Our opinion on the current state of Delta Property (DLT) Delta Property (DLT) was a level 2 black empowered real estate investment trust (REIT) with a portfolio valued at R11.3bn and a loan-to-value ratio of 44.3%. Roughly 80% of its rental income came from the government or state-owned enterprises such as Eskom. The company specialized in renting buildings to government and quasi-government organizations in major South African cities. During COVID-19, the company's exposure to government leases proved beneficial because those leases continued to be paid while commercial leases came under extreme pressure.
On 24th August 2020, the company announced that both the CEO and the CFO had resigned, clearing the way for a new board appointed by the women’s BEE consortium, Cornwall Crescent, which owns 26% of Delprop. On 9th December 2020, the company reported on the results of a forensic investigation as follows:
"Some of the key issues identified in the Forensic Report include:
- Payment of commission by the Company totaling R43.9 million (for the three financial years ended February 2018, 2019, and 2020), resulting from invalid, lapsed, or no broker mandates;
- Fraud resulting from unethical dealings amounting to R2.1 million;
- Non-disclosure of related/connected party transactions to the Board."
On 10th December 2020, the company withdrew its February 2020 financial statements and audit opinion and delayed the publication of its August 2020 interims. This caused the share price to fall by one third. On 15th December 2020, trading in the share was suspended by the JSE. On 22nd April 2021, the company re-issued its financials with a 10% drop in the value of its portfolio of properties at the end of February 2020. Its liabilities exceeded its assets by more than R4bn, and its status as a going concern was in question. The JSE suspension was finally lifted on 30th July 2021, and the share has been climbing strongly since then.
In its results for the year to 29th February 2024, the company reported rental income down 5.4% and headline earnings per share (HEPS) up 7.4%. The company said, "Weighted average lease expiry 15.3 months (February 2023: 13.2 months). Profit from operations R399.2m (February 2023: R226.1m loss from operations). Covenant loan to value 59.4% (February 2023: 59.9%)." Notably, the share is still trading at a fraction of its NAV, which suggests that a takeover might be in the offing.
In our view, this share remains a risky penny stock despite the recent results. We think the loan-to-value (LTV) is still far too high. On 16th February 2024, the JSE censured Delta and gave it a R7.5m fine for accounting irregularities, which might prevent the investing public from making sound investment decisions.
Given these factors, Delta Property presents significant risks. The high LTV, ongoing operational challenges, and recent accounting irregularities all contribute to its risk profile. Potential investors should be cautious and thoroughly evaluate the company's financial health and governance before making any investment decisions.
DLT trade ideas
Our opinion on the current state of DLTDelta Property Fund, a level 2 black-empowered real estate investment trust (REIT), has experienced significant turbulence in recent years. With a portfolio valued at R11.3 billion and a loan-to-value ratio of 44.3%, the company has historically derived approximately 80% of its rental income from government or state-owned enterprises, such as Eskom. Specializing in renting buildings to government and quasi-government organizations in major South African cities, Delta initially benefited during the COVID-19 pandemic as government leases continued to be paid, unlike many commercial leases which faced severe pressure.
However, the company's stability was rocked by the resignation of both the CEO and CFO on 24th August 2020, setting the stage for a new board appointed by the women’s BEE consortium, Cornwall Crescent, which holds a 26% stake in Delta. The situation worsened when, on 9th December 2020, Delta disclosed the findings of a forensic investigation that highlighted significant issues, including R43.9 million in commission payments from invalid or nonexistent broker mandates, unethical dealings resulting in R2.1 million of fraud, and undisclosed related/connected party transactions.
The fallout from these revelations led to the withdrawal of its February 2020 financial statements and audit opinion, and a delay in publishing its August 2020 interims, causing a sharp decline in share price and a suspension of trading by the JSE on 15th December 2020. Upon reissuing its financials on 22nd April 2021, Delta reported a 10% devaluation of its property portfolio as of February 2020, with liabilities exceeding assets by more than R4 billion, casting doubt on its going concern status.
Adding to its woes, Delta disclosed on 16th July 2021 that several of its properties had been damaged during the unrest and looting incidents, further complicating its recovery efforts. Despite the lifting of the JSE suspension on 30th July 2021 and some positive movements in its share price, the company's six-month results up to 31st August 2023 showed a 9.2% decrease in rental income and a marginal 1.1% increase in headline earnings per share (HEPS). Additionally, Delta reported a decrease in the weighted average rental across its portfolio and a fair value gain mainly from its investment in Grit Real Estate Income Group.
The continued trading of Delta's shares at a fraction of its net asset value (NAV) has sparked speculation about a potential takeover. Yet, with a persistently high loan-to-value ratio and the company becoming a penny stock, recovery seems doubtful. The situation was compounded on 16th February 2024 when the JSE censured Delta and imposed a R7.5 million fine for accounting irregularities, further eroding investor confidence and the company's ability to make a sound investment case.
Our opinion on the current state of DLTDelta Property (DLT) was a level 2 black empowered real estate investment trust (REIT) with a portfolio valued at R11,3bn and a loan-to-value ratio of 44,3%. Roughly 80% of its rental income was from the government or state-owned enterprises such as Eskom. The company specialised in renting buildings to government and quasi-government organisations in major South African cities. During COVID-19 the company's exposure to government leases has turned out to be a benefit because those leases continued to be paid while commercial leases have come under extreme pressure. On 24th August 2020 the company announced that both the CEO and the CFO had resigned - which will clear the way for a new board appointed by the women’s BEE consortium, Cornwall Crescent, which owns 26% of Delprop. On 9th December 2020 the company reported on the results of a forensic investigation as follows: "Some of the key issues identified in the Forensic Report include: • payment of commission by the Company totalling R43,9 million (for the three financial years ended February 2018, 2019, and 2020), resulting from invalid, lapsed or no broker mandates; • fraud resulting from unethical dealings amounting to R2,1 million; and • non-disclosure of related/connected party transactions to the Board". On 10th December 2020 the company withdrew its February 2020 financial statements and audit opinion. It also delayed the publication of its August 2020 interims. This caused the share price to fall by one third. On 15th December 2020 trading in the share was suspended by the JSE. On 22nd April 2021 the company re-issued its financials with a 10% drop in the value of its portfolio of properties at end February 2020. Its liabilities exceeded its assets by more than R4bn and its status as a going concern is in question. On 16th July 2021 the company reported on the impact of the unrest and looting saying that "Delta Towers, Liberty Towers, 88 Field Street, Pine Parkade and Treasury House (Pietermaritzburg)" had been damaged". The JSE suspension was finally lifted on 30th July 2021 and it has been climbing strongly since then. In its results for the six months to 31st August 2023 the company reported rental income down 9,2% and headline earnings per share (HEPS) up 1,1%. The company said, "Delta renewed 23 leases totalling 97 045mA² and concluded 5 526mA² of new leases. Delta reported a R12.5 million fair value gain, mainly on its investment in Grit Real Estate Income Group. The weighted average rental across the portfolio decreased from R125.33/mA² to R114.64/mA²". Notably the share is trading at a fraction of its NAV - which suggests that a takeover might be in the offing. In our view, this share is not recovering and has become a penny stock. We also think the loan-to-value (LTV) is still far too high.