Delta Property Fund ponders Rebosis, Ascension merger

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Roy Cokayne

Delta Property Fund, the listed black-managed and substantially black-owned property fund with significant exposure to government tenanted offices, grew its distributions per linked unit by almost 24 percent to 40.18c in the six months to February.

The fund, which is exploring a possible merger with Rebosis and Ascension Properties, said the total distribution for the year of 72.69c was ahead of guidance provided to the market.

However, it stressed a comparison with the year to February last year was not meaningful because the previous year’s results included a prelisted business that was significantly restructured upon listing.

Sandile Nomvete, Delta’s chief executive, said on Tuesday the parties to the proposed merger were still going through the due diligence processes required by their respective boards.

Delta said the rationale for the proposed merger included that it would establish the largest listed black economic empowerment property fund on the JSE, with a property portfolio valued in excess of R16.5 billion and a market capitalisation of R9.5bn.

In addition, capital available to smaller market capitalisation real estate investment trusts (REITs) was increasingly constrained, driving consolidation and corporate activity to best serve the interests of the REIT’s linked unitholders and tenants. The growth aspirations of each of the parties would be fast-tracked as strategic platforms were consolidated and the merged entity was expected to attract interest from a wider group of investors, thereby increasing the liquidity of the merged entity, and may result in its re-rating.

The proposed merger was also expected to position the merged entity to make further yield enhancing acquisitions. Its increased size should provide it with greater access to debt and capital markets at competitive rates and generally to have a lower cost base, thereby improving its prospects.

Nomvete said despite the proposed merger, Delta’s management continued with its strategy to grow the portfolio with yield enhancing assets, while still optimising the existing portfolio.

“Delta continues to be well positioned for the acquisition of future government, parastatal and black economic empowerment sensitive tenanted buildings, due to its empowerment credentials. This is evident in the renewals of 25 percent of the leases in the existing portfolio,” he said.

A total of 25.15 percent of Delta’s portfolio, comprising 156 263 square metres, was renewed in the year at a weighted average escalation rate across the portfolio of 8 percent. Vacancies increased to 4.6 percent of gross lettable area in February from 4.4 percent.

Delta said the increase in administration expenses to R48.1 million in the six months to February from R15.8m for the six months to August was in line with the increase in the portfolio. Its portfolio was valued at R7bn in February and comprised 77 properties with a total gross lettable area of 621 442m2.

During the year, Delta acquired properties for R4.5bn and a 9.07 percent interest in Ascension Properties A-units and a 21.94 percent interest in Ascension Properties B-units.

Nomvete said the local property market, especially the office market, was expected to remain challenging this year, but the fund’s board believed it was largely shielded from many of the expected challenges due to the portfolio’s positioning, with the sovereign underpin and long lease expiry profile.


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