Tower Interim Results Media Release

Results Media Release Feb 2018

TOWER INCREASES DISTRIBUTION IN TOUGH PROPERTY MARKET

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