Delta Property Fund Limited (DLT) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to Delta Property Funds interim results for the 6-month period ended 31 August 2021. Before I hand over to Ms. Bongi Masinga, the interim CEO, just a couple of housekeeping rules. We are experiencing load shedding at the moment in Johannesburg. We expect power to get back on at about 10:30, which may result in the lights dimming or worst-case scenario, the system kicking off before it reboots. Please stay on the line with us. We will reboot as soon as possible, and we will put up an interlude slide if this happens. We do not expect any issues though. We will also have the recording up of the presentation available later on today on deltafund.co.za. I would like to hand over to Ms. Bongi Masinga to start with proceedings. Thank you.

Good morning, everyone. Can anyone hear me? Can everyone hear me? Good morning, everyone, and thank you very much for attending our interim results presentation. We are always very excited to still have interest on our stock. And we're hoping as well, you'll be excited with what we are about to present today. And for the duration of the presentation, I would like to remove my mask so you can all hear me. And we will start now with our first slide on -- and to just hit on with some of the highlights of our results. The value of investment property is at ZAR 8.3 billion having at the end of February full year end 2021 at ZAR 8.2 billion, and that marginal movement is as a result of the CapEx spend into our properties. Our gross lettable area is 904,528 square meters, and that reduction -- slight reduction is as a result of the sale of Domus, which was 5,454 square meters. We have -- we've gone through and have agreed on a strategy. And the outcome of that strategy is we are still committed to remain very much sovereign underpinned and a JSE-listed SA REIT. Our NAV is at ZAR 5.23, which is an excellent improvement as a result of the profit from our February end 2021 at ZAR 5.06. Now one thing that we did, and the results speak for themselves when you look at the collections at 93.3%, is have a really focused effort with our team in terms of collections. That amount is not 100%. And though we do thrive to collect 100% per month, it's not really possible. What really keeps us awake at night are the legacy arrear issues, which have been escalated to my office and Marelise's office, and we are handling those, and we are starting to see traction, but especially communication and change of correspondence between the parties. And I end with the share price, though we're not remunerated based on the share price, but we are very, very excited that we are seeing some positive traction. We closed on Friday at ZAR 0.62 per share. And today, we've seen even better trading on the platform. So since our resumption of trade in July this year, I think the share has done exceptionally well. [Technical Difficulty] Apologies, everyone, for that. It was us just getting back from being load shedded. I will start again the slide on the road map to distribution payments. Our strategic objective is to strengthen the balance sheet and improve LTV by -- to below 50% and reduce vacancies to below industry norms by February 2024. We are targeting 100,000 square meters of leases to be signed by February 2022. Having said that, we fully understand that it is not 100% within our control, but we are a bit excited, but we have started negotiations with the department. And I think we have a better understanding as well of where they intend to go with some of some of their departments. And we do accept that at some point, we may not win. I mean at the moment, we are very heavyweight on sovereign, and we understand that they will not renew all our leases at this point, but we are targeting at least 50% of what we have for sovereign to be renewed. Our other strategic objective is portfolio optimization, resizing and [ dediversifying ] of the portfolio in terms of size, quantity, quality, location and tenant base. We are, as part of that, looking at disposals, and you would have seen in the sense, we have also announced at least disposal of about 3 buildings, and I can assure you there's still more to come. We are, at the moment, also very open and are having discussions with some conversion specialists. I'm not saying we will be going into housing, but seeing how, as part of portfolio optimization, we can participate in that space with a clear exit for us. And of course, the sectors are continuously being discussed and being looked at as part of that portfolio optimization. We are looking to improve our debt terms. As you know, we've been on month-on-month -- not month-on-month, very short-dated terms with our funders, and we're very proud to say that with Standard Bank, we have now concluded a 3-year term for that funding, and we are still engaging with Nedbank, and we're hoping for something a bit more conclusive and longer dated by the end of November. Our performance culture has improved, some of the numbers that you are seeing coming through as a result of the team working together. And what we have done as well is we are all 100% back at the office, still adhering to the COVID-19 protocols. What we have achieved this far? We have a Board-approved strategy. We have our new mission and vision and the staff is being taken through what our new values which we are very insistent that everyone at least adheres to all of them -- of all of them. We can categorically say that we now have stabilized leadership. The appointment of the new CEO is imminent. And hopefully, before the end of this week, we will be able to go out on SENS to announce who the new permanent CEO will be. We continue to reinforce governance and have oversight on roles. We have streamlined procurement procedures, which were some of the issues that came up as part of them internal control [indiscernible] report. And we are even looking at automization of the processes. We have said this in the past, and we continue to be very proud that we have bolstered key management and heads of divisions. And the competencies with ongoing skills and transfer development -- transfer -- sorry, skills transfer and development. The team -- so our operational efficiencies and effectiveness, part of that is that the team does not work in silos. There is horizontal integration, and have successfully completed the removal of some of, what do I call it, bureaucratic structures that did exist in the business. Our KPIs still continue to be to conclude new leases and reduce vacancies. And I suppose at this point, I can pause and say we have not done well on this front and it will become a focused area for end of February 2022. I suppose when Marelise and I sit back and look at what this business needed, first part was leadership, which I think we've gotten right; heads of division structure, which we have gotten right; collections, because without cash flows, there isn't much that we can actually do and conclude; and also, CapEx delivery, which we have done quite well and continue to drive that, understanding that we're still playing catch up. So reduction of vacancies, I've got to say, did take a bit of a backseat and now has become a focus area for us to do, and it will be handled in the same manner in which we handled and tackled collections with the exception, of course, this time that we will use external parties to help us fill in these vacancies. Spoken about ongoing CapEx delivery. Arrears and collection is still our focus, and we are achieving that. And if you see the number of collections of 93% per month, some months we do, do better. We can collect as much as 145% and partly of that we are starting to deal with the arrears. Disposals is one of our achievements as well and will continue to be. Extension of debts. I've already said and human capital we do have a vigorous team, we do have a team that understands that if they do need some training, we are there to support and facilitate that to ensure that they do deliver and actually perform effectively in what they do. Our strategic focus areas continue to be our LTV target. We are looking at less than 50% by August 2022 and less than 45% by February 2023 the next financial year. I see our targets 2x by February 2022 and 2.5x by 2023. We are slightly below our ICR target, but marginally sitting at this moment at 1.9x. Our CapEx execution, the outcomes, we're hoping that it facilitates with the reduction in vacancies, tenant retention and most importantly, OSH compliance. We do report to the Board on our OSH compliance and we are making fantastic strides in achieving compliance in all our, firstly, tenanted buildings and then of course, the rest of our portfolio buildings, especially in buildings that we know we will not dispose off. We are committed to the CapEx of ZAR 183 million. I've spoken a bit about human capital development, which is ongoing. We now have finally an engaged team with aligned values. We are also looking to do an employee, what do they call it, climate survey and an ethics questionnaire before the end of 2022, and we shall be reporting for year-end where we think the mood is, where we still need areas of improvement and focus. Performance contracts will be undertaken for the financial year-end 2023. I've already said that staff is encouraged to improving skills and go to training and development. One of what -- one of the things that we have found is some of the human capital issues is, we do have an under-capacitated HR division and we are looking to capacitate that, bring in skills, understand what we would like to achieve in terms of HR, so we can relieve a bit of pressure from Marelise and I in dealing with human capital issues and also in terms of the heads of the divisions and they continue to focus on the right issues. Business update. We have signed 9,109 square meters of new leases with a further 34,229 renewed despite of tough market conditions. Rental reversions are in line with expected market rentals, and we are continuing with this trajectory, which will extend our portfolio weighted average lease expiring. Our capital expenditure, which is one of our key KPI. The delivery of the CapEx program remains a priority to ensure assets meet tenants' requirements. During the reported period, capital expenditure on investment property totaled ZAR 62 million. It may seem small by -- after that by the end of -- after our reporting period in October, it sit at ZAR 74.5 million. A lot of that will come through as we have to pay progress payments on our lifts. The lifts projects is -- project is already underway, and we are hoping really to have concluded by the end -- a lot of them by the end of financial year end, understanding that some of the delays are not really from our end, but it has to do with delivery and procurement from their end. These projects are funded mainly from operational cash flow with the upgrade Poyntons being funded by debt facilities. More projects completed or underway, and I will take them through -- I think it's better if I take them through one by one. I have a list on the slide, which you currently see. And I will take them through one by one and just to show and to demonstrate how proud we are of what we've done. We have showed you that before -- we're showing you the before and after, and we will start with Poyntons and what you are seeing now is the lift upgrade. And -- but when I go through what needs to be done, we have about 6 pictures or slides to show you of Poyntons. I will just read through, and they will just show you the pictures. The upgrade of the fire system is 90% complete with all the floors replaced. And if you remember, ladies and gentlemen, Poyntons is probably our largest building in our portfolio with 74,000 square meters and 34 floors. All fire signage has been replaced. Additional fire equipment installed and the installation of smoke extraction and detection systems. Currently, there are 2 lifts on the west block, 4 lifts in the east block and 2 lifts in the block occupied by the Department of Defense, which are being replaced. The commissioning of these lifts will commence as well from February 2022 to May 2022. Now Poyntons on its own has got 19 lifts and 3 emergency firemen's lifts. The FAÇADE Level Street has been painted, still [indiscernible] walkways and entrances have been repaired and repainted. What you saw we started with the reception upgrade, which is currently underway, with 3 reception areas being retiled, walls cladded, ceiling replaced and painted, and the shop [ floors ] are being refurbished. The total spend for the operating period was ZAR 11 million. Now we move to our second building, which is Commissioner House. Commissioner House houses the police and the Hawks in Cape Town, Bellville, the upgrade -- now I mean the interesting thing about this building when Marelise and I went to see it last year, we found that part of the building inside was burnt and has been lying like that for the last 2 years. We are proud now to say that the upgrade, which has been completed, included the replacement of all common area carpets with vinyl flooring, which is what you are seeing now, replacement of all damaged drywalling, ceilings, carpeting, blinds and HVAC systems. The paintings of the internal office walls and the repairing and the repainting of the Facade. The total spend for this period was ZAR 909 million. We then move on to Veritas. Veritas houses the police in Pretoria. The upgrade included the replacement of all air conditioning systems in the building, rewiring of noncompliant electrical wiring and connections and equipment, the replacement of the front entrance doors, the installation of the disability access ramp and the repairing and replacement of all 40 plumbing services and equipment in kitchens and toilets. And I think it's important for me to state that as we do upgrades of HVACs and we do some rewiring of electrical -- while we do upgrade of electrical wiring, we also then go into electrical compliant. So you will find that a lot of our buildings now have a compliance certificate in terms of electrification. The lift upgrade is currently underway, in progress and expected to be commissioned in January 2022. The total spend for this building in this period is ZAR 6.3 million. We then move to 56 Barrack. In Cape Town, 56 Barrack Street. This building houses the Department of Home Affairs. Now if you just look at the before and after of the kitchen, it is -- for us, as landlords, really we were not paying attention when we talk about tenant experience, clearly, they were not enjoying that. The work post period end included the upgrade of all kitchen facilities in the buildings with new floor and wall tiles, new ceilings and lights, new kitchen cabinets, new sinks, taps and new hydro boil units. The blinds have also been replaced together with the replacement of customer care area, flooring with the new vinyl and that's where the department actually meets the outside for all registrations. The first floor further had toilet facility upgrades with new wall and floor tile, ceilings, vanities, basins and tap replacement. The leaking roof has been repaired and waterproofing replaced. Now this is some of the work that we do, ladies and gentlemen, as well for tenant retention. And if I can move to Servamus. Servamus in Durban suffered a fire earlier this year and as part of fixing that first floor, we have temporarily relocated the police and moved them into one of our other space in Durban. The upgrades included the replacement of the main chiller unit. The further damage on the first floor will be completed shortly, we're looking before the calendar year. The total spend -- and we will continue as well to do the rest of the floors at Servamus. The total spend for the reporting period was ZAR 2.3 million. And now I will do with a few buildings at the same time. Isivuno, Die Meent, 88 Field Street and 2 Devonshire. 88 Field Street -- or let me start with Die Meent. Die Meent is an -- in fact, I will start with Isivuno, sorry. Isivuno is our building in Pretoria, which houses the Tshwane municipality, more their business chamber. The upgrade included the replacement of all leaking waterproofing on the main floor, first floor overhang and the ground floor, the fountain area, major repairs of the 2 existing chillers, cooling towers and pump systems. The lift upgrade is planned for the 6 lifts with additional firemen's lift at the cost of ZAR 10.3 million. The total spend for the reported period was just under [indiscernible]. And then I move on to Die Meent, which is in Kimberley. The upgrade included the replacement of all common area carpets with vinyl flooring, the replacement of all carpets with new carpets, the replacement of all office and boardroom blinds and the replacement of a split air-con unit [ ZAR 4 million ]. 88 Field Street, which is our building in Durban, which was affected by looting in July. The upgrade included the resealing of glass facade and replacement of cracked glass pains on 2 sides of the building, replacement of main chiller unit and the painting of offices and common areas. Now if you look at the structure of that building, you do need an experienced team to go in because it does require a bit of suspension and what we actually spent the 12 -- a bulk of the ZAR 12.4 million was to seal the exterior windows which had started to leak and they were cracked. 2 Devonshire houses in Durban. It houses Department of Justice. The upgrade included the replacement of the main chiller unit, the air cons, the control units, cooling tower and water pumps. And the total spend for the reported period was ZAR 3.9 million. Then we move on to the next slide, where we have Sars Kimberley and WB Centre in Kimberley. The upgrade -- Sars Kimberley actually got a new totally facelift. We've signed a new lease with Sars. The upgrade included the replacement and repair of the entire roof, all air conditioning and facade cracks were repaired for a total spend of ZAR 3.2 million. WB Centre in Kimberley. The upgrade included the installation of water tanks, replacement and repair of all waterproof painting of the buildings, inside and out and the replacement of blinds for a total amount of ZAR 1.9 million. Some of the stuff that we have done, which is not here, a lot of our areas where there are water problems and water shortages like Pietermaritzburg and Kimberley, a lot of our buildings are supported by water tanks, which we have included. Sorry, I'm flipping through a few documents here, my apologies. Our disposal strategy, we've spoken about, which has gotten approval from the Board, and there are a lot more buildings to come. The 3 that we have gone out on SENS is Delta House, which was sold for ZAR 74 million, Fort Drury for ZAR 60 million, Fort Drury is in Bloemfontein and Sediba -- Fort Drury and Sediba went out on SENS this morning it was for ZAR 76.5 million, and they are -- we're looking as well shortly to be announcing probably on another 2 more buildings. Thank you very much. My report will end here, and I will hand over to Marelise, the CFO.

Thank you, Bongi. Good morning, everybody, and thank you for taking the time to listen to our presentation this morning. And I would like to jump right into our financial performance for 2021. Our loan-to-value increased marginally to 55.7% from the February 2021 numbers of 56.5%. Our average cost of debt increased quite significantly to 7.1% from August last year being at 8.2%. Our SA REIT's funds from operations, which was previously the distributable earnings, that is at ZAR 177.5 million compared to August 2020 at ZAR 116.4 million. Our interest cover ratio at this point in time is ZAR 2.1 million, and Feb last year was ZAR 1.9 million. I think just interesting to note there because our interest cover ratio does go up and down as we progress during the period and is also normally quite seen when it comes to cash that we spend as well. If we move on to our next slide, the financial overview. Our rental income, including our recoveries have been pretty much flat from ZAR 723 million to ZAR 724.6 million. Our net operating income is at ZAR 449 million versus the ZAR 424 million of the previous period. I think the one thing to note here is our cost-to-income ratio on a gross basis as well as a net basis is currently at 45% and 34.2%. It is marginally lower than what we had in August 2020. It is still high, and we do acknowledge that it is high. It will certainly -- with our focus on filling vacancies, that ratio will certainly come down automatically because currently, we do still have the cost side of the building; however, the income is low for certain buildings. Our investment property went from August 2020 of ZAR 8.7 billion. In Feb 2021, we had ZAR 8.2 billion, and we're now at ZAR 8.25 billion, and it's mainly due to the CapEx spend that we're going to find from the one period to the next. Our investment in listed security is our investment in Grit. That has been reducing over the last period from ZAR 189 million in August. In Feb, we had ZAR 157 million and ZAR 116 million at the moment. The reason for our decrease here is, specifically, I think COVID has Grit quite hard. And as a result, we would have seen that downward trajectory in terms of their share price as well as what the fluctuations in currency is doing to them as our shares are held on the same. And I think also just noteworthy is the sale of shares that happened in the prior period. And then our borrowings is ZAR 4.9 billion going to -- sorry, it came down to ZAR 4.6 billion. And it's mainly due to our amortization that we find on our facilities. And I think it's a -- and also the disposal that we had on Domus. It is a small amount that we repaid on that instance, it was ZAR 25 million. However, I think every bit helps in terms of getting our borrowings down. As Bongi mentioned earlier, our borrowings are still pretty much short term, and we are working quite hard on getting it extended to a longer-term period. And I think it's just worthy to note that these things do not happen overnight. We -- it just taking us time to get there, and we're certainly working quite hard on getting our numbers down to the level that we would like to get it to. Our loan-to-value, as I mentioned, went from 54.1% to 56.5% and then to 55.7% where we are today. Weighted average interest rate coming down from 8.2% in August last year to 7.1% now. And we still have 40% of our portfolio being fixed at approximately 7% at 6.95%. That, unfortunately, is quite out of kilter where the current drywall rate is at the moment, but that is still in place for the next 2 years until 2024. Our SA REIT net asset value per share went from ZAR 5.62 in August to ZAR 5.06 in February 2022 -- 2021, apologies, to August '21, where we are ZAR 5.23. And the movement for that is as a result of from August to Feb was the downward valuation of properties and then from February to August, now is the profit increase that we found there. Moving to our next slide, our statement of profit and loss and other comprehensive income. We have touched on our rental income as well as our property expense line. I think it's just interesting to note that the dividend income decreased quite significantly from ZAR 13 million to ZAR 3 million as a result of the distributions from Grit side. Grit also did declare from their side that they will not be distributing a dividend for this period. So we will not be expecting a dividend for the end of this financial year. We do have our loss or gain on the foreign exchange movements, came down quite significantly to ZAR 3 million, and it is the foreign exchange movements that we do find on the Grit shares. Previously, we -- it was not just the fair value adjustments on -- or the currency fluctuations on the Grit shares, but also had the fair value movement in terms of the Bank of China facility was in that number as well where we have, in the meantime, fixed that Bank of China facility as a rand-denominated loan, which means that, that fluctuation will go away. We've -- our admin expenses moved from ZAR 54.9 million to ZAR 53.9 million. In essence, it's a ZAR 1 million move. However, it's kind of partly offset to one another. The one is an increase in our professional fees, whereas the other side of that was a decrease in executive director fees. When we get to our fair value adjustment movements of ZAR 24.5 million, that is mainly due to our derivatives that we have for the last period from Feb to where we are now compared to the ZAR 172 million that we had in August. And the reason for the 2 differences is that in August 2020, there was a far greater portion of that, that was actually fair value adjustments of the properties. Our ECL provisions moved ZAR 8.9 million. It's made up of 2 components there. There's a guarantee to Grit as well as our intercompany loans. So ECLs take care of both of those and there was a ZAR 8.9 million for this period. And the majority of that relate to the intercompany loan side of it. Our finance cost, as we spoke earlier, came down quite significantly. As we said, the average interest rate is 7.2% compared to 8.1% of the prior period. I think the same goes for our taxation side of it. In the prior financial period, there was no provision allowed in terms of provisions for bad debt from a tax perspective, whereas in this period, the provisions are again allowed from a tax perspective. If we go to our next slide, we talk about the SA REIT funds from operations. We start with our profit for the period, which is ZAR 147.9 million. When we look at the adjustments that we take into consideration, it's mainly getting rid of the noncash items in the income statement, getting us down to our distributable earnings available for distribution being ZAR 177 million. In fact, it goes up as opposed to down. We did not have a change in any of our shares for the period from August 2020 or Feb and then August this year again. We are on 714 million shares in issue, giving us a distribution per share of ZAR 0.2486, which is much higher than what we found in August 2020. You will also -- if I can just conclude on that slide to say that the Board did conclude not to distribute an interim dividend. And I think it's simply because there is a lot for us to do in terms of CapEx, our tenant installations, and I think it's pretty evident from what Bongi has been saying in the last period so that we can see what we have done to our buildings. Our next slide talks about our SA REIT funds from operations. That gives us a bridge from August 2020 to August 2021, and it basically shows the movements that happened. We started with ZAR 116 million as funds from operations going to ZAR 178 million funds from operations, which you will see that the biggest one is our savings and our finance cost of ZAR 36 million, our tax saving of ZAR 19 million, municipal recovery savings that we had of ZAR 15 million. Then also going to the fact that we've lost ZAR 11 million in dividend as well as rental income reversions that we've seen taking us to the ZAR 178 million for our bridge. If we move to our next slide, I'm talking to our financial position at this point in time. Our investment property, as I said earlier, moved from ZAR 8.7 billion in August, going down to ZAR 8.227 billion in February and now ZAR 8.258 billion. The main reason for that difference, as we said earlier, is our CapEx spend between the 2 periods -- well, between the February and the August period. Between August and August it was a fair value movement down as well then the CapEx movement upwards. As I stated earlier, our investments in listed securities came down significantly, ZAR 189 million in August, ZAR 157 million in February and in August now ZAR 116 million. That takes us to total assets of ZAR 9.3 billion versus ZAR 8.7 billion in Feb and ZAR 8.8 billion now. When we go to our interest-bearing borrowings, they've moved from ZAR 687 million in August. Our Feb number was ZAR 802 million and then moving again to ZAR 640 million for short-term interest-bearing borrowings. And as a result of that, that can show that the movement then became between the current portion and the noncurrent portion, meaning we've moved back into a noncurrent portion for this period. In totality, we still have, unfortunately, a lot of our interest-bearing borrowings on the short term, but we are working hard in getting that number move then from our noncurrent -- or from our current liabilities to noncurrent liabilities. If we go to our next slide, our debt summary talks about we've got floating facilities of ZAR 4.6 billion. We have accrued interest and debt structuring fees taking us into total borrowings with including interest and fees of ZAR 4.634 million (sic) [ ZAR 4.634 billion ]. Our interest rate on that is 7.2%. We have interest rate swaps in place of approximately ZAR 1.8 billion. That gives us a 40% of our facilities being fixed and the rate for that is 7%. Going to our SA REIT NAV bridge. Our NAV bridge shows that in February 2021, we moved from ZAR 5.06 to ZAR 5.23. And the major contribution, as you can see is, our net property income, therefore, moving up that number for us from ZAR 5.06 to ZAR 5.23 for the period. If we move to our next slide. I think Bongi, that's back to you.

Thank you very much, Marelise. And now to conclude, our strategic road map having come from strategic session with the Board is very clear in terms of deliverables, focusing on conclusion of leases and reducing vacancies, continuing to focus on collections and including arrears. Concerted effort in terms of strengthening the balance sheet through disposals, including Grit shares, continued reduction in LTV, improving our ICR to 2.5x, to drive portfolio optimization and accelerate CapEx program. The business will continue to perform in line with expectation and at a similar rate as H1. We are continue going to focus on maintaining our costs. And with that, ladies and gentlemen, thank you very much. We will now take a short break and then open up for questions-and-answers. Thank you very much for attending.

Thank you. [Break]

Ladies and gentlemen, there is a bit of a delay for you when you post your questions before we see it on our side, if we could ask you to rather get your questions in sooner rather than later, and we will be dealing with the questions in the next couple of minutes. Thank you. [Break]

Ladies and gentlemen, welcome back. Thank you very much for sitting through your questions. The first question, Marelise and Bongi is from [indiscernible]. He is asking what is the long-term LTV target? And do you wish to get it lower than the 45% post February 2023. He is also asking what's your LTV -- sorry, at what LTV are you able to renegotiate better borrowing terms?

So I have stated in my presentation that we are looking to go below 45% by 2023. And I think as we continue trading as we continue to do our disposals, we would like to get back to -- we talk about the glory days of Delta, where at some point, we were below 40% or at 40%. So the -- but we haven't really focused beyond 2023 in terms of what we are. We are focusing on the number as we have stated today.

Bongi, if I can maybe talk to our terms in terms of our funders. I think as it is at the moment, we are talking to our funders. The fact that we had 55.7% is not a deterrent for us to talk to our funders. And I'm going to echo what our funders say is that they would like to have us back at our covenant levels of 50%. And we certainly are aiming to get us back to the 50% covenant level. But our target, ultimately, as Bongi was saying, is getting us below that. And I think it doesn't mean that we can't negotiate our debt at this point in time. We certainly are negotiating our debt, and it's also up to us to prove to our banks that we certainly can stick to those covenant levels.

I mean if I can conclude that, thanks, Marelise, is that what the banks are looking for are fundamentals of this business, and that's what we discussed when we talk to them and the fundamentals are still very strong.

Thank you very much then. [indiscernible] is asking how much was the disposal of the 3 buildings lowered the LTV by? And given the current positive developments when would the company resume dividend payments?

I'll leave that one to you.

Thank you. LTV on the disposal of the Fort Drury and Sediba reduced our LTV by 0.2%. It is marginal. Delta House, when we compare that, unfortunately, when we put that SENS out, it was as of the Feb 2021 numbers, and that was a 0.6% reduction in LTV. We're not necessarily looking at our disposals to carry our LTV at it's part of the progress and the road map for us to get there, and it is slowly starting to do that. I think for us, start carrying our LTV level certainly is to start getting our buildings valued higher and getting, as Bongi was saying, fundamentals back on track.

Thank you. Then any comments on the resumption of distribution payments?

Well, for us, the target is still -- we are hoping to resume 2023 and all our efforts are at that. But sooner -- I mean I wouldn't want to pin anyone's hopes on that.

Thank you. And then [ Yusuf Mulla from FE Focus ] asks Delta trades at an 85% discount to net asset value. Don't you think you are right for a takeover?

Well, I suppose most companies are a certain target for a -- I mean for a takeover. So for us, we focus on the fundamentals of the business, we do see and understand our discount to NAV. We know it could happen. We -- but we don't spend our time worrying about a potential takeover. But I think any business trading at in a discount, even 50% discount, is a potential sitting duck for a takeover -- I mean, for a takeover.

Thanks. Thank you very much. Then a couple of questions from [ Mr. Abdul Wahid Tabani from Morgan & Co. ]. He is asking, is there any likelihood of rental reversions? And if yes, what are the impacts of this going to be?

I mean the biggest impact will be on our operating cash flow. But if we look at it on the other side, our portfolio -- a lot of our portfolio was already overrented with the continuing month-on-month no renewals and with the increase kicking in at the end of each year. So we were expecting it. It has got an impact. But the other flip side of it is that it means then tenant retention.

And on that note, he's also asking regarding the current occupancy levels. Is there a good traction to get space filled?

So as I've stated in my presentation, for us, we're hoping there is traction. We have not focused on it, which part of my presentation covered as much as we focused on cash flows and collection and resolving arrears. But we think we will. Some of our buildings are in a good nick. And especially understanding where DPWI is growing and some of the users who may actually go and consolidate, we are already starting to plan on the potential of increase in vacancy and trying to manage it. So I believe we can, but I just need maybe a bit of patience until the end of February 2022. And if we do have big news around this, we will definitely go in SENS before even the end of the financial year.

Thank you, Bongi. Then a couple of questions on debt finance. Amanda de Wet from Plexus asks, you mentioned that the banks are wanting your LTV back at 50%. Have they indicated on what expiry terms they would refinance facilities if you hit this target?

So I think Amanda if I can add to that. It's not about whether we will, when we hit it, what will they refinance already at. Our discussions are continuous and ongoing with them. From their perspective, we need to show continuous improvement in all areas, I think, of this business. And that will make, I think, everybody comfortable at the end of the day as to where we're going with our funding together with our business in totality. So that is a part of one side of this flip coin, and I think the other side of it is definitely getting our operational side operating the way it should.

Thank you. Then, [ Mr. Abdul Wahid Tabani from Morgan & Co. ] again asks on the interest rates regarding nonfixed borrowings. Is there any action with the banks to negotiate lower interest rates?

There certainly is. Unfortunately, at this point in time, when it comes to the MPC, it's already priced into the market that there's about a 2.5% -- or sorry, 1.5% increase in interest rates. But I think it's because of the uncertainty of the MPC actually telling the market as to whether rates will remain stable for a while or not. And as a result, that's priced into the market. So currently, should we have to fix these facilities, we will not necessarily get a better rate than where we are at this point in time, and in fact, it will push up our cost quite significantly. We are waiting to see what our next MPC meeting would be in order to see where the fixed rate would be and make a decision from that perspective.

Thank you. He also asks whether there's a plan for cost optimization in trying to reduce the administration costs?

Certainly. Our focus is on looking at all aspects of this business in terms of cost, not just being our cost-to-income ratio being so high, we're also looking at the admin side of things. And unfortunately, there is a little bit of admin cost coming through. When we look at the additional audits that took place over the last period as well as quite a lot of professional fees when it comes to our legal aspects of the business that we are defending. There certainly will be a bit of cost from that perspective, but we are working hard on getting those numbers down.

Thank you. Then [indiscernible] from [ Signal Asset Management ] is asking, what do you think the maintenance backlog is? Should I see this as a liability?

No. No. I mean I wouldn't see it as a liability. But in terms of relationship with our tenants, it does put a bit of a strain. And some of this -- remember, if you sign -- if you take on a tenant and you agree on TI and you actually don't do it, it's not really liability, especially if the building is still in a good nick, but it's a promise that has not been fulfilled.

Thank you, Bongi. Then [ Mr. Abdul Wahid Tabani ] asks whether the Grit shares will be sold? Or is there a target price that you want to sell it at?

Without being cheeky as high as we possibly can. But I think, yes, the answer to that is, yes, the Grit shares for us is a noncore. We certainly would like to sell our shares. We will look at offers coming our way, but we will be very careful as to what levels we will be selling those shares at.

Yes. Thank you. And then [indiscernible] is asking. Just for clarity, is the dividend payment expected to be paid in 2023 for the financial year or the calendar year?

It's always for the financial year.

Then I would like to close out just with 2 comments. [indiscernible] is saying, whilst I appreciate the internal restructure and many challenges faced from a CapEx, renewing of leases and extending the fund point of view, shareholders waiting until 2023 and 2024 and many goals appears long, he would appreciate a quicker turnaround.

Noted.

And finally -- sorry, another question from Amanda at Plexus. Please can you elaborate a bit more on the Orthotouch legal proceedings?

So I think -- Bongi, if you want to -- so on the Orthotouch matter, as you are aware, there was a legal claim instituted against the fund of approximately just over ZAR 200 million. We have, over the last while, been successful in defending that position quite strongly. We have come out at this point in time where as we sit today in essence, we do not have -- we have succeeded in winning each and every one of these in court so far. We do expect that they would institute a further action on this matter. However, we are waiting for this to come forward because there was an initial indication from their side. But we are very confident that what we have done when it comes to Orthotouch have been successful and that we've managed it correctly.

Yes, I mean, at this point, they are also looking to amend their claim, which we will not grant them that. And from our side, I think we find them to be very or is willing to litigate, and we are going to court to ask them to prove the fact that they can actually afford to do this so that we do not drive down a path that we know will just cost us. And as we win, they actually can't -- they don't have the ability to settle.

Thank you very much. And then lastly, a comment from Andrew Russell from Idea Limited. I just want to say well done, and thank you to Bongi and team for a tremendous amount of positive work done. You've laid a solid foundation to fill your buildings.

Thank you.

Thank you.

Ladies and gentlemen, that concludes our session for today. Thank you very much for attending the Delta Property Fund's Interim Results Webcast. A recording of the presentation will be available during the course of the day on the website. Many thanks.

Thank you.

Thank you.