File picture: James White
File picture: James White

Public Works leasing policy in final stages of approval

By Roy Cokayne Time of article published Nov 1, 2017

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JOHANNESBURG - Public Works new leasing policy was in the final stages of approval, said Delta Property Fund, the black-managed and significantly empowered dominant sovereign listed property fund.

Delta chief executive Sandile Nomvete said yesterday the policy would largely address Delta’s current 33.4 percent monthly leases, with nearly a third to national government continuing on a month-to-month basis in anticipation that the new policy would bring clarity on contractual rental escalations and lease terms.

The department largely entered into short term leases while it was developing the policy and expired leases continued on a month-to-month basis.

This resulted in some major listed property companies withdrawing from and disposing of their government-tenanted office property portfolio, with Delta in December 2015 acquiring about 60 percent of listed Redefine Properties’ “troublesome” government tenanted offices portfolio for R1.25 billion.

Nomvete said it was unlikely that the policy would change materially.

He said there had been restructuring within the department’s property management trading entity space, resulting in the delay in finalising the bulk renewal proposals. Nomvete said the new team consisted of professionals who had been in the department for a long time and were well acquainted with internal processes.

He said the department had advised Delta that all evaluations and assessments of the submitted proposals had been completed and they awaited the final negotiations with the 
various landlords.

“Delta remains confident that these negotiations will be concluded by the end of this financial year,” Nomvete said. 

“We take courage from the considerable amount of certainty that will be gained once the leasing policy is signed into effect. In the interim, history has shown that we will continue to collect rental income until such time as the policy is implemented.” 

Nomvete said Delta had made significant progress with an empowerment transaction that would “inject much needed capital” into the fund. 

Delta reported a 1 percent increase in distributions a share to 46.40c for the six months to August from 45.93c in the previous corresponding period. Nomvete said the distribution growth was achieved despite significant macro-economic headwinds and the finalisation of the yet to be signed new leasing policy by the department.

Contractual rental income increased by 3 percent to R782.3m from R757.2m. Property operating expenses decreased by 0.7 percent to R205.3m from R206.7m.
Vacancies increased to 11.3 percent, which was slightly lower than the SA Property Owners’ Association (Sapoa) national average vacancy rate of 11.8 percent for the second quarter of this year.

“These results demonstrate the defensive nature of our portfolio. Despite the pressure that the contraction in our weighted average lease period placed on the cost of capital and refinancing negotiations, we continued with lease renewals, signed new leases and grew the portfolio by 6.8 percent on a like-for-like basis.
“Earnings subsequently increased by 5.3 percent to R329.7m but is not reflected in the distribution a share as a result of more shares in issue following the Redefine transaction,” he said.

Nomvete said that based on current trading conditions, the fund going forward would maintain full year distribution at the same level as the prior year.


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