Delta Property Fund is coming under pressure as it struggles to impress investors given its mostly government-tenanted office portfolio.

Delta’s share price has lost about 22% since it listed in November 2012 at R8.35 a share. On Monday it closed at R6.85 and it is trading at a forward yield of nearly 15%. This suggests it could be a takeover target for acquirers who feel it is underpriced.

Since listing, Delta has remained focused on government-tenanted properties. But many institutions dislike its preference for government tenants, who are seen to pay too slowly and to be unwilling to agree to market rentals.

Delta has grown its asset base from R2.1bn to about R12bn in about four years.

CEO Sandile Nomvete said on Monday Delta had not received any takeover offers. But some fund managers believe its governmenttenanted portfolio stands in the way of a potential takeover.

“Under normal circumstances, Delta would definitely be a takeover target, given the attractive initial income yield and large discount to net asset value. However, Delta’s portfolio is dominated by governmenttenanted office properties — 66% by gross leasable area — and most of the other listed property companies have either sold or are in the process of selling … government-tenanted portfolios,” said Grindrod Asset Management’s chief investment officer, Ian Anderson.

Delta also had an investment in Mara Delta, and “a number of other listed property companies have voiced concerns about investing in property on the African continent outside SA”, he said.

Nomvete said Delta was improving its portfolio and had spent much of 2016 renewing the 41% of leases that were up for renewal this year.

Meago Asset Management executive director Jay Padayatchi said Delta needed to do something significant “like making a large acquisition which the market likes” to be re-rated.

source: Business Day