results presentation · business update (continued) results presentation for the year ended 29...

RESULTS PRESENTATION FOR THE YEAR ENDED 29 FEBRUARY 2020

www.deltafund.co.za

P R O P E R T Y F U N D

RESULTS PRESENTATIONfor the year ended 29 February 2020


01

02

03

04

05

06

AGENDAIntroduction and Business Update

P R O P E R T Y F U N D

Financial Review

Operational Review

Conclusion

Questions & Answers

Annexures

2


INTRODUCTION AND BUSINESS UPDATESandile Nomvete

RESULTS PRESENTATION FOR THE YEAR ENDED 29 FEBRUARY 2020 4

INTRODUCTION TO DELTA

Assets under management of

(2019 : R11.8bn)

R10.9bnSovereign underpinned JSE listed REIT

by revenue (2019 : 79.0%)

81.0%Highly empowered fund

Rating on new sector codes

Level 2B-BBEE

Net asset value

(Feb 2019 : R9.30)

R8.28Dominant in

Pretoria & Durban CBDs

Average property value of

(Feb 2019 : R109.1m)

R103.4m


w We have been reporting on increasingly challenging business conditions since 2016 mainly in light of the protracted bulk lease renewal process with DPW that significantly impacted on the cost and terms of our funding as well as the WALE of our portfolio

w Notwithstanding current market turmoil in the wake of COVID-19, we are pleased to report that during the year under review, significant progress has been made within the various facets of the business

Leasing Progressw There has been a lot of impetus from DPW to conclude outstanding leases with significant landlordsw Some rental reversions were expected and are in line with guidance provided previously to the marketw In addition to the bulk lease renewals we placed strong emphasis on general lease renewalsw New leases were concluded, and tenants introduced to the portfolio in Pretoria and at Capital Towers in

Pietermaritzburg (post year-end)w The successful lease renewals, once completed, will underpin a WALE of 2 to 3 yearsw 90% of our tenant base was retained despite tough trading conditions and increased competition in the

DPW leasing space

BUSINESS UPDATE


Capital recyclingw Delta successfully disposed of 2.1% of its shareholding in Grit Real Estate Income Group Limited through an off-market

transaction at US1.09 (R16.06) per Grit Share, for a total consideration of R104.4 million, used to settle debt w The intention is to dispose of the balance of this investment in an appropriate wayw Current market uncertainty has slowed our R1.3 billion asset recycling programme, although negotiations continue

Debt fundingw We have remained in constant communication with our major funding partners who have been very supportive during

this protracted period of lease negotiationsw Negotiations on facility renewals and normalising the current cost of funding of 10.3% on the back of a longer WALE is

expected to be finalised on conclusion of the remaining bulk leases w Significant progress has been made in negotiations on our expiring facilities of R4 billion at year-end, with our funding

partners in the process of finalising longer-term renewals and extensionsw The gradual lowering of the prime lending rate post the reporting date is expected to lower the weighted average cost

of funding, however, the impact of COVID-19 is expected to negate the benefits to earnings

BUSINESS UPDATE (CONTINUED)


Capital allocationw Capex will be a major focal point for 2021, with the bulk of the spend being defensive in naturew Contractual commitment to capital expenditure of approximately R200 million per year over the next

three financial yearsw With constrained headroom for borrowing and limited access to alternative resources, funding to date has been from

working capital. This trend is expected to continue, considering current market conditions

COVID-19w Since the onset of lockdown, approximately 80% of the April 2020 and May 2020 billing has been collected, with

further collections expected once department return to workw About 10% of our retail and non-government tenants remain doubtful and we continue engaging with these tenants

on an individual basis w Collection trends are in line with historic payment patterns. The portfolio remains defensive and resilient despite

turbulent market conditions as a result of COVID-19

BUSINESS UPDATE (CONTINUED)


FINANCIAL REVIEWShaneel Maharaj


FINANCIAL PERFORMANCE 2020

Loan to value of

(Feb 2019 : 45.1%)

46.3%Fixed debt of

(Feb 2019 : 59.8%)

45.0%Extended facilities totaling

(Feb 2019 : R2.1bn)

R3.8bn

Debtors managed at

(Feb 2019 : 31 days)

33 daysInterest cover ratio

(Feb 2019 : 2.1)

1.9Property operating margin at

(Feb 2019 : 67.8%)

65.2%


2020 2019 2018 2017 2016

Revenue (R’000) 1 457 818 1 547 365 1 564 053 1 617 344 1 247 582

Net property income (R’000) 939 227 1 037 786 1 149 885 1 153 341 925 531

Finance costs (R’000) 558 085 537 281 482 179 470 580 412 713

Cost to income ratio - gross method 34.8% 32.2% 26.5% 28.8% 26.4%

Cost to income ratio - net method 20.7% 18.3% 12.1% 12.4% 12.2%

Investment property (R’000) 10 579 021 11 350 331 11 507 600 11 381 421 10 095 181

Investment in listed securities (R’000) 277 734 461 822 381 868 429 588 472 546

Borrowings (R’000) 5 022 117 5 258 471 4 952 690 5 099 227 5 094 310

Loan to value (LTV) 46.3% 45.1% 41.3% 41.5% 47.2%

Weighted average interest rate 10.3% 10.2% 9.2% 9.2% 8.8%

Average debt expiry period (years) 0.5 0.8 1.5 1.9 2.3

Average debt fix expiry period (years) 2.7 2.1 1.5 2.2 2.1

Fixed : floating debt (excluding revolvers) 45.0% 59.8% 85.4% 85.1% 83.5%

Net asset value per share (exclusive of deferred tax) R8.28 R9.30 R10.06 R9.91 R10.61

FIVE YEAR REVIEW


R’000 Feb 2020 Feb 2019(Loss)/profit attributable to owners of the parent (588 297) 255 793Adjusted forFair value adjustment loss/(gain) to:- Investment property 747 556 237 599- Investment in listed security 79 738 (79 954)Straight-line lease adjustment 30 383 34 304Foreign currency translation reserve recognised - (4 805)Fair value adjustment to derivative financial instrument 39 923 10 507Foreign exchange losses to capital items 20 826 28 103Adjustment to dividends from listed security (3 813) 17 418Antecedent distribution - 569Distributable earnings attributable to owners of the parent 326 316 499 534Taxation - 27 692Capital expenditure from working capital (22 938) -Capital repayment on interest-bearing borrowings (129 762) -Distributable earnings available for distribution 173 616 527 226

SIMPLIFIED DISTRIBUTABLE EARNINGS RECON (R’000)


R’000 Feb 2020 Feb 2019

Less: Distributions declared (87 089) (395 419)

- Interim (87 089) (281 222)

- Final ( Declared after 29 February 2020) - (114 197)

Distributable earnings retained 86 527 131 807

Number of shares at end of period 714 229 718 714 229 718

Distributable earnings per share (cents) 45.69 73.84

Distributable earning per share paid (cents) 12.19 55.39

SIMPLIFIED DISTRIBUTABLE EARNINGS RECON (R’000) CONT..


HISTORIC DISTRIBUTION PER SHARE (CENTS/SHARE)

23.7

32.5

40.2

72.7

40.044.1

84.1

42.947.9

90.8

45.951.3

97.24

46.450.8

97.24

39.4

16.0

55.39

12.2

-

12.2

FY2013 H1 Aug-13 H2 Feb-14 FY2014 H1 Aug-14 H2 Feb-15 FY2015 H1 Aug-15 H2 Feb-16 FY2016 H1 Aug-16 H2 Feb-17 FY2017 H1 Aug-17 H2 Feb-18 FY2018 H1 Aug-18 H2 Feb-19 FY2019 H1 Aug-19 H2 Feb-20 FY2020

H1 – Interim

H2 – Final

Total – Full year

ANALYSIS OF DISTRIBUTIONS DECLARED

15.6%9.6% 7.2%23.1% 8.7% 7.1%8.0% 1.0% (1.0%) (15.1%) (68.5%) (43,0%)7.1% 7.1% 0% (78.0%)(69.1%) (100%)


527 22627 553 5 406

(124) (569) (3 857) (7 391) (23 815)

(54 211)

(68 431)

(75 472)

326 316

H2 Feb 2019 Provisions Adminexpenses

Dividendincome (Grit)

Antecedentdividend

Other income Disposals Net financecosts

Net propertyincome

Vacancies Tax expense H2 Feb 2020

-

100

200

300

400

500

600

Mill

ions

DISTRIBUTABLE EARNINGS BRIDGE

R’000


R’000 Feb 2020 Feb 2019 % Change

Rental income 1 488 201 1 581 669 (5.9)

Less: Property operating expenses (518 591) (509 579) 1.8

Gross rental income 969 610 1 072 090 (9.6)

Less:

Net income from disposals in 2019 (1 212) (8 603)

Net income from disposals in 2020 (2 764) (7 678)

Like-for-like net property income 965 634 1 055 809 (8.5)

LIKE-FOR-LIKE NET PROPERTY INCOME ANALYSIS


R’000 Feb 2020 Feb 2019 % ChangeASSETSNon-current assets (7.7)

Investment property 9 300 966 9 913 811 (6.2)

Investment in listed securities 277 734 461 822 (39.9)Other non-current assets 1 118 1 714 (34.7)Current assets 403 011 447 729 (10.0)Non-current assets held-for-sale 1 278 055 1 436 520 (11.0)Total assets 11 260 884 12 261 596 (8.2)EQUITY AND LIABILITIESTotal equity 5 851 862 6 641 445 (11.9)Non-current liabilitiesInterest-bearing borrowings 1 019 509 1 448 218 (29.6)Other non- current liabilities 82 779 22 478 268.3Current liabilitiesInterest-bearing borrowings 4 002 608 3 810 253 5.0Other current liabilities 304 126 339 202 (10.3)Total liabilities 5 409 022 5 620 151 (3.8)Total equity and liabilities 11 260 884 12 261 596 (8.2)

STATEMENT OF FINANCIAL POSITION


NAV BRIDGE

0.512 0.087 0.041 0.003 (0.021) (0.082) (0.112) (0.123)(0.282)

(1.042)

8.28

8.40

8.60

8.80

9.00

9.20

9.40

9.60

9.80

10.00

10.20

28-Feb-19 Contributionfrom

operations

Derivativefinancial

instruments

Lease liabilityIFRS16

Net debtfacilities raised

Disposals Taxation Fair value oflisted

investments

Fair value offinancial

instruments &forex gains

Dividend paid Fair value ofinvestment

property

29-Feb-20 -

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.009.30


As at 29 February 2020Facility Type R’m Weighted Ave. RateFloating bank facilities 4 481 10.4%Revolving bank facilities 532 9.6%Total borrowings, net of accrued interest 5 013 10.3%Accrued interest 29Debt structuring fees (20)Total borrowings including interest and fees 5 022

Interest rate swap contracts (3m Jibar linked) 2 020 7.8%Total fixed 2 020

Fixed % (excluding revolvers) 45.0%

DEBT SUMMARY


w Interest-bearing borrowings decreased by 4.5% due to settlement of debt from disposal of non-core properties and investments amounting to R153.5 million and amortisation of bank facilities of R129.8 million. The Group has no current exposure to the debt capital markets and has made significant progress in respect of extending and refinancing its expiring debt facilities, with negotiations as follows:

• restructure of Investec Bank's property facilities into a Portfolio A and B facility of R380.8 million and R352.9 million respectively, effective from June 2020. Portfolio A comprises of assets with shorter- term leases and higher vacancies for a 12-month period and amortised to a residual of R333 million. Portfolio B has a longer weighted average lease profile with a maturity term of 36 months and no amortisation

• extension of R2.3 billion in expiring facilities with Nedbank for a period of three months to 31 August 2020 on the existing terms and conditions. This allows the Group the opportunity to conclude the remaining bulk lease renewals, thereby placing the Fund in a stronger position for longer-term debt and more competitive pricing

• refinancing of R464 million in expiring facilities with Standard Bank for a 12-month period from June 2020 and extending a R300 million facility to October 2020

DEBT COMMENTARY


w The conclusion of longer-dated facilities will term-out the current average debt expiry period of 0.5 years which has declined from prior years due to the passage of time and short-term extensions. The weighted average cost of debt increased marginally from 10.2% to 10.3%, with an interest cover ratio (‘ICR’) of 1.9. The ICR is below the contractually agreed cover of 2 times and has been condoned by lenders, as the Company expects its position to normalise in the 2021 financial year

w Loan-to-value ratio (LTV) increased to 46.3% (2019: 45.1%) primarily due to the negative fair value adjustments of R744.1 million and R79.8 million respectively on investment property and investment in Grit. The LTV did, however, benefit from the amortisation of bank facilities totalling R129.8 million and settlement of R153.5 million from the disposal of property assets (R49.1 million) and 2.1% shareholding in Grit (R104.4 million)

DEBT COMMENTARY (CONTINUED)


OPERATIONAL REVIEWOtis Tshabalala


OPERATIONAL PERFORMANCE 2020

Defensive sovereign tenants

Gross lettable area (GLA)(Feb 2019: 73.6%)

77.4%Total lease renewals in a challenging environment

(Feb 2019: 46 833m2)

211 764m2

Bulk lease renewal largely completed

Renewed 112 112m² (42 leases) by Feb 20

49.5%

Total new leases concluded (GLA)

Retail and office-other

17 344m²Post year-end vacancy increased to

(Feb 2019: 14.4%)

19.8%WALE increased to

(Feb 2019 : 1.2 years)

1.6 years


GLA - BY BUILDINGGauteng (41.3%)Kwazulu-Natal (30.0%)Free State (8.9%)Limpopo (4.8%)Western Cape (4.5%)Northern Cape (4.0%)Mpumalanga (3.3%)Eastern Cape (2.6%)North West (0.6%)

RENTAL - BY BUILDINGGauteng (46.9%)Kwazulu-Natal (23.5%)Limpopo (10.3%)Free State (6.1%)Western Cape (5.2%)Northern Cape (3.9%)Mpumalanga (2.7%)Eastern Cape (0.9%)North West (0.5%)

23

GEOGRAPHICAL AND GRADE SPLIT

OFFICE GRADE - BY GLA

A (15.6%)

B (82.9%)

C (1.5%)

OFFICE GRADE – BY RENTAL

A (21.4%)

B (77.7%)

C (0.9%)


Office - Sovereign Office - Other Industrial Retail Total

Number of properties 80 16 3 3 102

Gross lettable area (m2) 1 567 5452 101 697 4 265 59 787 733 294

Vacancies Including assets held for sale (%)4 15.6 34.1 82.6 6.2 21.03

Value (R billions) 7.6 2.6 0.1 0.3 10.6

Average rental (R/m2) 131.0 93.5 101.0 126.0 125.2

Weighted average escalation (%) 7.7 7.2 8.0 7.6 7.7

Weighted average lease expiry (by GLA) (years) 1.3 1.6 0.3 3.6 1.6

Cost to income ratio (net) (%) 15.7 30.8 10.2 32.3 20.7

Cost to income ratio (gross) (%) 27.5 47.6 22.1 43.2 34.81 The GLA was previously reported by building classification which included vacancies and the different minority tenant types occupying the building, it is now represented purely by tenant type.Total GLA including vacancies of 195 237m2 is 928 531m2

2 National Government (312 244m2), Provincial Government (95 168m2), State-Owned Enterprise (104 852m2), Local Government (55 281m2)3 Post year-end vacancies decreased to 19.8% 4 Vacancies are classified by building type which is based on the majority tenant type within each building

PORTFOLIO BREAKDOWN


TENANT PROFILE BY GLA

77.4%

13.9%

8.1%

0.6%

42.6%

13.0%

14.3%

7.5%

Office - Sovereign

Office - Other

Retail

Industrial

Excludes vacancies. Total occupied GLA = 733 294m2

TENANT PROFILE BY RENTAL

81.0%

10.3%

8.2%

0.5%

41.4%

19.1%

12.8%

7.6%

10.4%

0.5%

National Government

ProvincialGovernment

Local Government

State-OwnedEnterprise

25

DETAILED TENANT BREAKDOWN


OPERATIONAL REVIEW

Leasing Progress

w Despite a tough environment, Delta reported its best performance since listing regarding leasing activity for the year under review

w Over and above the bulk renewals, we successfully renewed an additional 99 652m2 bringing our total lease renewals to a record 211 764m2 (Feb 2019: 46 833m2)

w The leasing team’s ongoing focus and dedication bore fruit with approximately 50% or 112 112m2 of the bulk lease renewals at National Government being successfully renewed for periods ranging between three to five years

w Negotiations on 83 134m2 of the remaining 114 497m2 bulk leases are at an advanced stage, with renewals expected to be concluded before the end of the 2021 interim period. The remaining 45 293m2 leases predominantly consist of default leases with a 3 month exit clause, effectively rendering them short-term leases. We continue to negotiate on the removal of this clause in order to conclude the leases

Arrears

w Arrears have increased marginally but continue to be well managed through ongoing engagement with DPW by a dedicated task team


OPERATIONAL REVIEW (CONTINUED)

27

Vacancies w Vacancies increased from 14.4% at the half year to 21.0%. This was driven largely by the loss of tenants at

Capital Towers, Unisa House and African Life in Bloemfonteinw Post year-end, vacancies reduced to 19.8% as a result of the successful re-tenanting of Capital Towers (10 496m2).

We anticipate a further reduction in vacancies to approximately 14.0% at the end of the current financial year

Disposals w The challenging economic climate has slowed our disposal program. Fundability of mostly vacant and non-core assets

is proving challenging in the current economic climate. Potential buyers have unrealistic and deeply discounted expectations which Delta will not entertain. Attempts to re-let have been escalated and the leasing team has engaged numerous brokers in these nodes. In addition, tenants are offered higher incentives to take up the space at reduced rentals as part of the strategy to avoid buildings being vacated

Valuations w The current challenging operating environment has resulted in a lot of focus being placed on property valuations. Delta

applied conservative valuation assumptions primarily pertaining to vacancies and market rentals which have resulted in a 6.6% decline in valuations. The average valuation per property is R103.4 million (Feb 2019: R109.4 million) with cap rates ranging between 8.25% and 14.0%. Discount rates are between 12.75% and 18.25%


OPERATIONAL REVIEW (CONTINUED)

28

CAPEX, TI and Safety & Health

w Contractual tenant installation requirements apply to the bulk leases renewed. The contractual annual defensivecapex spend on the portfolio is ca.R200 million. With the advent of COVID-19, there is greater emphasis on employee wellness which has been catered for in our capex budgets

COVID-19

w Post Feb 2020, the advent of COVID-19 has brought extra pressure on the property sector. The defensive nature of Delta’s portfolio was demonstrated with no rental relief sought by its sovereign tenants, which limited the negative impact on cash flow

w The tenants who have formally approached us for rental relief are clothing retailers consisting of PEP, Mr Price, JET, EDGARS etc. and we are dealing with these in line with the guidance of The Property Industry Group

w Non-government and retail tenants account for ca. 9% of monthly rental income. Tenants in good standing are being prioritized for their long-term sustainability. Some interventions include the extension of lease terms and the increase of escalation rates in order to recover rentals

w Despite the challenging COVID-19 environment, we have managed to renew a substantial portion of expired leases, albeit with a high demand for tenant installation and capital expenditure


DPW UPDATE

29

Renewal negotiations with DPWw 50% of the national leases have been renewed w Of the 4 major leases escalated to the Minister, Servamus (13 368m2) has been renewed for 3 yearsw We have been reassured that the remaining 3 leases will be signed shortly

DPW debtorsw High-level meeting held between DPW, SIU, Delta senior management and DPW auditors (O.M.A.)w O.M.A contract expired and we are in the process of resolving the reconciliation issues with DPW senior management

Government treatment of rates and taxesw SAPOA & IPD engagement on non-payment of rates & taxes – Part of discussion with DPW Minister & SAPOAw Impact on rental and ability of government landlords to create sustainable profitw Potential payment of rates increases


Bulk renewal progress

w Initial submission - 227 550m²

w Tenants vacated - Stats House Nelspruit (892m²), balance of bulk renewal of 226 609m2

w 42 leases signed to date totalling 112 112m² (57.6% - 5 years, 37.2% - 3 years, 2.8% - 2 years & 2.4% - 1 year)

w Of the 4 major leases under negotiation as reported at the time of the interim results, we renewed a 3 year lease,

13 368m2 with SAPS in Servamus, Durban

w The 3 remaining major leases, in 2 buildings with an aggregate GLA of 83 134m2 are at advanced stages of negotiations.

w On successful conclusion of these leases, the bulk renewals backlog will be considerably reduced, resulting in over 80%

of the bulk renewals completed

BULK LEASE RENEWALS UPDATE


Building Name Area (m2) User Department Lease Term LEASE AGREEMENTS CONCLUDED & SIGNED

Defence Force - Old Pretoria Road 2 504 Defence Force -Yard 5 Years Defence Force Logistics 2 430 Defence - Logistics 5 Years Mayors Walk 235 SAPS 5 Years SAPS Flying Squad 1 125 SAPS Flying Squad 5 Years 2 Devonshire Place 5 117 DOJ&CD 5 Years 2 Devonshire Place 2 171 DOJ&CD 5 Years Commissioner House 377 National Prosecuting Authority 5 Years 88 Field Street 6 157 National Prosecuting Authority 5 Years Hollard House & Parkade 8 481 DOJ&CD 5 Years WB Centre 638 DOJ&CD 5 Years The Marine Building 1 348 SA Police Services 5 Years Mayors Walk 297 Defence Force 5 Years Defence Force Transport 841 Defence Transport 5 Years Defence Force Headquarters 2 174 Defence Headquarters 5 Years Military Hospital 3 000 Military Hospital 5 Years WB Centre 747 SAPS 3 yearsTivoli 1 975 Home Affairs 5 Years Domitek Building 877 SAPS 5 yearsClassic Building 1 301 Arts & Culture Museum 5 years22 & 24 George Lubbe Str 6 200 SAPS 5 years Hatfield Forum EastDu Toitspan

3 644623

Dept. of Correctional ServicesSAPS

5 years3 years

BULK LEASE RENEWALS UPDATE (CONTINUED)


Building Name Area (m2) User Department LEASE AGREEMENTS CONCLUDED & SIGNED

SAPS – Ferreira Street 4 637 SAPS 3 years88 Field Street 4 617 Dept. of Water Affairs 5 yearsEdgars Kroonstad 322 Dept. of Correctional Services 5 years Campus Building 3 488 Dept. of Water Affairs 5 years Azmo Place 5 225 Dept. of Water Affairs 5 years Absa United 3 779 SAPS 3 years Du Toitspan 1 090 Dept. of Correctional Services 3 yearsLiberty Towers 1 350 Statistics South Africa 3 yearsLiberty Towers 540 Dept. of Public Works 3 yearsLiberty Towers 1 486 Statistics South Africa 3 yearsThe Marine Building 1 313 Indepe. Police Invstig. Directorate 3 yearsSA Eagle 2 662 Dept. of Land Affairs 1 year Die Meent 3 171 SAPS 3 yearsStandard Bank Unisa 500 Dept. of Environmental Affairs 3 years Continental Building 4 133 Dept. of Water Affairs 3 yearsWB Centre 461 Public Service Commission 3 years Commissioner House, Bellville 3 447 SAPS 3 years Shorburg 1 043 Department of Public Works 3 years LaboriaServamus

3 22113 368

Department of LabourSAPS

2 years3 years

112 112DEFAULT LEASES – ADVANCED STAGE OF NEGOTIATIONS

83 134DEFAULT LEASES Balance of bulk renewal 31 363 3-5 years

226 609

BULK RENEWAL UPDATE (CONTINUED)


Lease renewals concluded

LEASING UPDATE

w For the financial year ended 29 February 2020, lease renewals were concluded for a total GLA of 211 764m²,to the value of R818 million

w A state-owned enterprise that is currently a tenant at the Embassy Building went out to tender for a 10 year lease of 7 200m².They subsequently renewed the lease for 12 months pending award of the tender.

w The most notable renewals are:

Building Tenant GLA (m2)SARS Bellville SARS 16 006

Shell House Ethekwini Municipality 13 828

Servamus SAPS 13 368

Hollard House Dept. of Justice 6 954

22 & 24 George Lubbe SAPS 6 200

88 Field Street Dept. of Justice 6 157

AZMO Place Dept. of Water Affairs 5 224

2 Devonshire Dept. of Justice 5 117

Mayors Walk Dept. of Social Development 4 975

Total 77 829


New deals concluded

LEASING UPDATE (CONTINUED)

w 17 344m2 of new leases were concluded • valued at R 61.6 million over the lease term

w The most notable new leases are:

Building Tenant GLA (m2)SARS Randburg SARS 2 757Liberty Towers Special Investigations Unit 2 189 Embassy Co - Active 1 466Edgars Kroonstad Best Fashion & Home Ware 1 085 Total 7 497

New deals post financial yearw Delta House – initial negotiations were held prior the COVD-19 pandemic with a JSE-listed entity for a 10-year lease for

the entire building, with an option to purchase

w Capital Towers – 3 provincial tenants secured for a total GLA of 10 496m², effective 01 May 2020, for a lease period of 18 months with the intention of securing a longer term lease


Tenant retention w Tenant retention remains a significant focus for Delta

w COVID-19 has placed severe financial pressure on many businesses, particularly in the retail sector, as most tenants are struggling to meet their rental obligations

• Delta will work with each struggling tenant, to produce a mutually beneficial arrangementwith the objective of retaining a sustainable tenant

w The defensive nature of Delta’s portfolio is underpinned by its mostly sovereign portfolio, with minimal risk of government offices vacating

w There is opportunity for increased requirement of space to support COVID-19 related requirements

LEASING UPDATE (CONTINUED)


w The total portfolio vacancies increased to 21.0%(19.8% post year-end)

• The highest vacancy rate among larger metros, eThekwini Municipality at 13.8% and the City of Johannesburg at 12.5%

w Filling of vacancies remains a work in progress• Showrooms to advertise Delta’s offering

• Engaging top active brokers in the challenging nodes and incentivising them with higher commissions

• Tenant installation, tenant relocation costs and beneficial occupation

w Progress on decreasing vacancies• Capital Towers - 10 496m² lease offer accepted 18 months

from 1 May 2020

• Delta House – Pre COVID-19 a proposal for a 3 year lease with a JSE listed entity underway

• Chamber of Change – Negotiating disposal with interested party

• Protea Coin CPT – Advanced stage of disposal

All above leasing and disposal activities will reduce our vacancyrate by 2.9 %

36

VACANCIES

VACANCIES BY REGION

Region Total GLA Vacancy GLA Vacancy SAPOA

(m2) (m2) (%) (%)

Pretoria 262 221 27 470 10.4% 3.0%

Durban 231 181 40 879 17.6% 19.2%

Johannesburg 47 364 13 907 29.73% 13.6%

Bloemfontein 78 329 26 345 34.9% Not Available

Major Vacancy Contributor FYE 2020 City Vacated Tenant Vacancy

GLA

Capital Towers Pietermaritzburg Dept of Health 13 485

UNISA House Johannesburg UNISA 9 069

Liberty Towers Durban Massmart 7 025

In 2 Fruit Building Johannesburg In 2 Food 6 912

Katleho Building Bloemfontein Dept of Education 5 910

Total 42 401


w The full portfolio was valued by independent valuers

w 42% of the portfolio was formal valuations and 58% desktop valuations

w Management, the external auditors (BDO) and the Investment Committee agreed on a valuationmethodology end of 2019o market related cap rates and discount rates are being appliedo where higher than market rentals are being achieved, these rentals are being reverted to

market rates to reduce the risk on future earnings, including top slicing the rentals where required

VALUATIONS

Number of properties Value Feb 2020

102 properties (R’000) R10 549 620

85 properties* (R’000) R9 328 280

*excluding assets held for sale


w During the 2020 financial year, Delta sold Top Trailers site 1 and Classic Building for R45 million and R4.1 million respectively

w As at 29 February 2020, Delta had approximately R1.3 billion non-current assets held for sale at book value. Broadcast House transferred in March 2020 & Protea Coin Cape Town is expected to transfer in June 2020

PropertyBuilding

classification Location GLA (m2) Fair value(R)Expected

transfer date

Broadcast House Office - Sovereign Mthatha, Eastern Cape 4 934 45 100 000 25-Mar-20

Protea Coin Cape Town Office - Other Cape Town, Western Cape 5 700 10 000 000 30-Jun-20

2 Sale agreements concluded 10 634 55 100 0000

7 other non-current assets held for sale 61 388 758 355 000

9 Bloemfontein non-current assets held for sale Office - Sovereign Bloemfontein Portfolio 56 427 464 600 000

Total non-current assets held for sale 128 449 1 278 055 000

38

DISPOSAL OF ASSETS

PropertyBuilding

classification Location GLA (m2) Sales price (R) Transfer date

Transferred 15 741 45 000 000Top Trailers site 1 Industrial Wadeville, Johannesburg 15 741 45 000 000 09-May-19Classic Building Office - Sovereign Bloemfontein 3 000 4 100 000 19-Dec-19


w Protea Coin Cape Town is under sale agreement, the buyers have concluded their due diligence (DD)o Transfer expected end of June 2020o Full consideration for the property has been paid already

w The sale of Block G to a PPP is no longer proceeding, the property is still held as for salew 6 unsolicited offers have been received on the following properties:

o Chambers of Change – evaluating offer, buyer conducting DDo SARS Belville – buyer conducting DD, negotiating offer o Domus – offer accepted, buyer conducting DDo The Marine Building – prospective buyer conducting DDo Silverstream Office Park – on hold till post COVID-19o Beacon Hill – expression of interest received, waiting for official offer

w Disposing of the Free State Provincial Government Portfolio continues to be a priorityo Delta continues to work with reputable local brokers to try and fill up vacancies and dispose of buildings in this node

w Vacancies in Sunninghill remain a focus area with increased interest from prospective buyers, albeit at significant discounts to book value, management continues its strategy of letting at lower rentals to attract tenants but remain open to all reasonable offers

DISPOSAL OF ASSETS (CONTINUED)


Capital expenditure w Our main focus is on compliance and defensive expenditure

o predominantly to maintain the value of the properties and counter competitionw Following the signing of the DPW leases, TI and Capex will be required to comply with the Schedule C requirements and the improvement of tenant

spaces based on the lease agreements

w The capex programme will be supported with structured procurement principles and will require the following:o Database of consultants for all regions where DPF are representedo Database of suppliers with technical and financial strength for all regionso Tender committee representative of the various business lines within DPF to assure industry compliance and uniform standards for all

projects & regions w Some of the projects undertaken which are complete or in progress are:

o Poyntons Fire Project - fire compliance is a key requirement for safety within the portfolio and the project includes installation of fire lobbies, fire doors, fire hydrants and hose reels with the associated pumps and tanks. Anticipated completion 2021. Estimated spent R32.5 million

o Dept of Justice - 2 Devonshire Place and Hollard House. TI installation and Schedule C compliance. Estimated spend R25 million, completion 2021o SIU – Liberty Towers (Complete fit-out on behalf of tenant with limited TI contribution), estimated spend R6.5 million, completion 2021

CAPEX UPDATE

DPW Bulk Lease Renewal LIFT HVAC STRUCTURAL OHS T /I Allowance TOTAL CAPEX

42 Leases signed 17 454 550 77 160 596 23 902 321 35 031 913 36 671 712 190 371 392

16 Leases outstanding 28 344 431 22 809 995 5 265 913 55 422 056 41 726 828 153 419 221

Total 45 798 981 99 970 591 29 168 534 90 453 969 78 398 540 343 790 613


w Delta remains committed to ensuring its assets are environmentally friendly through various initiatives

w Over and above the usual initiatives like energy efficiency through efficient lighting and optimised HVAC upgrades, water-saving interventions etc, we have identified areas in our existing buildings where we can contribute towards a sustainable environment

w Major projects include:

• Recyclable waste management

• Collaborating with other stakeholders such as soft services (cleaning) and technical services providersto use environmentally friendly materials including paint, carpeting and ceilings in all our refurbishment projects

• Installation of Solar PV systems to assist energy demands. We are in advanced discussions with reputable suppliers to source the most efficient system currently available in the market

• More initiatives are being assessed in order to advance our goal towards a reduced carbon footprint

GREEN BUILDING AND SUSTAINABILITY


CONCLUSIONSandile Nomvete


w It remains too early to quantify the full impact of COVID-19 on the Group’s portfolio, however, collections have remained robust

w Relief to be afforded to our retail and non-government tenants will impact earnings while the reduction in interest rates is expected to reduce this negative effect

w Management will focus on the following key areas:

• Initiate capex spend on the portfolio in line with contractual lease obligations and toenhance quality of assets

• Concluding the bulk lease renewals and other expiring leases

• Fill up vacancies across the portfolio

• Refinance expiring debt focusing on terming out the debt expiry profile

• Drive the disposal process in a tough environment to deleverage the balance sheet

CONCLUSION


Distributionw Liquidity remains of paramount importance, especially considering Delta’s capex commitments, limited

capital raising opportunities and ongoing market uncertainty

w An interim dividend of 12.19 cents was declared and paid in December 2019

w Following due consideration the Board has decided not to declare a final dividend for year-end 2020

w The Board and management will continue to exercise prudence in managing Delta’s liquidity

w No further guidance on distribution is provided at this stage in light of the uncertainty and effect ofCOVID-19 on the forecast earnings of the business

CONCLUSION (CONTINUED)

01

02

03

04

05

06

Top 10 properties by value

Lease Expiry Profile

Sectorial Split

GLA and vacancy reconciliation

Leasing Outlook

Growth / Reversion

45

ANNEXURES


BUILDINGS REPRESENTED BY PROVINCE REPRESENTATIVE TENANTS

REPRESENTATION BY PROVINCE AND MAJOR TENANTS

North West

Limpopo

MpumalangaGauteng

KwaZulu Natal

Free State

Eastern Cape

Northern Cape

Western Cape

No of Buildings GLA (m2)

Gauteng 34 383 486KwaZulu-Natal 17 278 224Free State 16 83 025Mpumalanga 11 30 250Limpopo 7 44 885Northern Cape 7 37 275Western Cape 5 41 889Eastern Cape 3 23 717North West 2 5 780Total 102 928 531

46


TOP 10 PROPERTIES

FORUM BUILDING

Location Pretoria

Sector* Office -Sovereign

GLA 35 905m2

Valuation R625 mil

DELTA TOWERSPOYNTONS

Location Pretoria


GLA 73 369m2

Valuation R574 mil

Location Durban

Sector* Office - Other

GLA 40 093m2

Valuation R423 mil

* Building sector determined by majority occupation of a tenant type. Some buildings have different types in occupation

LIBERTY TOWERS

Location Durban

Sector* Office - Other

GLA 41 707m2

Valuation R377 mil

ISIVUNO HOUSE

Location Pretoria


GLA 23 694m2

Valuation R368 mil


TOP 10 PROPERTIES (C0NTINUED)

EMBASSY BUILDING DELTA HEIGHTS

Location Durban


GLA 19 122m2

Valuation R242 mil

HENSA TOWERS

Location Polokwane


GLA 13 675m2

Valuation R281 mil

HALLMARK BUILDING NPA CAPE TOWN

Location Cape Town


GLA 10 552m2

Valuation R239 mil

Location Durban

Sector* Office -sovereign

GLA 32 788m2

Valuation R334 mil

Location Pretoria


GLA 26 255m2

Valuation R356 mil

* Building sector determined by majority occupation of a tenant type. Some buildings have different types in occupation


GLA - BY BUILDING

73.8%

21.0%

2.6% 2.6%

Office - Sovereign (73.8%)

Office - Other (21.0%)

Industrial (2.6%)

Retail (2.6%)

GLA - BY TENANT*

77.5%

13.9%

8.1% 0.6%



Retail (8.1%)

Industrial (0.6%)

49

SECTORAL SPLIT

RENTAL - BY BUILDING

83.4%

14.0%2.2% 0.4%



Retail (2.2%)

Industrial (0.4%)

RENTAL - BY TENANT

81.0%

10.3%

8.2%0.5%

Office - Sovereign (81.%)


Retail (8.2%)

Industrial (0.5%)

* Excludes vacancies. Analysis focuses on what category the specific tenant falls into, rather than the category of the building


TOTAL PORTFOLIO - BY GLA

21.0%

26.0%

20.1%

8.0%

9.5%

2.9%

10.1%

2.4%Vacant (21.0%)

Month to Month (26.0%)

28 Feb 21 (20.1%)

28 Feb 22 (8.0%)

28 Feb 23 (9.5%)

29 Feb 24 (2.9%)

28 Feb 25 (10.1%)

Beyond 28 Feb 2025 (2.4%)

TOTAL PORTFOLIO - BY RENTAL

35.4%

29.9%

9.5%

9.9%

3.7%

9.9%1.7%

Month to Month (35.4%)

28 Feb 21 (29.9%)

28 Feb 22 (9.5%)

28 Feb 23 (9.9%)

29 Feb 24 (3.7%)

28 Feb 25 (9.9%)

Beyond 28 Feb 2025 (1.7%)

50

LEASE EXPIRY PROFILE 29 FEBRUARY 2020


Sector Month to Month 28 Feb 21 28 Feb 22 28 Feb 23 29 Feb 24 28 Feb 25 Beyond 28

Feb 2025 TOTAL

National government 128 427 47 091 17 967 40 784 21 268 56 706 - 312 243

Provincial government 52 573 26 822 2 102 1 876 - 11 795 - 95 168

Local government 25 131 16 323 - 13 828 - - - 55 282

State-owned enterprise 2 065 50 135 23 038 7824 2834 18 956 - 104 852

Total Sovereign 208 196 140 371 43 107 64 312 24 102 87 457 - 567 545

Office – other 23 953 35 985 14 156 14 015 410 3 984 9 194 101 697

Retail 9 324 6 278 16 476 9 579 2 279 2 203 13 404 59 787

Industrial - 4 265 - - - 2 447 - 4 265

Vacant - - - - - - - 195 237

241 473 186 899 73 740 87 906 26 791 93 888 22 598 928 531

LEASE EXPIRY BY GLA | SECTORAL TABULAR REPRESENTATION


WALE by tenant type

Sector Total GLA (m2)

WALE by GLA(yrs)

National government 312 243 1.5

Provincial government 95 168 0.8

Local government 55 282 0.6

State - owned enterprise 104 852 1.7

Office - other 101 697 1.6

Retail 59 787 3.6

Industrial 4 265 0.3

Vacant 195 237 0.0

Total 928 531 1.6

WALE BY TENANT TYPE

w WALE expected to improve on finalisation of the renewals below which are now at an advanced stage

w 3 national government leases approximately 83 200m² at5-year lease terms

w 3 provincial leases approximately34 500m² at 3-year lease terms

w A local government tenant is also under negotiation for a 3-yearlease renewal

w Vacancy decreased to 182 855m2

post year-end on leasing 10 496m2

to provincial government inCapital Towers


Properties (No.) Total GLA (m2) Vacant GLA (m2) Vacancy (%)

As at 28 February 2019 104 950 422 136 986 14.4%

Disposals (2) (18 741) (991)

Leases terminated - - 76 586

New letting of vacant space - - (17 344)

Adjustments:

Forum 1 - (5 098)

Chambers of Change 2 1 971

Other (23)

As at 29 February 2020 102 928 531 195 2373 21.0%3

GLA AND VACANCY RECONCILIATION

1Forum Building remeasured & GLA decreased by 5 098m2

2 Chambers of Change GLA confirmed to plans after handover from the tenant (Propertuity) that was liquidated. Adjustment of 3 043m2 at Interim incorrect3 Vacancy decreased to 182 855m2 (19.8%) post year-end and letting of vacant space increased by 10 496m2 from new Provincial leases in Capital Towers


Anticipated budgeted sovereign renewals

Sector No of Leases Total Area W.A. ExpiryR / m2 *

W.A. ProposedR / m2 *

Escalation / (Reversion)

Leases on month-to-month or expiring by 31 August 2020

National government 19 122 091 127.96 95.85 (25.10%)

Provincial government 13 58 449 208.21 144.32 (30.69%)

Local government 7 41 122 137.64 90.56 (34.20%)

State-owned enterprise 11 17 194 133.82 129.07 (3.55%)

Total 50 238 856 149.68 109.19 (27.05%)

LEASING OUTLOOK

* All rentals quoted are gross rentals


Total leases concluded 1 March 2019 – 29 February 2020

No of Leases Total Area (m2) W.A. Term (months)

W.A. Expiry Rate (R / m2) *

W.A. Achieved Rate (R / m2) *

Growth / (Reversion)

W.A. Esc. achieved

Renewed leases # 123 211 764 40.62 102.22 96.29 (5.80%) 6.59%

GROWTH / REVERSION - ANNEXURE

*All rentals quoted are gross rentals

Renewals by sector

Sector No of Leases Total Area W.A. Term(months)

W.A. Expiry R / m2 *

W.A. Achieved R / m2 *

Escalation / (Reversion)

W.A. Esc. Achieved

National government 42 112 112 49.02 99.25 90.12 (9.20%) 6.16%

Provincial government 3 6 423 54.18 125.73 115.41 (8.21%) 6.10%

Local government 1 13 828 36.00 92.00 95.00 3.26% 9.00%

State-owned enterprise 9 25 662 47.34 123.18 101.78 (17.37%) 5.74%

Industrial 4 11 177 11.67 83.34 90.01 8.00% 8.00%

Office – other 35 36 264 17.30 95.85 101.80 6.20% 7.02%

Retail 41 6 298 45.66 134.96 143.29 6.17% 7.90%

Total 123 211 764 40.62 102.22 96.29 (5.80%) 6.59%


NOTES

results presentation · business update (continued) results presentation for the year ended 29...

Documents