Delta Property Fund has reported an increase in its net operating income (NOI) to R721.4 million for its financial year ended 28^th February 2025, up from R653.9 million in FY2024, driven by stable revenue, ongoing cost optimisation, and strategic property disposals.

“Our turnaround strategy continues to gain momentum, notwithstanding macro-economic pressures. The office segment we operate in remains exceptionally competitive, and it is pleasing to see the impact of our disposal strategy, prudent debt management, rigorous cost control measures, lease renewals and concerted efforts to reduce property vacancies making an impact,” comments CEO of Delta Property Fund, Bongi Masinga.

With a significant sovereign underpin, the Group owns a diversified portfolio of 83 assets (FY2024: 89) across South Africa, with a total value of R6.4 billion (FY2024: R6.6 billion), comprising a gross lettable area (GLA) of 781 568m² of core assets and 204 385m² of non-core assets.

The Group reported a net loss of R104.2 million for the year (FY2024: R217.2 million), primarily due to non-cash fair value adjustment losses of R222.5 million (FY2024: R217.2 million), higher expected credit losses of R25.5 million (FY2024: R2.6 million), and taxation of R32 million (FY2024: R3 million). The fair value adjustment includes a R43.6 million decline (FY2024: R30.3 million) in the valuation of its investment in Grit Real Estate Income Group.

Delta says its revenue, excluding straight-line rental income accrual, has remained relatively stable with a marginal decrease of 2% compared to the prior year, primarily attributed to rental reversions and the vacancy rate at its SARS Bellville building, which has a GLA of 16 005m², and which became vacant during the third quarter of the financial year.

The Group’s utilities recoveries increased by R14.1 million to R216.7 million compared to R202.6 million in FY2024 with its property operating expenses decreasing by 12.8% from R483.9 million in FY2024 to R422 million.

However, administrative expenses increased 5.4%, from R96.6 million in FY2024 to R101.7 million, mainly driven by inflationary pressures and higher legal costs related to ongoing legacy litigation.

During the reporting period, Delta renewed 9 leases comprising a total GLA of 110 723m² at a weighted average lease term of 2.4 years. In addition, new leases were concluded for GLA of 22 068m² with a weighted average lease term of 3.1 years. The Group says its portfolio vacancies improved, decreasing from 33.4% in FY2024 to 31.9% as at 28^th February 2025, primarily due to the disposal of six non-core assets with a combined GLA of 41 782m² and the conclusion of the new lease agreements.

Delta’s weighted average lease expiry (WALE) decreased from 15.3 months to 14.7 months.

As at 28^th February 2025, trade receivables increased to R155.2 million (FY2024: R87.9 million, as a result of delayed payments from some key clients) with its average collection rate for the period 95.1% of billings compared to 101.5% in the prior year.

A total provision for bad debts of R61 million was recognised at yearend (FY2024: R56.5 million), representing approximately 40% of trade receivables with an ECL for the year amounting to R25.9 million (FY2024: R2.6 million) attributable to increased accounts receivable compared to the prior year.

Delta disposed of six properties during the reporting period with a combined fair value of R154.9 million and GLA of 41 782m² transferred for a total gross consideration of R158 million. Post yearend, a further four assets with a fair value of R32.2 million (GLA of 9 673m²) were transferred for a gross consideration of R33.1 million. In addition, eight properties with a combined fair value of R249.5 million (GLA of 80 764m²) have been disposed of for a total gross consideration of R214.8 million, pending transfer.

The fair value adjustment loss recognised includes the impact of both independent valuations and auction sale prices.

During the reporting period, the Group renewed maturing debt facilities with its funders including facilities with Nedbank (extended to 7 April 2025 and subsequently to 7 April 2026), Standard Bank renewed to 31 May 2026, Bank of China renewed to 31 December 2026, and State Bank of India renewed to 7 June 2027. The Group also consolidated three Investec facilities into a single facility which was renewed to 7 March 2027.

“In line with our capital management strategy, we continue to engage with our lenders regarding more favourable pricing, extending debt maturities, and restructuring amortisation profiles. The short-term objective remains to achieve a debt maturity profile of between two and three years,” comments Fikile Mhlontlo, Group CFO.

Total interest-bearing debt declined to R3.9 billion (FY2024: R4 billion) with capital repayments for the year amounting to R237.5 million (FY2024: R183.1 million), funded by R140.5 million in proceeds received on the disposal of the Sediba, VLU Fountain, Smartxchange, Cape Road, 5/7 Elliot, and Trustfontein properties, R4.1 million from the Grit dividend received in May 2024, and R92.9 million from scheduled principal repayments.

Delta also maintained revolving credit facilities of R64.3 million, of which R41.3 million had been drawn at yearend. In addition, it has an overdraft facility of R95 million of which R79.5 million has been utilised.

Finance costs decreased to R463 million (FY2024: R484.2 million), primarily as a result of capital repayments and interest rate cuts. The weighted average cost of funding for the period was 11.2% (FY2024: 11.4%) with its ICR improving slightly to 1.4 times.

The Group’s covenant loan-to-value (LTV) ratio deteriorated marginally to 59.5%.

Delta will continue to trade as a going concern, with its Board resolving not to declare a dividend for FY2025 (FY2024: nil).