At the end of the reporting period, Delta owned a portfolio of seven high quality commercial offices and strategically located retail centers with a combined gross lettable area (“GLA”) of 79,127 m2, weighted 59% retail and 41% commercial offices.
Subsequent to 31 December 2015, the Group acquired an additional US$ 55.2 million of assets which are expected to transfer before the end of March 2016, namely:
- Barclays House, a 7,700m2 commercial office building in Ebene, Mauritius for a consideration of US$13.5 million; (the formal deed of sale having been concluded on 16 February 2016);
- The Vale accommodation compound in Tete, Mozambique consisting of 83 villas and 40 apartments with a gross asset value of US$ 33.1 million; and
- The 6,374 m2 Bollore/Plexus warehousing compound in Pemba, Mozambique for US$ 8.7 million;
On successful conclusion of the strategic partnership with The Pivotal Fund (which is subject to shareholder approval), Delta Africa will include the Buffalo Mall, a 6,167 m2 retail mall in Naivasha, Kenya; and the 27,812 m2 Wings Office Towers complex in Lagos Nigeria in its portfolio.
“We continuously seek ways to reduce our cost of capital, and are very excited about a number of funding agreements concluded,” explains Corbett.
“During the reporting period, we finalised a medium term finance agreement with Standard Bank of South Africa for US$ 38.0 million that was used to settle a more expensive bridging facility on the acquisition of the Hollard and Vodacom buildings. The balance was deployed to secure current pipeline acquisitions in Mozambique.
“In February this year, Investec Bank dispersed a long term facility of US$ 50.9 million in Morocco. This loan was Investec Bank’s first entry into the Moroccan market and provides a beachhead for additional funding for future projects in that country,” she continues.
The Investec loan is denominated in Euro’s (60%) and US Dollars (40%) (based on the weighting of the Moroccan Dirham), and allows Delta Africa to secure the lower cost of borrowings attached to the hard currency versus the higher Moroccan Dirham based lending rate.
The proceeds of the loan have been utilised to settle the current vendor loan on Anfa Place Shopping Centre, resulting in a significant reduction to the 8.9% borrowing costs associated with the vendor loan to the all-in interest rate of 5.52% (of which 70% is a fixed interest rate).
The interest rate ramp-up on the settlement of the vendor loan on Anfa Place Shopping Centre impacted Delta Africa’s weighted average cost of debt in the short-term, up to 7.09% versus 6.94% at 30 June 2015.
Profit for the six months to 31 December 2015 amounted to US$ 7.8 million, compared to the US$ 2.2 million loss from the comparative six months to 31 December 2014, and US$ 2.3 million profit from the previous six month period.
Net operating expenses as a percentage of revenue decreased to 17.1% for the six months to 31 December 2015 from the 25.0% of the previous financial year, mainly as a result of the acquisition of assets with triple net leases in place towards the end of the 2015 financial year.
The results include the impact in the dramatic devaluation of the Mozambique Meticais, which depreciated 23% against the US Dollar from 38.05 in June 2015 to 46.88 by the end of December 2015.
Although Delta remains susceptible to the impact of currency fluctuation on its Net Asset Value (“NAV”), the Group has a strict policy to transact with blue chip, international key or anchor tenants in hard currency leases.
“This means that currency movements do not impact dramatically on operating profits or distribution as all major leases and costs are US dollar based,” comments Corbett.
Currency fluctuation does however provide for large revaluation movements as can be seen in the revaluation of the properties, unrealised foreign exchange movements and the foreign currency translation reserve, with the latter impacting on the NAV per share by 13.55 US$ cps – without this movement, the NAV per share would be US$ 175.39 US$ cps.
“Going forward, we are targeting a total return (income and NAV growth) in excess of 15% in US$ on new acquisitions. We will achieve this by leveraging our knowledge base and on the ground experience in Mozambique and Morocco, and by focusing on quality counterparties able to commit to long-term US$ based leases.
“We’ve bolstered the executive team, and I believe our strategic relationships and continued shareholder support will allow us to grow shareholder value and returns. Targeted tier one countries of expansion include Morocco, Mozambique, Zambia, Mauritius, Kenya, Tanzania and Botswana and countries with REIT structures will be prioritised,” concludes Corbett.