Tower profits from its Cape Quarter

LISTED Tower Property Fund expects to generate a profit of about R140 million from the development of about 73 residential units at the Cape Quarter precinct in Cape Town, its largest property in South Africa.

Marc Edwards, the chief of Tower, said yesterday they were in the process of developing the units on a phased basis, with the units coming on stream from November this year to the end of 2018.

“The fund will dispose of all the units given the high demand for residential property in the area. Proceeds will be used to improve core earnings rather than distributing capital profits to shareholders,” he said. Tower made its first offshore acquisition in August 2015 when it purchased 15 floors of the premium grade VMD KVART office property in Zagreb in Croatia for €23.7 million (R342.71m).

Ring-fencing

The fund acquired four retail properties in Croatia in the six months to November for a total of €66.6m and its Croatian portfolio is now valued at €92m.

Edwards said Tower anticipated ring-fencing its Croatian properties into “a new look investment vehicle which provides greater opportunity for growth in this exciting region”.

He added that the risk on the properties it owns in Croatia was low, with long-term head leases from the sellers.

“Growth is achieved through market increases in rental and turnover growth. Due to the timing of the acquisitions, properties have been purchased at historical rental lows,” he said.

Tower owns a diversified portfolio of 50 commercial, industrial and retail properties valued at R5 billion located in South Africa and Croatia.

In South Africa, Gauteng has the greatest concentration of assets by value at 34 percent, with the Western Cape accounting for 28 percent and KwaZulu-Natal 10 percent.

Croatia accounts for 28 percent of the fund’s value.

Tower yesterday reported a 15 percent decline in distributions a share to 38.4c in the six months to November.

Edwards attributed this decline to Tower no longer distributing once-off earnings.

He added that Tower’s management had for some time been engaging with the fund’s shareholders to highlight the difference between core earnings, comprising tenant rentals less operating costs and interest, and once-off earnings.

Edwards said no once-off earnings would be paid out as a dividend in this financial year, but on a rolled forward earnings basis to January 2018 shareholders could expect slight higher core earnings distribution a share of between 84c and 86c. Tower increased revenue by 22 percent to R222.7m in the six month reporting period from R182.9m. .

Shares in Tower rose by 0.36 percent yesterday to close at R8.35.

‘Due to the timing of the acquisitions, properties have been purchased at historical lows.’