Cape Times

Delta’s forensic audits land in a censure from the JSE and get a suspended fine

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 the 2019 annual financial statements decreased by 219% into a loss.

Earnings a share of 39.80 cents fell 205% to a loss of 81.59c 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 f rom invalid, lapsed or no broker mandates; fraud resulting from unethical dealings; and non-disclosure of relatedpar­ty 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 real estate investment funds from operations per share amounted to 8.1c compared with 9.2c 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 company told Business Report in response to the censure that: “The current board and management have spent a significan­t amount of time rebuilding credibilit­y by establishi­ng a robust governance framework, creating more transparen­cy in the business, and ensuring the accuracy and reliabilit­y of the financial informatio­n disclosed to the market, while resolving the legacy issues that it inherited.

“Although Delta is disappoint­ed to have received a public censure and fine from the JSE, the Delta board is pleased that the JSE has agreed to suspend a portion of the fine.

“Delta remains committed to pursuing legal action against the main perpetrato­rs identified during the Mazars forensic investigat­ion to recover losses.”