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Cape Town - Cape-based Tower Property Fund increased revenue by 22% to R223m and operating profit by 47% to R195m in difficult trading conditions in the six months to November 2016, it said on Tuesday.
The acquisition of a R1bn retail property portfolio in Croatia during the period increased the fund’s total portfolio value to over R5bn. Currently 28% of Tower’s properties by value are located in Croatia.
The fund’s portfolio of 49 properties is spread across retail (47%), office (45%) and industrial (8%).
Distributable earnings for the period increased to R130m. Following the board’s decision to no longer distribute once-off earnings to shareholders as dividends, Tower’s distribution per share declined by 15% to 38.4 cents per share. The number of shares in issue increased by 42%.
According to CEO Marc Edwards, 2016 was a watershed year for Tower.
"Our asset management company was internalised in line with market best practice and the company took the prudent decision to only distribute its core earnings to shareholders, being tenant rental, less expenses and interest,” he said.
“Tower’s South African portfolio is performing well, with additional profits anticipated from refurbishments and other initiatives expected in the medium term. These profits will be re-invested and used to boost core earnings.”
Tower’s portfolio in Croatia is now valued at over R1.3bn (€92m). Edwards said Croatia is growing steadily from a low base after the recession which ended in 2015 and GDP growth of 2.5% is forecast for 2017.
“The risk on our Croatian properties is low as we have secured long-term head leases from the sellers. We are planning to ring-fence our Croatian portfolio into a new investment vehicle to provide greater opportunity for growth in this exciting region,” he said.
Edwards said Tower continues to green its existing portfolio. Cape Quarter Lifestyle Village, Tower’s largest asset in South Africa, was recently awarded a 4 Star existing building green rating by the Green Building Council of SA, the first lifestyle centre to receive this award.
Tower’s development of over 70 residential units at the Cape Quarter is expected to come on stream from December 2017 through to mid-2019. Given the high demand for residential property in the area, Tower will dispose of all the units and re-invest the profits in the business.
Portfolio vacancies have reduced to 4%, with vacancies of 4.6% in South Africa and zero in Croatia owing to the long-term head leases on the properties. The weighted average lease expiry of the fund is 4.5 years, with the domestic portfolio at 3.5 years.
Discussing the fund’s prospects, Edwards said Tower is well positioned to grow its core earnings and expects strong distribution growth in 2018.
Seven non-core properties in the portfolio with a value of R450m are being sold and the proceeds will be used to best effect in the company.
