Tower Integrated Annual Report May 2018

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Tower Integrated Annual Report May 2018

Tower Property Fund - 31 July Media Release

Tower Property Fund 31 July 2018 Media Release

31 July 2018


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


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.


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

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Tower Interim Results Media Release

Results Media Release Feb 2018


Cape Town – Cape-based Tower Property Fund, which owns a R5.1 billion

portfolio across South Africa and Croatia increased its distribution to

shareholders by 6% to 40.7 cents per share in a challenging but slowly improving

operating environment in the six months to November 2017.

The total distribution for the six-month period amounts to R138 million.

Net operating profit reduced for the period to R150 million primarily due to

property sales and unrealised foreign exchange losses. The unrealised foreign

exchange losses are added back to the company’s distribution.

Chief executive Marc Edwards said the South African core portfolio is performing

well, with key properties in the Western Cape such as the Cape Quarter Square

and De Ville Shopping Centre performing above market norms. The company

experienced strong, positive rental reversions of approximately 10% in the retail

and office space. This was driven predominantly by the Western Cape market.

The vacancy level in the portfolio is currently approximately 6%, which is below

the SAPOA national norms for a portfolio of Tower’s profile.

“While it is proving tougher to grow the Johannesburg portfolio, we have had

successes including letting the 14 000 m2 Meadowbrook logistics property to

Globeflight on a 10-year lease,” he said.

Edwards said the growth in the Croatian portfolio is being restricted by the low

inflation rate in the region. Capitalisation rates (investment yields) on Tower’s

initial Croatian portfolio have strengthened considerably. “This is one of several

reasons that we will be ring-fencing the Croatian properties in a separate

offshore company, proposed to be named Tower International. 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 Tower International will continue to diversify the overall

portfolio and provide a hedge against exposure to a single market, he said.

Tower’s portfolio in Croatia is valued at €96 million or R1.4 billion. “The VMD

office property continues to perform well, as are our four retail properties, despite

the problems experienced by the parent company of the anchor tenant, Konzum.

Tower was pleased to finalise and secure the ongoing lease of its anchor tenant

with their commitment to their current 12-year head lease. A recent ‘stand-by’

lease signed with Spar has provided additional security of rental income over the

Konzum stores. This was recently disclosed to shareholders on SENS.”

Non-core properties in South Africa valued at R241 million are currently being

sold. “Our strategy is to dispose of properties which we believe have reached

their full growth potential, provided that we receive a fair price,” he said.

The residential development at the Cape Quarter, Tower’s largest asset in South

Africa is progressing well. The first phase of the project at 32 Napier Street is on

track from completion in July 2018. Half of the value of the new residential units

have already been sold. The development includes an additional 140 parking

bays which will serve to satisfy the high demand in the area. A further 54

residential apartments will be developed at the adjacent Cape Quarter Piazza,

with construction commencing in the second quarter of 2018.

Capital profits of approximately R220 million are expected to be generated in the

next 6 to 36 months from the Cape Quarter development, the ring-fencing of the

Croatian properties and the sale of non-core properties. These funds will be used

to enhance returns by reducing debt, acquiring new assets or repurchasing

Tower shares.

On the outlook for the fund, Edwards said the completion of the Cape Quarter

developments, the ring-fencing of the Croatian properties in Tower International,

and resolving the tenancy and lease issues on the Croatian retail properties will

positively impact returns and strengthen the financial position of the fund.

“Tower expects to grow net property income in South Africa by 4% to 6% while

income is anticipated to remain flat in Croatia. This should translate into growth

of 6% to 8% in distributions to shareholders for the financial year to May 2018,”

concluded Edwards.

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 - Interim Results

Tower Interim Results – Presentation