Tower in talks about acquiring two Croatian property assets

LISTED Cape-based Tower Property Fund is involved in discussions about the potential acquisition of two significant property assets in Croatia.

Marc Edwards, the chief executive of Tower, said yesterday that one of the properties was a retail asset and the other was an industrial asset.

He was hopeful that one of the acquisitions would be finalised in July or August this year and the other around August or September.

Edwards said Tower would look to raise new money in Europe for these acquisitions rather than tap any South African sources.

“Tower’s cost of capital is too high for it to follow its rights in Croatia, but it would benefit quite a lot if Tower International buys properties funded by European funds,” he said.

Edwards did not believe Tower would make further acquisitions in South Africa “any time soon”.

“The yields aren’t there at the moment, and our cost of capital is too high,” he said.

Tower yesterday reported that it had produced a total annual return of about 10.2 percent on its R5 billion property portfolio, with a return of 12 percent in South Africa and 6.2 percent in Croatia.

It declared an interim dividend a share of 36.8 cents in the six months to November, which was 9 percent lower than in the prior period.

Edwards said the focus was on strengthening Tower’s balance sheet.

A number of initiatives had been successfully implemented that resulted in the group’s loan-to-value ratio falling 33 percent at end-November from 39 percent at the end of its 2018 financial year. He said these initiatives included the reduction of euro debt, the sale of non-core properties and the establishment in Mauritius of TPF International, which houses Tower’s Croatia properties.

Edwards said although these initiatives had put the company in a more sustainable position, they had come at a cost to distributions.

He said the company’s original target was to reduce its loan-to-value ratio to 40 percent, but given the uncertain economic climate, it had decided to reduce that further.

Oryx Properties invested R300 million in TPF during the reporting period, of which R120m was used to repay euro loans, which had reduced to €35m (R553m), he said.

Edwards said two non-core properties, the Pick n Pay distribution centre and the Nampak industrial property in KwaZulu-Natal, were sold for a total of R120m, and a further five non-core properties were expected to be sold in the second half of the financial year.

He said the proceeds would be used to reduce gearing and reinvest in the company.

Edwards said they were looking to sell about R200m to R300m worth of property assets in this calendar year.

Revenue declined by 3 percent to R205.6m in the six months to November from R212.2m. Edwards said this was mainly as a result of the sale of non-core properties and property income in Croatia declining by 3 percent because of an agreed rental reduction on one of the properties.

Operating profit declined by 9 percent to R136.4m from R149.7m.

Lease escalations across the portfolio averaged 7.06 percent, while vacancies increased to 4.4 percent.

Tower fell 0.81 percent on the JSE yesterday to close at R6.10.