Our opinion on the current state of DLT

Delta 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.