Tower may ring fence its Croa­t­ian as­sets

The Star Early Edition - - COMPANIES & NEWS - Roy Cokyane

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.

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