Is a new day dawning for Delta?

Brave investors who took a bet on Delta Property Fund last year made a packet as the embattled office-focused stock finally turned the corner.

The real estate investment trust (Reit) — one of the first specialist black-managed and substantially black-owned property companies to list on the JSE in 2012 — rents about 80% of its buildings to government and parastatal tenants and ended 2025 as the best performer among the JSE’s 40-odd property stocks. Delta notched up a share price gain of 105% in 2025, more than three times the all property index’s 31% total return.

Granted, its 2025 rally comes off a low base after a five-year slump triggered by fraud allegations in 2020 under its former management team, led by then CEO and founder Sandile Nomvete. A pandemic-induced uptick in vacancies, sky-high debt levels and falling property values added to its woes. By late 2021 Delta was technically insolvent.

Shareholders paid the price. Delta was forced to suspend dividends and the share took a colossal knock. In the four years to early 2023, the stock crumbled from 600c to about 20c, wiping nearly R2bn off its market cap. Three years ago, Delta embarked on a turnaround strategy under a new management team led by CEO Bongi Masinga and CFO Fikile Mhlontlo.

The goal was to reduce debt; restore relationships with bankers, tenants and investors; and return the company to profitability. It’s been slow going, but last year’s doubling of the share price suggests Delta is finally through the worst.

Results released in December confirm that a recovery is under way. Profit for the six months to August is up 71.86% year on year, from R29.5m to R50.7m; cash flows from operations improved from R298m to R319.2m; and distributable earnings per share increased 13.6% to 9.2c. Overall vacancies dropped from 31.9% to 29.7% (including properties held for sale).

Masinga — who has a background in investment, finance and risk management and is known for her pragmatic, hands-on approach — tells the FM that Delta is not out of the woods yet. “But we’ve saved the ship from sinking,” she says. “All the indicators are now starting to move in the right direction.”

Masinga notes that Delta’s improved fortunes have been driven by debt reduction of nearly R1bn, from R4.6bn to R3.7bn, on the back of disposals and amortisation. That has translated into an interest cost saving of about R100m a year. Admin and operating costs have also been substantially reduced.

In the past three years, the portfolio has been trimmed from 99 buildings to 73, with the sales proceeds approaching R1bn. Masinga notes that the target set by the board three years ago was to sell noncore properties worth R2bn within three to five years, with R1.1bn of disposals remaining. Referring to the depressed state of the office market, coupled with many of Delta’s buildings having large footprints typically exceeding 10,000m², she says it’s not been easy to sell at the right price. “But we’re nearly halfway there.” She adds that in recent months there’s been a notable uptick in interest from buyers, especially from developers looking at office-to-residential conversions.

All the indicators are now starting to move in the right direction

—  Bongi Masinga

A key challenge is that Masinga inherited a portfolio in a state of neglect. “There wasn’t money being spent on maintenance. And some of our buildings were standing empty for many years, so we had a huge catch-up to do in terms of capital expenditure.” She says Delta is making headway to reverse the situation, with money being spent on basic maintenance, fixing and replacing broken lifts and aircons, restoring security measures and the like. As a result, valuations are starting to stabilise.

Meanwhile, Masinga has no intention of shifting Delta’s focus away from the government-tenanted office sector, despite lingering uncertainty over if and when the department of public works & infrastructure (DPWI) will start signing longer leases of three years or more. Delta’s DPWI tenants — including the departments of home affairs, correctional services, defence, and water & sanitation, as well as several municipalities — tend to rent on month-to-month terms.

But Masinga says being the only government-focused Reit on the JSE provides Delta with a competitive advantage. “We like and understand the government-tenanted sector. The sovereign underpin has been very good for us.” She says the risk of short lease expiries is mitigated by government tenants tending to stay put in one building for long periods — typically 10 years or more. Besides, she adds, most of Delta’s buildings are ideally suited to government tenants given their location in CBDs.

While Masinga is pleased about last year’s share price rebound, which she says suggests investor sentiment is on the mend, “the litmus test will be when we start seeing the return of the institutional investors we lost”. She concedes that will likely happen only once Delta declares a dividend again, which was last paid in 2020.

The FM asked Mhlontlo when that might happen. He says once another R650m worth of sales are concluded, hopefully within the next 12 to 18 months, “we can start looking at reinstating dividends”. In addition one of the loan facilities will be repaid in early 2027, which will further help to reduce debt and boost cash reserves.

Mhlontlo stresses that for now the focus remains on strengthening the balance sheet. The target is to cut the loan-to-value (LTV) from 58.4% to below 50% and increase the interest cover ratio (ICR), a key measure of a company’s ability to pay interest on loans out of its cash flow, from 1½ to two times. “We will likely reach 1.7/1.8 once we do another R650m of disposals.”

Further interest rate cuts will also support the recovery in income and earnings. In addition, Mhlontlo hopes that the portfolio will start achieving valuation gains in the next two to three years as the spin-off of the capex spend starts to filter through into higher rentals and values.

For investors who haven’t yet climbed back into Delta, how much upside is left? Ian Anderson, head of listed property at Merchant West Investments, believes there’s still plenty of room for share price growth given the significant discount the stock is trading at. At this week’s level of 40c, Delta trades 88% below its NAV of 350c. “It’s not inconceivable that Delta’s share price will rebound to 100c once management signals it is ready to reinstate dividends.”

Despite Delta’s business being in better shape than it was three or four years ago, the risks remain high, Anderson says. He cites Delta still being in breach of its bank covenants in terms of LTV and ICR ratios and lingering uncertainty about government lease terms as key concerns.