Black-owned property loan stock company Delta Property Fund said on Wednesday that it had entered an agreement to acquire the entire issued share capital of Phamog Properties, which would see it buying two government-tenanted buildings in Polokwane, Limpopo, for R378m.
Delta CEO Sandile Nomvete said one of the company’s strategies was to focus on smaller towns, aside from its interests in South Africa’s major cities. "We tend to find better value in the smaller towns and Polokwane is one of those cities."
Mr Nomvete said Phamoko Towers, situated at 37 Church Street in Polokwane, and Temo Towers, at 67 Biccard Street, would be acquired under the agreement at yields just under 10%.
The purchase price was based on the underlying property prices, with Phamoko Towers — where the provincial roads and transport department is a tenant— valued at R242m and Temo Towers — which houses the provincial agriculture department — valued at R136m.
The Phamoko Towers lease expired at the end of October 2018 while the lease expiry of Temo Towers was the end of June 2016, Mr Nomvete said.
With the inclusion of the South African Revenue Service, about 70% of Delta’s portfolio is let to the government.
The fund’s vacancy level is below 4% — much lower than the sector average for office-focused funds.
"We have found a niche for ourselves in the sovereign space," Mr Nomvete said.
He said the portfolio’s sovereign underpin was appealing to "more stable investors" who were not looking for exorbitant returns in economic upswings but were shielded from economic downturns that affected the private sector.
In addition, government buildings tended to have single departments as tenants, which translated to low cost-to-income ratios compared with the rest of the sector.
Mr Nomvete said Delta, one of the JSE’s newest property listings — having listed in November 2012 — was taking steps to "bring the confidence back" into the government niche.
