Tower Interim Results Nov 2018



28 February 2019


Cape Town – Cape-based Tower Property Fund delivered competitive income

and capital growth across its R5 billion portfolio in the six months to November


Tower owns 44 properties in South Africa and Croatia. The local portfolio is

located across the country’s major metropoles with 43% by value in Cape Town,

43% in Gauteng and 14% in KwaZulu-Natal. The five properties in Croatia

comprise 29% of the fund’s value. Tower’s focus is mainly on convenience retail

(47% by value) and office properties (48% by value).

Over the past 12 months, Tower produced a total return on its property portfolio

of approximately 10.2%, with a return of 12% in South Africa and 6.2% in

Croatia. Tower’s tangible net asset value increased by 1.8% to R9.14 in the six

month reporting period.

Chief executive Marc Edwards said Tower’s domestic property portfolio has

performed well in a difficult market, with vacancies reducing and property income

remaining flat. “Our Croatian portfolio has also performed in line with our

expectations and property income was 3% lower as a result of an agreed rental

reduction on one of the properties. Excluding this reduction, property income in

Croatia would have been flat.”

Revenue for the half year declined by 3% to R206 million, mainly as a result of

the sale of non-core properties and the Croatian rental reduction. These factors,

together with higher operating and administrative expenses, contributed to

operating profit reducing by 9% to R136 million.

As disclosed to shareholders, focus was placed on strengthening the balance

sheet of the company with a number of positive initiatives being successfully

implemented, including the reduction of Euro debt, the sale of non-core

properties and the establishment of TPF International Limited in Mauritius (the

company which houses Tower’s Croatian properties). While these initiatives have

put the company in a more sustainable position, they do come at a cost to

distributions. As a result, an interim dividend of 36.8 cents per share was

declared, 9% lower than the prior period.

Edwards said Tower’s active property asset management resulted in a pleasing

operating performance in a tough trading period. Portfolio vacancies decreased

to 4.4% at period end, the lowest level since the launch of the fund. Lease

escalations across the portfolio averaged 7.06%.

Two non-core properties, the Pick n Pay distribution centre and Nampak

industrial in KwaZulu-Natal, were sold for a combined R123 million. The

proceeds will be used to reduce gearing and reinvest in the company. Five

further non-core properties are expected to be sold in the second half of the

financial year.

Tower continues to focus on generating proceeds from asset management

initiatives in the portfolio. The commercial and residential development in Napier

Street adjacent to the Cape Quarter has been completed. Tower has sold 11 of

the residential units and continues to own the remaining five units. Construction

on the 54 residential apartments in the Cape Quarter Piazza is expected to start

in mid-2019 and be completed by the end of 2020.

The group’s loan to value ratio reduced from 39% at the 2018 year end to 33% at

the end of the period (36% in South Africa and 25% in Croatia), with R120 million

in Euro loans being repaid from the proceeds of the R300 million investment by

Oryx Properties in TPF International.

Edwards said Tower’s shift in strategy from an income focused fund to one

focused equally on income and tangible net asset value growth, is slowly taking

shape. “While the change in strategy and resultant focus on prudent balance

sheet management has sacrificed short-term distributable income, it will ensure

the long-term sustainable growth of the company. Property is a long-term.

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