Recently listed property loan stock com- pany Delta Property Group intends to become the “landlord of choice” for State departments and parastatal organisa-tions, as it looks to push its market capital-isation to over R3-billion in the short term.

The black-managed and substantially black-owned group listed on the JSE in November following a successful R980-million capital raising, with the aim of growing its rental property portfolio to R7-billion by 2017.

Some 70% of the fund’s portfolio was currently tenanted by government, Delta chairperson Johannes Bhekumuzi Magwaza said at the group’s recent results presentation.

A large portion of the group’s office portfolio was leased under long-term rental agreements to the national Department of Public Works and the South African Revenue Service, with average escalation rates of 8.45%.

“While the fact that we deal heavily with government does sometimes cause investors discomfort, we had been involved with government for years prior to listing and, thus, know how to effectively and efficiently manage [its] requirements and the challenges that accompany this relationship,” he commented.

While admitting that its dealings with government were often challenging, Delta COO and CFO Brownyn Corbett reiterated that there was a significant upside to operating in the public-sector space, including Delta adopting government lease opportunities that had been abandoned by other big property funds.

“Government isn’t easy to work with, but I believe we have dealt with them for so long that we understand them. A lease renewal process with government is a protracted one and can take up to 12 months. However, the upside here is that these are long-term leases – some of which have a duration of over nine years – which can guarantee cash flow to the fund,” she said.

In addition, Corbett noted that government’s leasing strategy was not as volatile as the private-sector leasing industry, which was more sensitive to fluctuations or a downturn in the economy.

Delta CEO Sandile Nomvete confirmed that the group’s focus on retaining government and parastatals as clients would remain a key ele- ment of its growth strategy, while it would concurrently ensure some property diversif-ication to ensure risk spread.

“Among these new acquisitions are retail and industrial properties, as we . . . didn’t want all our eggs in one basket should there be a change of strategy by government, despite the fact that there was no indication from them in this regard,” he said.

Following an “aggressive acquisition pipe- line”, Delta announced additional assets of R2.3-billion, which would bring the company’s market capitalisation to over R3-billion after the rights offer and the proposed acquisitions.

This would comprise 45 properties, with an average property value of R95.6-million, comprising 84% office, 10% retail and 6% industrial space.

The rationale behind the recent acquisitive growth was to breach the R2-billion market capitalisation figure, which would qualify the group for investment from certain funders which would only invest in companies above this threshold, as well as increase its geo- graphical presence, and secure single-tenanted long-term leases.

Delta posted slightly above-forecast distrib- utable earnings attributable to linked unit holders of R39-million for the year ended February 28, 2013, which included the impact of the restructuring of the company, its port- folio and capital structure, in anticipation of the listing in November.

The accrued distribution for each linked unit of 23.69c for the four months since listing was in line with the forecast distribution of 23.68c.

At year-end, Delta’s net borrowings of R866.4-million equated to a gearing ratio of 38.7%, which was calculated as total secured financial liabilities as a percentage of total assets.

The average interest rate for the year under review was 8.9%, which included prelisting debt facilities that were currently restructured.

At year-end, interest rates were fixed in respect of 82% of borrowings for an average period of 2.8 years at an average all-in interest rate of 7.86%.

“To ensure effective cash management, surplus cash is invested against revolving debt facilities,” said Corbett.