Fund reported a recovery in distributable earnings for the full-year ended February 28 2022 on Tuesday, but its vacancies have hit a new record of 31.3%.

The group saw its distributable earnings per share jump 17.8%, from 31.33c in FY21 to 36.91c for FY22, on the back of stronger rent collections following the Covid-19 financial fallout.

Read: How property stocks have rebounded from lockdown lows

Rent collections for FY22 came in at 112.7%, compared to 87.03% in 2021, highlighting the recovery in rental arrears and reduced Covid-19 rental relief as the economy opened up.

However, the recovery in distributable earnings did not mask the weakening performance of the group on several key financial and property operating metrics.

Delta, which was forced to restate its 2020 financial results last year following an accounting scandal that saw it being suspended (temporarily) from trading on the JSE, did not declare a dividend again this year (FY22).

Vacancies have risen from around 27.2% in FY21 to top 31% for FY22. In the last financial year, its property portfolio (including non-current assets held for sale) was devalued by a further 4.1%, from R8.2 billion to R7.9 billion.

Read:
Office property vacancies hit ‘all-time high’ – Sapoa
Delta Property Fund up over 28% after JSE lifts suspension
Delta confirms R1.8bn portfolio devaluation in restated 2020 results

As a result of the devaluation, the group’s loan-to-value (LTV) ratio increased from 56.5% in the prior year to 57%. Despite this being a slight increase, it still represents one of the highest LTV levels in the SA listed property sector.

Delta’s weak FY22 performance saw its share price slide 10.17%, to close at 53c a share on Tuesday. While this effectively is a drop of just 6c a share, the group’s market cap sits at R420 million, having plunged more than 93% over the last five years.

Delta share price over five years

The group’s new CEO Siyabonga Mbanjwa put on a brave face at the results presentation and during media interviews on Tuesday, but he knows he has a tough turnaround task ahead of him.

“This is my maiden set of financial results, having joined Delta in February this year, and I am delighted to report that the turnaround strategy implemented by the board is increasingly gaining traction despite serious macro-economic and sectoral headwinds,” he said.

Siyabonga Mbanjwa, Delta Property Fund

Siyabonga Mbanjwa, recently appointed CEO of Delta Property Fund. Image: Supplied

Speaking to Moneyweb, he conceded that Delta’s vacancy rate has been on a downward trajectory over the past five years, which is one of the factors contributing to the group’s weak performance.

He said part of the turnaround plan includes growing the group’s leasing team to retain and attract tenants despite stiff competition in the office property sector and the industry being under huge pressure due to the slow economy.

“We have enhanced our internal controls and bolstered our staff complement and competencies, allowing us to focus on the renewal of long outstanding leases and continued execution on our capital expenditure commitments,” added Mbanjwa.

With most of Delta’s tenants being either national or provincial government departments or government agencies, he said the group is working on “rebuilding trust”, particularly with the Department of Public Works and Infrastructure.

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