Tower Property Fund - 31 July Media Release

Tower Property Fund 31 July 2018 Media Release

31 July 2018

TOWER LIFTS DISTRIBUTION 5% IN VOLATILE PROPERTY MARKET

Cape Town – Cape-based Tower Property Fund increased its total distribution to

shareholders by 5% to R275 million in volatile trading conditions in the financial

year to May 2018.

Tower owns a diversified portfolio of 46 properties in South Africa and Croatia

valued at R4.9 billion. The five properties in Croatia comprise 28% of the fund’s

value. Tower’s focus is mainly on convenience retail (46% by value) and office

properties (47% by value).

Non-core properties totalling R151 million were sold during the year which

contributed to Tower’s revenue declining by 7% R416 million for the year. A

further nine non-core properties are being actively marketed and are expected to

be sold during the 2019 financial year.

Chief executive Marc Edwards said the fund has not been immune to South

Africa’s severe economic pressures over the past year. “Vacancies in the

portfolio reached a high of 12% in January 2018 but reduced to 5% by year end

with excellent tenancies secured late in the year. We have had to offer lower than

anticipated rentals and longer periods of beneficial occupation, particularly in

Gauteng, which is a clear sign of the times.”

Edwards said Tower is reaping the benefits of its strategy of extracting maximum

value in its portfolio by increasing lettable areas and refurbishing properties to

attract higher rentals.

The Cape Quarter Precinct, one of the flagship properties in the portfolio, has

increased in value from around R650 million when the properties were purchased

in 2013, to approximately R1 billion at year end. This represents at total return of

15.6% pa. The success of the strategy is also evident in the R80 million increase

in the value of the Sunclare Office Building in Claremont since 2015 to R277

million at year end, a total return of 26.2% pa. The De Ville Shopping Centre in

Durbanville has generated a total return of 15.4% where the property value has

grown from R226 million to R246 million.

He said Tower’s Croatian portfolio is performing well, with increasing rentals in its

office property VMD Block B. The fund has also secured a back-up lease to its

anchor retail tenant, Konzum. The back-up lease agreement with Spar Hrvatska

adds to the security of the retail portfolio and demonstrates the demand for

Croatian properties.

Tower has ring-fenced its Croatian portfolio through the establishment of TPF

International, based in Mauritius. “The new company will aim to grow Tower’s

Eastern European exposure and will raise its own equity capital to fund the

acquisition of new properties. Tower’s shareholding in TPF International will

continue to diversify the overall portfolio and provide a hedge against exposure to

a single market,” he said.

TPF International has attracted an investment of R300 million from Oryx

Properties, a Namibian property fund. “We plan to use these funds to reinvest in

TPF International, reduce our Euro debt and reinvest the balance in South

Africa.”

Edwards said the directors are confident in the fund’s Croatian strategy. “While

the income growth from our properties in this region is low relative to South

Africa, debt funding is also lower, and we believe it offers a secure Rand hedge

with upside for capital growth.”

Tower continues to focus on generating proceeds from asset management

initiatives in the portfolio. These include the addition of 54 residential apartments

in the Cape Quarter Piazza, realising approximately R25 million in profit from

residential sales from Napier Street and the R300 million investment from Oryx in

TPF International.

“While these activities do not impact directly on the fund’s distributable earnings,

generating proceeds from our existing portfolio for reinvestment into new growth

opportunities or balance sheet management is core to delivering attractive total

growing returns to shareholders, and is likely to be a consistent feature of the

portfolio well into the future,” concluded Edwards.

Ends

Issued by Tier 1 Investor Relations on behalf of Tower Property Fund

For further information kindly contact

Marc Edwards

Tower Property Fund

082 885 8805

Tower Property Fund 2018 Results Presentation

Tower Property Fund 2018 Annual Results Presentation

Financial Highlights

• Distribution of 40.3 cents per share representing 5% growth from corresponding period

• Distributable earnings of R266 million

• Portfolio at 46 properties after the continued sale of non-core assets

• Portfolio value of R4.9 billion

• Market capitalisation of R2.3 billion

• Loan-to-value of 39%

• Net asset value of R9.68 per share

• Properties sold or in the final process of sale of R247 million

Read more…

Download the full presentation

 

Towers Croatian Investments

Tower Property Fund set to boost Croatian investments

Tower Property Fund is planning to bulk up its investments in Croatia as it hedges against weak economic conditions in SA, CEO Marc Edwards said on Tuesday.

“We are a bit weary about conditions in SA so it is helpful to have exposure to an offshore market,” he said.

Tower owns five Croatian properties, which represent 28% of its total assets by value.

The Croatian assets were ring-fenced through the establishment of TPF International during the reporting period. The new unit is based in Mauritius.

Read on…

Business Day full article

 

A Note from the CEO

A number of funds have recently released results and virtually all have said something like: “despite macro-economic headwinds”.  This talks to an overall pessimistic view of the South African economy (which has increased since the original drafting of this note, given the chaos in the market created by the removal of the finance minister) showing how susceptible our economy remains to sentiment which has resulted in a number of property companies (and slightly more concerning to the economy, other businesses), looking at opportunities offshore.

Tower is no different and this year has seen the watershed moment of our first investment into Croatia, a country we believe has enormous growth potential. Croatia, fresh from an 8 year recession, is clawing its way back into a position of growth, mainly off the back of excellent tourism numbers. An expected 2.5 growth rate seems achievable and foreign investment is returning to the country.  The greater Eastern European region has shown continued and increased interest from South African companies, with Tower, Attacq, Rockcastle and the already established and very successful Nepi, seeking out investments for their South African shareholders.

Our first acquisition, the premium grade VMD Block B in Zagreb, has exceeded our expectations and is now fully let (on paper at least) with strong national and international tenants occupying the premises.  Rentals are at the upper end of the market – testament to the building’s quality.  A strong pipeline of retail assets is under negotiation off the back of our bedrock investment and through our in country partnerships, which we believe will dramatically enhance our overall portfolio. We look forward to reporting on these soon.

Despite “macro-economic conditions” in South Africa, Tower have had a relatively good year on the property front.  Vacancies are the lowest they have been, we have implemented our greening programme on a further 5 properties, with our largest solar initiative just having been completed at the DeVille Shopping Centre, and we have retrofitted our largest asset, Cape Quarter Square, resulting in Deloitte taking additional space in the property.  We will shortly be breaking ground on our first foray into residential property with the addition of 11 apartments at 32 Napier Street, part of the Cape Quarter precinct.

We have an excellent pipeline of properties in South Africa as well, however are being more selective in our purchases, only looking at slightly larger, well located properties in popular nodes where there is long term value enhancement through refurbishment and greening opportunities.  We have seen that the old adage of “location, location, location” continues to speak truth and the success of a property like Cape Quarter is testament to this.  As a property fund Tower will continue to seek the best assets we can afford in the best locations, resulting in long term capital and income growth.

We do see challenging and exciting times ahead and we look forward to continuing to partner with you.

From our team to you and your families, we wish you a blessed Christmas season and hope that you have a well-deserved break. Go easy on the carbs…

Cheers

Marc

Moneyweb interview with Marc Edwards

HILTON TARRANT: The JSE’s newest listing will make its debut next Friday. Tower Property Fund will list under the new REIT structure and is being launched by Spire Property Group. Mark Edwards is chief executive of Tower. Mark, the million-dollar question – why list and why now?

Listen to the interview here and now…. Interview with Moneyweb