The JSE’s censure of Delta Property Fund on Friday shows how its financial statements were significantly manipulated by its former executives during the 2018, 2019 and 2020 financial years.
The JSE on Friday censured Delta, a significantly black-owned and managed JSE-listed Real Estate Investment Trust, for publishing “incorrect, false, and misleading in material aspects” information in financial statements for these years, and additionally imposed a R7.5 million fine.
However, R5m of the fine was suspended for five years taking into account that a forensic investigation by Delta had uncovered the irregularities, the company had worked with the JSE on the matter, measures were taken by the current executives to remedy the situation and considering the tough economic climate.
An independent forensic investigation was started in 2020 into practices involving governance failings and suspected wrongdoing that had occurred in previous financial reporting periods.
Subsequent restatement of the financial results show just how the results were misstated. For instance profit for for the 2019 annual financial statements decreased by 219% into a loss.
Earnings a share of 39.80 cents fell 205% to a loss of 81.59 cents per share, while headline earnings per share fell by 9%.
The fair value of investment properties decreased by 318%, loans due from subsidiaries dropped 100%, cash and cash equivalents increased by 229%, retained income decreased by 87%, lease liabilities increased by 100%, administration expenses increased 29% and interest income fell 10%.
The irregularities included payment of commissions by the company of R43.9 million (for the 2018, 2019 and 2020 financial years, resulting from invalid, lapsed or no broker mandates; fraud resulting from unethical dealings; and non-disclosure of related-party transactions to the board.
“The company was transparent by correcting the prior period errors and disclosing the improprieties to the market,” the JSE said in a statement on its censure.
“The accuracy and reliability of financial information published by companies play a pivotal role in maintaining a fair, efficient, and transparent market,” the exchange said.
For the six months to August 31 Delta’s SA REIT Funds from operations per share amounted to 8.1 cents compared with 9.2 cents per share in 2022, but in consideration of the Solvency and Liquidity Test, the board did not declare an interim dividend. Its rental income fell by 9.2% to R573.8m, largely driven by rental reversions and a marginal increase in vacancies.
Delta’s portfolio of 843 318 square metres of lettable space, offers access to mainly government and parastatal tenanted buildings, providing secure income streams and large, single tenant occupancy.
The group, which has 91 properties and a portfolio worth about R7.5 billion, aims to be a specialist sovereign-underpinned property fund. It could not be reached for further comment on Friday.
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