Value of Delta Property Fund portfolio down by 10% after financial results are restated
Delta Property Fund, which earns about 80% of its revenue from government tenants, said on Thursday the value of its portfolio fell 10% in the year to end-February 2020 after the listed real estate investment trust (Reit) restated its financial results.
The company, founded by former CEO Sandile Nomvete, withdrew its full-year to February 2020 financial results in December after it announced the outcome of the forensic investigation into its finances, which uncovered irregular payments and procurement by the previous management. It was later suspended by the JSE.
Accounting firm Mazars Forensic Services conducted a forensic investigation into alleged procurement irregularities and the misappropriation of funds by senior executives after an anonymous tip-off. This was the second investigation of the allegations by Mazars.
A number of irregularities were found in Delta’s finances, which led to a decrease in the value of its property portfolio.
Among the issues identified by Mazars were payments of commission by the company of R43.9m for the three financial years ended February 2018, 2019 and 2020, resulting from invalid, lapsed or no-broker mandates; fraud resulting from unethical dealings amounting to R2.1m; and nondisclosure of related or connected-party transactions to the board.
The value of Delta’s property
portfolio at the end of February 2020 was R8.8bn, down from the initial R10.6bn.
The company reported that during the 2019 and 2020 valuation process, “some valuers were instructed by the previous management team to specifically exclude commissions, property management fees, insurance and valuation fees when performing the valuations”.
It said that this practice was contrary to that of prior financial years and to generally accepted valuation practice.
The valuations were reperformed after including the property-related expenses that were previously excluded.
The forensic investigation “found evidence of past practices involving governance failings and wrongdoing at the company, including unsubstantiated payments, procurement irregularities and other unethical business dealings”.
Delta, which is chaired by Phumzile Langeni, said in December that it had reported the alleged fraudulent activities to the police and other authorities. The company had said in November that after the preliminary findings of the first investigation, Nomvete and CFO Shaneel Maharaj resigned with immediate effect. The pair left in August. COO Otis Tshabalala also left the company.
Nomvete, Maharaj, and Tshabalala have since denied all the accusations.
Meanwhile, Nomvete’s company, MPI Asset Management (MPI), is suing Delta. MPI externally managed Delta from 2012 until 2015, when the contract was terminated after differences among the shareholders of MPI.
According to court papers, MPI has now made a claim against Delta for breach of contract, saying that Delta paid a termination fee that was too low and not market-related. It also argues Delta failed to honour a separate right to buy MPI out.
Nomvete told Business Day earlier in April 2021 that the arbitration matter would be heard by a court in May.