Our opinion on the current state of 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 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.