Good afternoon, ladies and gentlemen. Welcome to Delta Property Fund's results webcast for the six months ended 31 August 2025. Before I hand over to management, please note that there will be a question and answer session after the presentation. You could send through your questions or comments by clicking on the questions tab, which is in the top left-hand side of the screen under the logo. Note that this presentation will also be available on Delta's website under the investor relations tab within the next 24 hours, or you can use the same link that you registered on to access the recording. I'll now hand you over to Ms. Bongi Masinga, CEO, and Mr. Fikile Mhlontlo, CFO, to take us through the presentation.
Thank you, Monet. Good afternoon, ladies and gentlemen, and thank you for joining us for this presentation. With me is Fikile Mhlontlo, and it's our privilege to be taking you through the details of Delta's interim results for the six months ended 31st August 2025 that were released on SENS last week. These results reflect a business that is continuing to stabilize, simplify, and to deliver against the commitments we've made to the market over the last two years. Our theme for this reporting cycle is focusing on the fundamentals, and you'll see that thread running throughout the portfolio metrics, the financial performance, and the strategic execution narrative we're going to take you through today. I'll begin with the operating environment, then the operational overview, thereafter a breakdown of our strategy and progress against our turnaround.
Fikile will then take us through the financial detail, after which I will conclude with our outlook and strategic priorities heading into financial year 2026, to the end of financial year 2026. Let me start by detailing who we are becoming. Delta is evolving from a sovereign underpinned REIT to becoming a sovereign anchored but diversified commercial office fund. That means maintaining certain government user departments as a core pillar of our income while broadening the portfolio to include quality commercial tenants who bring longer lease terms to boost our weighted average lease expiry and more predictable cash flows. This diversification is central to building a stronger, more resilient earnings profile over time. Internally, we have built a robust asset and property management capability that gives us tighter operational control, faster tenant engagement, and real accountability for performance.
This has been one of the quiet strengths behind the improvement in collections, the turnaround in leasing momentum, and the stronger operational discipline you see reflected in the numbers. Our assets are predominantly located in major central business districts across the country, which continue to be a differentiator in a sovereign and commercial tenant market that values accessibility, public transport integration, and proximity to service delivery nodes. These are buildings with strategic relevance, positioned exactly where government and business activity remains most concentrated. Our investment philosophy is simple and consistent: secure income, long leases, and a diversified office pool. Diversification going forward is not just about geography or tenant category. It is about reshaping the lease expiry profile and building an income base that is more resilient through the cycle. We are reporting on a business that continues to strengthen its operational resilience.
Our portfolio now comprises 76 properties valued at ZAR 6.3 billion, with a total GLA of 750,205 sq m. Of this, 48 properties valued at ZAR 5.2 billion form the core portfolio representing the bulk of income and strategic focus. Our tenant mix currently comprises 86% sovereign by rental income and 85% sovereign by GLA, which we anticipate diversifying over time. Our immediate objectives remain the curing of debt covenants, improving vacancies, and lease terms in the core portfolio, disposing of non-core assets at or close to book value, and maintaining our rental income collection. Today, the portfolio comprises 534,701 sq m of core assets, the properties we are investing in, defending, and actively repositioning, and 215,504 sq m of non-core assets that we are systematically exiting. This distinction has given us clarity, speed, and focus on decision-making, and it is enabling a leaner, more agile business model.
This map gives you a sense of our national footprint. Some key points to highlight are: Gauteng contributes 42% of GLA and 44% of rental income. KwaZulu-Natal and the Western Cape remain important sovereign office nodes. We have strategically exited the Eastern Cape property that was 100% vacant, which transferred post-period end. This geographic spread ensures tenant diversification across multiple government departments, mitigating concentration risks. Let me start with the headline numbers that frame this period. Revenue remained relatively stable, recording a 0.9% contraction to ZAR 578.2 million, largely due to disposal of remaining temporary vacancies. We achieved profit of ZAR 50.7 million, up from ZAR 29.5 million a year ago. That is a 72% increase driven by lower finance costs and operational cost discipline.
Rental collections improved to 100% from 95.1% in financial year 2025, reflecting both the quality of our sovereign-dominated tenant base, which we have benefited from, and the strengthened credit control processes we have put in place over the last 18 months. Utility recoveries have strengthened, and we've seen that offsetting some of the pressure from reversions. Weighted average rentals moved slightly from ZAR 113.82 per sq m- ZAR 113.22 per sq m. On the cost side, property operating expenses increased by 2.3%, mainly from electricity and municipal escalations. CapEx for the period was ZAR 42.2 million, up from ZAR 17.2 million. This is deliberate, proactive investment into key core assets to support tenant retention. Administrative expenses declined by 5.2% thanks to lower legal and staffing costs. These dynamics reflect a portfolio in active transition: smaller, cleaner, leaner, and more focused.
Debt repayment was ZAR 143 million, supported by amortization payments and proceeds from disposals that Fikile will unpack in more detail. Our covenant LTV improved to 58.4% from 59.5%, and while still outside covenant thresholds, the direction of travel is encouraging and expected to accelerate. ICR improved to 1.5 times from 1.4, and NAV per share remains resilient at ZAR 3.50. In addition, we are targeting ZAR 1.1 billion in disposals. Vacancies have reduced from 31.9% to 29.7%, and if we strip out the non-core portfolio, vacancies in our core assets are down to 18.7%. These indicators point to a business that is moving in the right direction steadily, deliberately, and with discipline. Although the office sector in general is showing signs of continuous recovery, demand for B- grade office space remains subdued on the back of muted economic growth and subsequent weak demand in this office segment.
It should be noted that the recovery in A and P grade office is to some extent underpinned by traditional B- grade tenants trading up on the back of lease incentives. Continued weak demand for B grade office space is further exacerbated by ongoing cost pressures, including above-inflation increases in rates and services. Our main client, through the office of Minister of DPWI , has been announcing relocation to buildings owned by DPWI, hence our very low weighted average lease expiry. As recent as the 21st of November 2025, the Minister in a News24 article has announced the removal of 9-11-month leases to five years. This announcement means a better way going forward than the 12-month renewals we have been receiving. Interest rates have been easing as we continue with our disposal program. We start to experience real impact. Throughout this presentation, we've referred to core versus the non-core portfolio.
This slide provides a more granular breakdown of this differentiation. A key number to highlight is the strong rental income in the core portfolio of almost ZAR 500 million, with net operating income projected at ZAR 300 million on a total property portfolio valued at ZAR 5.2 billion. Occupancy was up 2.2% compared to year-end numbers. The drop in weighted lease expiry profile is mainly due to the bulk of DPWI leases, as previously stated, being renewed on a 12-month basis. This is a very busy slide, but to highlight, 43 leases totaling 47,943 sq m were renewed during the period at a weighted average term of one and a half years. The bulk of these leases, 57%, were with the department under DPWI, followed by commercial office leases at 26% and provincial government leases at 15% of the total number of leases renewed.
Three quarters of the leases renewed were in the core portfolio. We also concluded 14,674 sq m of new leases, which helped drive the vacancy improvement I mentioned earlier. A relatively significant portion of new leases measured by GLA were renewed in the retail sector, around 100,000 sq m, which is a positive uplift considering the high trading densities achieved by retail portfolio in general. Our CapEx focus remains on the core portfolio with the objective of attracting new and retaining current tenants. Properties with the highest CapEx expenditure for the period under review were therefore also those assets where we had the largest prospect of renewing leases or signing new tenants. Most of the expenditure for the period focused on tenant installations, maintenance, compliance, CapEx, electrical, structural maintenance, and air conditioning upkeep.
Capital allocation relating to repairs and maintenance is broken down further with the bulk of repair and maintenance spend for the period allocated to general maintenance, fire compliance, and plumbing. The noticeable 12% in electrical is because of electrical certificates of compliance that need to be updated for each property being disposed. A key takeaway from the table on this slide is the number of properties disposed of at or close to book value, with deeper discounts only being accepted in two instances at Chambers of Change and 88 Field Street. These offers were carefully contemplated by the Investment Committee and were based on the location of the assets, CapEx requirements, and vacancy rates. In the context of the current operating environment, it is important to understand how we've positioned our turnaround and diversification strategy.
This strategy is founded on five core pillars, that is, portfolio and capital optimization, which we are achieving through our disposal strategy and focuses on improving core assets. The disposal of strategy and debt amortization further strengthens our capital structures as we seek to address covenant levels and return to paying distribution to shareholders. This second pillar, leasing and business development, focuses on driving occupancy and lease renewals despite the current challenging, of course, circumstances mainly driven by DPWI strategy. The focus where we see traction was on tenant satisfaction and improving our responsiveness and service levels. The other pillar on operational efficiency has been geared towards cost controls and improving recoveries. We have invested in technology to boost performance.
Though behind the curve, we are now accelerating to embedding ESG best practices across the operations, including in our strategy, which I will not dwell on, are pillars of people-centered and rebuilding trust. As mentioned before, we have 80 key staff members and have, over the past number of years, developed a performance-driven, accountable workforce based on meritocracy. Notwithstanding our focus on costs, we will continue to invest in and award our people in order to ensure we attract the right caliber of person. Execution and ongoing CapEx investment into core assets remain key to rebuild trust with our tenants as we continue to operate with transparency, urgency, and accountability. Progress is being made to dispose of the targeted ZAR 1.1 billion non-core assets. The portfolio today sits at 76 assets, down from 83.
We disposed of assets in regions that we're looking to exit, mostly in the Free State and the Northern Cape. Post-year-end, we have successfully exited the Eastern Cape. These regions have been plagued with high vacancies and had an operational cost drag. The disposals have freed up cash flows and reduced LTV. Let me touch briefly on some of the key operational achievements that shaped our performance over the period. Starting with asset sales, we continue to make meaningful progress in streamlining the portfolio. During the period, we disposed of ZAR 102 million in non-core assets, and these proceeds were applied directly to reduction of debt. This has had an immediate and positive impact on our capital structure, helping reduce the loan-to-value ratio to 58.4%. Every asset we exit strengthens the balance sheet, lowers vacancies, and improves our focus on the core properties that will carry the business forward.
Our occupancy rate improved to 70.3%, driven by strong leasing activity, timely renewals, and targeted disposal of vacant or underperforming assets. This is a clear signal that our leasing strategy is working, that our core buildings are attracting and retaining the right tenants. On cost control, despite a challenging inflationary environment, we delivered a 1% reduction in total expenses. This reflects disciplined financial management across the business, from utilities and maintenance to administrative overheads, while still investing meaningfully in critical infrastructure and tenants' improvements. Finally, we have taken deliberate action to strengthen the reliability of our assets by installing backup generators across priority buildings. This ensures operational continuity for our tenants, particularly government departments, where uninterrupted service delivery is essential, and it protects income streams even during periods of load shedding or municipal outages.
A question we are frequently asked by investors is, what will Delta look like once the portfolio optimization strategy is fully executed? I'm pleased to say that we are making consistent progress forward, a more streamlined and financially resilient REIT. Once the disposal cycle is complete, Delta will transition into a more compact but far more sustainable business centered around a core portfolio of 48 assets valued at about ZAR 5.2 billion. This refined asset base is closely aligned with our strategic intent and plays directly to our operational strengths. Based on today's metrics, this core portfolio is expected to generate rental income of around ZAR 1 billion, ensuring the fund remains robustly cash-generative and well-positioned for future growth. Importantly, this reshaping of the business has clear financial benefits.
We anticipate that loan-to-value ratios will settle between 40% and 50%, and interest cover is expected to improve to roughly two times, comfortably within covenant requirements. Achieving these levels will create the conditions necessary to resuming consistent distributions to our shareholders. Ultimately, the next phase for Delta is not defined by scale, but by sustainability, operational efficiency, and the ability to grow from a stronger, more focused foundation. Notwithstanding the ongoing cost controls, we remain cognizant of the importance of strengthening Delta's long-term sustainability platform. To this effect, we have formalized our commitment to responsible business through the adoption of three dedicated ESG policies: our environmental policy, our corporate social policy, and our sustainable supply chain policy. Together, these frameworks guide how we operate, how we partner, and how we manage our assets.
In parallel, we are completing a comprehensive double materiality risk assessment, which will help us identify and prioritize the ESG areas most relevant to our business and stakeholders. This process ensures that our efforts are focused, measurable, and capable of delivering meaningful impact over time. Our ESG journey is maturing, and these steps provide a clear foundation for integrated, responsible value creation going forward. I now hand you over to our CFO, Fikile, who will unpack the numbers in more detail.
Thank you, Bongi. Ladies and gentlemen, good afternoon. As Bongi mentioned, I will now take you through the financial results for the six months ended 31st August 2025. What becomes clear in the set of numbers is the tangible progress we are making in bedding down the fundamentals of the business.
The group delivered a robust profit of ZAR 50.7 million for the period, up from ZAR 29.5 million in half-year 2025. Cash generated from operations arose from ZAR 319.2 million compared to ZAR 298 million in half-year of last year, while funds from operations increased to ZAR 665.4 million compared with ZAR 57.6 million in the prior period. This performance was achieved despite lower net operating income and a reduced profit from operations. It was supported by savings in administration expenses and finance costs. Overall, the results demonstrate the group's continued resilience in persistently challenging market conditions. Importantly, this marks the continued reshaping of the portfolio. As Bongi has indicated, we are now holding 76 properties, down from 83 at February 2025, confirming sustained execution of our disposal-led optimization strategy. Let me take you through the detail. Starting with the key financial metrics, our covenant LTV improved to 58.4% compared to 59.5% at year-end.
On an SA REIT basis, LTV stands at 59.9%, an improvement on the 61.1% reported at financial year-end 2025. This is driven primarily by debt reduction following disposal of non-core assets and debt amortization. We remain confident that full execution of the disposal pipeline will bring LTV within covenant territory, which is below 50% as per our lender agreements. The interest cover ratio improved from 1.2 times to 1.5 times, supported by the reduction in finance costs, roughly ZAR 26 million from the previous period. Delta's weighted average cost of debt reduced from 11.2% to 10.5%, driven by the rate cuts and repricing benefits due to ongoing debt amortization and disposals. Our cost-to-income ratio increased to 50.5% from 46.5%. Please bear this in mind that this is largely attributable to increased provisioning for expected credit losses and operating costs, including municipal expenses.
Cost-to-income ratio excluding expected credit losses is 47.1%, in line with the previous periods. Funds from operations remained stable at ZAR 65.4 million compared to ZAR 57.6 million in the prior period. This improvement was achieved against the backdrop of, as indicated above, of lower net operating income, reduced profit from operations, and savings in administration costs, as well as savings in finance costs. SA REIT FFO, funds from operations per share increased to ZAR 0.092 per share, up from ZAR 0.081 per share on a year-on-year basis. Finally, NAV per share increased to ZAR 3.50, driven by improved profitability and contained fair value adjustments. Turning now to the income statement, revenue excluding straightlining remained resilient at ZAR 578.2 million, a marginal decline of less than 1% compared to the prior period.
This reflects a combination of reduced revenue from disposed assets, limited vacancies, slight rental revisions, and offsetting uplift from higher utility recoveries. Weighted average rental declined modestly from 113.82 cents per square meter to 113.22 cents per square meter, consistent with the renewal profile, but still demonstrating rental stability across the sovereign weighted portfolio. Property operating expenses increased by 2.3%, driven by higher municipal end tariffs and utility tariffs and increase in repairs and maintenance. This is aligned with our strategy of prioritizing maintenance and CapEx into core portfolio to ensure long-term occupancy. Administrative expenses decreased by 5.2%, primarily due to reduced legal expenditure, leaner staffing costs. Fair value losses reduced materially from ZAR 31 million to ZAR 14.4 million, reflecting the stabilization of the portfolio. The prior period had included a larger decline in the value of our investment in REIT. This period, the marked market adjustment was significantly muted.
You would have noted the disposal of our interest in REIT post the reporting date for a consideration of 5.45 pence rate for a consideration of GBP 810,371.95. The net proceeds from the disposal will be utilized to reduce the debt associated with the share funding, improve balance sheet, and ensure our overall liquidity. Expected credit losses increased to ZAR 21.1 million. The provisioning is conservative and has taken into account legacy area accounts. We have, however, seen improved collections during the period, which increased to 100% of billings. Lower finance costs also contributed to improved profitability, as they have declined from ZAR 237 million to ZAR 211 million. The net result was a profit of ZAR 50.7 million compared to ZAR 29.5 million in the prior period. Looking at the balance sheet, total assets decreased slightly to ZAR 6.52 billion, largely influenced by disposals and the fair value adjustment to the REIT investment.
The property portfolio is valued at ZAR 6.3 billion, comprising ZAR 5.41 billion investment property and ZAR 909 million property classified as non-current assets held for sale in accordance with IFRS 5. Trade receivables reduced from ZAR 155.4 million at year-end to ZAR 146.2 million, supported by strengthened credit controls and notable improvement in collections. The provision for bad debts reduced to ZAR 59.4 million, representing a 42.6% of gross receivables, in line with the prior period. Interest-bearing borrowings reduced from ZAR 3.9 billion to ZAR 3.73 billion, driven by debt amortization payments and utilization of disposal proceeds to repay debt. Finally, equity improved to ZAR 2.47 billion, taking into account the profit for the period. Debt management remains a central pillar of our turnaround plan. Our weighted average cost of funding decreased to 10.5%, mainly due to interest rate cuts, our continued debt repayment, and proactive engagement with our lenders.
Capital payments for the period amounted to ZAR 243.3 million compared to half-year of last year at ZAR 139.8 million, of which ZAR 92.2 million came from proceeds on disposal of properties and ZAR 51 million from debt amortization payments. The group also maintained revolving credit facilities of ZAR 82 million, of which ZAR 51.5 million had been utilized at the end of the reporting period. While the group remains outside covenant thresholds, specifically an LTV of 50% and ICR of 2%, the gap continues to narrow. We expect compliance to be restored in the medium term on the back of remaining disposals. Facility renewals with Nedbank and Investec to 2026 and 2027, respectively, demonstrate continued lender support. In line with our capital management strategy, we continue to engage our lenders on more favorable pricing, extending debt maturities, and restructuring amortization profiles. Our short-term objectives remain to achieve a debt maturity profile of between two and three years.
Delta's funding remains local with no offshore exposure, insulating the group from currency volatility. Note that the State Bank of India and Bank of China facilities are syndicated with Nedbank. Our lender relations remain constructive and aligned with disposal-led deleveraging strategy. All facilities remain floating, allowing us to capture the full benefit of the downward interest rate cycle. The maturity profile remains short but manageable within facilities maturing in 7-21 months. We continue to negotiate improved maturity spacing, while the objective of achieving a two to three-year maturity profile as part of our capital management roadmap remains. Our forward-looking analysis modeled through to November 2026 confirms that the group maintains sufficient cash resources, contingent on continued lender support and the execution of the disposal plans.
During the period, the group delivered a debt repayment of ZAR 143.3 million, which is broken down as follows: debt repayments totaling ZAR 51 million in scheduled amortization, ZAR 92.2 million applied directly from disposal proceeds towards reducing the debt. Modest movement relating to capitalized fees and interest accruals, you will note that. The total disposal proceeds received were ZAR 102.6 million, with ZAR 92.3 million applied to debt after accounting for selling costs. This trend underscores leverage reduction potential of the disposal strategy, with roughly ZAR 1.1 billion of assets remaining in the disposal pipeline. Looking at the longer-term trend, Delta has reduced ZAR 1.3 billion of debt over the last seven years, reinforcing not only our ongoing commitment to capital discipline, but also the long-standing support from our lender base throughout the turnaround.
Considering the quality of the remaining assets held for sale, as well as a more favorable interest rate environment, management is cautiously optimistic on achieving close to all book value for the majority of the pipeline assets. Operating cash flows remain a highlight for the business, which generated ZAR 319.2 million from operations, which is 7% higher than the previous interim period. This cash was allocated to ZAR 201.3 million in finance costs, ZAR 34.5 million in taxation, ZAR 42.2 million in CapEx, much of it directed towards tenant retention and compliance in the main core portfolio, ZAR 2.6 million in list liability settlements, ZAR 41 million in net debt repayments. An additional ZAR 92.3 million of disposal proceeds was applied directly to debt. This strong cash generation continues to validate the resilience of the underlying core assets.
Net asset value increased from ZAR 2.42 billion to ZAR 2.47 billion, driven by strong operating profitability, lower finance costs, lower administrative costs, impacted by higher ECL and a modest fair value adjustment. Fair value losses were contained at ZAR 14.4 million compared to ZAR 31 million in the prior period and ZAR 222 million in FY 2025, signaling that the portfolio has largely stabilized. Finally, turning out to SA REIT FFO, FFO increased to ZAR 65.4 million or 9.2 cents per share, up from 8.1 cents in the prior interim period. This performance reflects improved profitability, lower finance costs. Headline earnings per share increased to 7.5 cents, further supporting the view that the business is strengthening structurally. While these indicators are encouraging, the board remains conservative and has resolved not to declare an interim dividend, having taken into account the solvency and liquidity test and ongoing covenant considerations.
I now hand you back to Bongi for the outlook and the conclusion. Thank you.
Thank you, Fikile. As we look ahead to the next balance of the financial year, our priorities are clear and deliberate. The most critical of these is completing the remaining ZAR 1.1 billion in asset sales. These disposals are central to our deleveraging plan and will provide the liquidity needed to further reduce debt and strengthen the balance sheet. As part of filling vacancies, we have contracted commercial leasing companies, ANVIL PROPERTY and API in Durban, as well as Ryden in Johannesburg and Pretoria. These are focused letting agents driven by commission, with a much broader relationship base that extends outside of our traditional tenants. Rebuilding confidence both with investors and funders remains a priority.
We will continue to report transparently, consistently, and with apologies, demonstrating progress not only in the numbers but also in the discipline and predictability of our execution. Ultimately, the success of this period hinges on focused delivery, completing disposals, improving leverage metrics, and managing the balance sheet. These steps are essential to restoring covenant compliance and, in turn, reopening the pathway to distributions. Turning to the distribution outlook, top of mind is resuming distributions, but we are cognizant of the current covenant restrictions. We remain committed to distribution and will continue to update the market as the underlying milestones are delivered. As we close, I want to emphasize that the foundations for recovery are now firmly in place. The next step is about disciplined execution and continuing to build trust through delivery. We would like to thank stakeholders who have supported and believed in Delta and the turnaround.
I would also like to thank our employees for their commitment and the board for their stewardship. Ladies and gentlemen, thank you for participating in this webcast. I now open the floor for questions.
Thank you very much, Bongi and Fikile. Our first question is from Trinity Ngobeni from Anchor Stockb rokers. I think she sent through this question a little bit early in the presentation before we got to slide 15, where she's asking, can you please add more color on how the ZAR 42 million CapEx was spent? Does this include solar installations? Maybe just to link to that, Mr. Junior Smith is asking, do you plan to install any solar PV systems to increase returns?
Okay. We can go back. We've got the slide on CapEx, if you got it up. Okay.
As articulated on the slide, the bulk of our CapEx expenditure is on tenant installations. That's mainly for new tenants, and part of it comprises legacy TI that was never then spent. Also, the next spend is on structural works. A lot of our buildings did require some sort of improvement. What's notable as well is that if you know Cape Town in a drive-through, that NPA building, it looks like it was constructed yesterday. When you ask a question about solar, definitely there are buildings, and some of them in Limpopo where we can start to put up some solar, but a lot of our buildings, because of the structure and the height, solar does not seem that doable at this point. What we have done rather is to give generators.
For example, at the forum, we've actually put up a 1,000 kVA generator because of the size and to ensure that every aspect of the building actually gets powered when the municipality does not provide electricity. I hope I've answered that question.
Thanks. Thank you very much. A follow-up question by Trinity is regarding your disposals. What office grade, P, A, or B are you finding easier to dispose of?
I mean, we've been fortunate. As you probably know, the bulk of our buildings are B- grade. We've got a few A- grade buildings. We haven't had the need to dispose of that. A lot of the buyers who are looking for conversion, in particular, have taken off our hands our grade B buildings and a lot of them that had 100% vacancy.
Thank you very much, Bongi. This links to a question by Mr. Tony DeSilva.
He says that you've already exited four provinces and are scaling down in low-growth regions. What is the ultimate geographic footprint that you're envisioning for a stable future of Delta? A second question is on the ZAR 1.1 billion disposal pipeline. Can you give us more color on the interest received to date, the quality of these assets, and the likelihood to achieve book values for them? This links to another question. How do you balance speed of execution with the risk of value leakage from distressed sales? This then links to a question by Mr. Junior Smith, who is asking, have you seen any uptick in demand for sale of your non-core portfolio?
Sure. You'll have to remind me of some of those questions.
Perfect.
In terms of geographic spread, if we can put up that slide, can't remember what slide it is.
21.
We're definitely out of Eastern Cape now. What I can state as I sit here and the other aspect of our disposal is we're very agile. I must phrase this properly now. We are driven by reduction of our debt. However, we would like to maintain, for example, Western Cape, Gauteng, Limpopo, and most definitely Mpumalanga and KwaZulu-Natal. I mean, we are looking to dispose Northern Cape and Free State. Our core there and North West. We are looking. Sometimes this disposal, it depends who makes you the best offer. Western Cape, KwaZulu-Natal, Limpopo, Gauteng, yeah, those are likely to be our core provinces.
Thank you.
The second part of the question is, any uptick in interest on your pipeline portfolio and also the quality of that pipeline and your likelihood to achieve book value for them? How urgent are you looking at selling those? Will you take an offer price, or will you hold out for a closer-to-book value price?
I mean, if we go back to our slide in terms of the disposals that we've done to date, we are achieving our fair value pricing. We're not too far from them. In as much as in the past, they've said that as Delta, we are desperate sellers. We are very cognizant as well of shareholder value destruction when we negotiate pricing. Depending on the position of the building, the level of vacancy, etc., those are the things that we then take into account.
Otherwise, we do have—I mean, we are looking at portfolio sales. The pricing must make sense. As I have said, we consider shareholder value. We are very determined in terms of our disposals. Would I take a building and sell it at a 50%-60% discount? No. We have seen that in the past. It may have gone well with some of our funders because all it goes to is reduction of debt. Definitely, our shareholders are not looking for us to be that reckless.
Thanks. Thank you very much, Bongi. Three questions from Nino Frodema from Vunani Fund Managers . He said, "Good afternoon. In previous years, KPMG's independent auditors report concerns were raised about the company's ability to continue as a going concern. In these results, your current liabilities of ZAR 3.3 billion exceed current assets by ZAR 2.2 billion. How concerned are you about this situation?
Are we likely to get a similar assessment by the auditors in the FY 2026 report?
Going concern is a matter that gets reported on by the auditors, and it arises out of a consideration that looks at assets versus liabilities, which at an overall, the solvency is there because there is a positive equity position. If you look at current assets and current liabilities, current liabilities exceed current assets, as you, as a shareholder, have indicated. That's correct. That's an issue that auditors continue to report on. Until we change in part the structure of our debt funding because our debt tends to be maturing over a 12-month period and therefore classified as current liabilities, that gap will continue until we actually just manage and secure longer-term funding from a funder point of view.
Thank you very much, Fikile.
The second question by Nino is, various media outlets have reported on the Minister of DPWI planning on reducing the government's use of private leasing portfolios. How concerned should we be? Have you seen any movement on the ground with regards to this so far?
Definitely, we are concerned, and we have been following the Minister in all—he's fortunately, he's very public in his announcements and statements. In my presentation, I actually did state that he has made statements initially when he started that they want all their tenants to be—or all their user departments to be tenanted in their buildings. Now, recently, on—was it the 21st of November? I think that's what I stated in my presentation—is that he came out and said he's going to focus on infrastructure development and will now offer five years.
One thing that he has stated is that the 9/11 is no longer. For us, five years works extremely well. Yes, we were concerned, and it is something that we follow very closely. Hence, we have also focused on retention because part of it is if a building is not fit for tenancy or the Department of Labor feel it is not compliant, you will lose that tenant. We have placed all our efforts in ensuring that we comply.
Thanks. Thank you very much, Bongi. The last question from Nino is the property disposals. I see that your disposals are close to their net asset values. Is there pressure to undertake sales at big discounts just to get cash into the business, or can you take your time?
Yeah, that is a difficult one to answer. I would love to take my time, but within reason.
We are looking at—we negotiate very tightly. If so far we've managed to sell close to our fair value, those efforts will continue. At some point, we may take a small discount or not, but we do not engage or continue in this process looking to settle at larger discounts. As I have said, it is all about shareholder return.
Thanks. Thank you, Bongi. A question from Junior Smith is, at what point will the banks provide longer-term funding? Do they have specific targets that you need to achieve before terms get extended?
Yeah, it is a very simple answer, as Fikile alluded to it. One of the attestations that we made in our solvency, what the banks need to see is for us to sign longer dated because that talks about going concern.
If now we can sign 5-year leases with DPWI as a result of change of their stance, definitely we are hoping to get longer-term dated.
Thank you. This follows on another question from Junior, who is asking, underwrited average lease expiry. Can you please give us more depth or insight into the renewals and especially the terms achieved? Have you seen any improved demand for office space in the last three months? Are there any green shoots in the economy that's supporting tenant demand?
I mean, our renewals, we are 85% income from DPWI. I mean, our renewals are underpinned by DPWI. For as long as they've been extending 12 months, as I've said, now they've moved their stance. It's going to be five years. We're hoping our weighted average lease expiry will improve. The market is turning.
A lot of it is premised around interest rates. As we're trying to diversify and move a bit out of government into commercial private space, they're looking for an economy that's growing, and they're looking for activity as well. It is one of those things that we manage closely. Yeah, we are looking interest. Now that we've signed with the big commercial companies, we've leased one week after appointing them 1,700 GLA in Durban in one of our buildings. There is a bit of an improvement. I think we must bear in mind as well that as municipalities also are slack in terms of service delivery, and we are mainly tenanted in the CBDs, it will take time, but we'll get there.
Great. Thank you, Bongi.
Jon Andersen is asking, given that your future ambition is to be a commercially diversified property fund, when should investors expect the first concrete steps toward diversification beyond sovereign office?
Every time we let, they should be looking that we're getting closer to that. I suppose once we conclude a very big deal, we'll be very transparent and we'll announce. Definitely, every day as we live and breathe, our migration to commercial is also alive.
Fikile, a question to you from Peter McIntosh. He's asking, the maturity profile shows ZAR 2.4 billion maturing within seven months. What percentage is already credit approved for refinancing, and how supportive are existing funders considering the short lease expiry term?
That profile that has been articulated of ZAR 2.4 billion, in the main, that number relates to Nedbank. They are loan arrangements with them and expires on the 7th of April.
We will then be starting a process, often happens at the beginning of the calendar year, to ensure renewal within the 7th of April. Second one, it relates to Standard Bank. Their facility expires on May 26, May 2026, I think end of May 2026, and they will be starting the process right away. That is what they—as soon as they had indicated to us that we must conclude the interim results, and at the back of the interim results, they will then start the process. Their relationship with Standard Bank is really quite a positive and constructive relationship, as is the case with Nedbank. We are reasonably comfortable that these loans will be extended. Investing is, of course, the relationship is good.
Fantastic. Thank you very much.
A final question from Peter is, net asset value per share is 350, which is flat year on year. If the loan-to-value remains above covenant levels for another 12-18 months, do you foresee additional downward valuation pressures? The second question is on the expected credit loss provisions, which he says has increased materially year- on- year. Are ECLs peaking, or should investors anticipate further provisioning due to sovereign billing disputes?
As we go in our valuation, which is externally and independently done at the end of February every year, we will start around December. Based on what we are aware of in terms of our assets, there are no specific risky areas. Of course, that is always driven by a number of factors that our independent valuer has taken into account.
The comfort I would have is the fact that our valuation or devaluation sort of losses have been declining year on year. You'll recall that a year before last, it was over ZAR 180 million. Last year, it was less than that particular number, and it's been improving. It has been a mix. There have been assets where there has been upward valuation, and there have been assets where there has been downward valuation. On this one, we will monitor that closely and see what then happens at the end of the year. There is nothing that stands out that we are well aware of. When it comes to ECL, ECL is informed by the specific data issues and areas that we've been working on over time, and we've ensured that those affected are taken into account in the ECL calculation.
There are no specific data that have not been included that shareholders should worry about. I think this provision has been as conservative as was warranted. Thanks
Thank you very much, Fikile. Bongi, Fikile, this then brings us to the end of the Q&A session. I'm not sure if you would like to have any closing remarks or if you'd like us to close the presentation.
No, we can close the presentation.
Thank you. Fantastic. Thank you. Ladies and gentlemen, thank you very much for joining us. Please be reminded that the recording of the presentation will be available on the website within the next 24 hours, or you can use the same link that you've registered on to access the recording. Many thanks. Thank you for your time.