Tower may ring fence its Croatian assets

LISTED property fund Tower is planning to ring fence its Croatian assets and establish a separate vehicle that will house its Croatian assets and provide its shareholders with the choice of investing only in South Africa or in Croatian property.

Tower Property Fund has a portfolio of 49 commercial, industrial and retail properties valued at R5 billion, with four retail properties acquired in the year to May this year, Croatia accounting for 28 percent of the fund’s property value.

Marc Edwards, the chief executive of Tower Property Fund, confirmed yesterday that they wanted to reduce Tower’s holding in time in the current assets it held in Croatia, but still to control the properties from a management perspective.

Edwards said they had been in discussions for a long time to ring fence the Croatian assets, because the properties “did not sit well together” with the assets in the rest of the portfolio, because South African inflation was higher and lease growth higher than in Europe.

He said there were multiple options for this ring fenced vehicle, including a separate listing.

However, Edwards said they were still involved in discussions with the SA Reserve Bank and expected to make an announcement about the ring fenced vehicle in about eight weeks.

Tower has experienced problems with its Croatia portfolio, which was acquired from Agrokor, the parent company of major Croatian retailer Konzum now in business rescue.

Konzum has a 12-year head lease over the four centres sold to Tower, with Agrokor guaranteeing all rental payments for this portfolio.

Arrear rental Edwards said there was the equivalent of R10.3 million in arrear rental owed by Agrokor/Konzum to Tower, but all rental due from April this year had been paid.

He said the business rescue commissioner of Agrokor had stated that the intention was to settle 100 percent of the arrears, but the problem was that Tower was in a pot with all the other creditors and realistically expected to receive only 50 percent of the arrears.

Edwards added that there was a lot of misrepresentation in Agrokor’s financial statements, which Tower was unable to detect, but it was forced to restate its financial results and its auditing firm was fired.

“We are considering our options strongly and the new board is dealing with us ethically, but we will doing everything we can to recover the full arrears.

“Tower is confident that if it were to cancel the Konzum lease due to default on rental payments, a strong international anchor tenant would replace Konzum,” he said.

Tower yesterday reported an 18 percent growth in distributable earnings to R261.7m in the year to May from R220.9m in the previous year. A distribution a share of 77.1 cents was declared, which was 16 percent lower than the prior year.

This was largely attributable to the decision to no longer distribute once-off earnings to shareholders and the uncertainty about the payment of arrear rental by Konzum.

Revenue increased by 19 percent to R447.3m from 376.5m. Overall vacancies increased to 5.9 percent at year-end.

Tower said shareholders should expect 6 percent to 8 percent growth in distributions for the next 12 months.

Shares in Tower remained unchanged on the JSE yesterday to close at R7.70.