Tower Reit to trim its portfolio
Tower Property Fund, the diversified real estate investment trust (Reit) which received a takeover offer in May, will sell a number of properties so that it can stave off the effects of the weak economy.
Tower Property Fund, the diversified real estate investment trust (Reit) which received a takeover offer in May, will sell a number of properties so it can stave off the effects of a weak economy which has been battered by the Covid-19 pandemic.
“We want to focus on owning our best-performing assets. These include the Cape Quarter mixed-use development and a number of Cape offices as well as our Croatian properties,” CEO Marc Edwards said.
Edwards spoke to Business Day after the release of financial results for the year to end-May 2021. Tower has a market capitalisation of R1.2bn, making it one of the smallest Reits listed on the JSE. It is an internally managed Reit which owns a diversified portfolio of 40 convenience retail, office and industrial properties in SA and Croatia valued at R4bn.
Its South African portfolio is located in the country’s metropoles with 51% by value in the Western Cape, 37% in Gauteng and 12% in KwaZulu-Natal. Four Croatian properties represent 34% of the fund’s total value.
Tower has a sectoral spread by value of 46% convenience retail, 45% office, 7% industrial and 2% inventory.
Edwards said the past financial year was extremely challenging as SA continued to manage the various Covid-19 waves.
Gauteng offices have been particularly hard hit with vacancies at historic highs, he said.
The South African Property Owners Association (Sapoa), the representative body and official voice of the commercial property industry sector, said national vacancies at the end of May 2021 were at 15% across all sectors, with offices in Sandton and Bryanston as high as 35%.
“Our Western Cape properties have recovered strongly with the Cape Quarter being virtually fully let and our new large office tenant, Rain, having a positive impact on smaller retail tenants in the centre,” said Edwards.
A positive trend to emerge from the Covid-19 lockdowns, was the demand for the Neighbourgood-branded shared workspace at the Cape Quarter, which is 90% let.
The Cape Quarter is located in Green Point and is home to more than 100 retail stores and restaurants. It includes bespoke apartments. Bordering the De Waterkant and the Cape Town City Bowl, it is considered to be a prime commercial property.
Edwards said Tower’s management had taken steps to strengthen the fund’s balance sheet through the disposal of properties and the reduction of euro-denominated debt. “This proved well-timed. To date, R14.6m has been given as concessions and R6.4m as rental deferrals to our tenants,” he said.
In Tower’s interim results for the six months to end-November, its board said that given the uncertainty around tenant performance because of the Covid19 second wave, it was prudent to defer an interim dividend to the end of the financial year.
Tower’s income available for distribution for the financial year to end-May 2021 was 29.9c per share, a 49.6% reduction on the previous year.
As in the prior year, Tower will distribute 75% of its distributable income, resulting in a dividend per share of 22.4c being declared for the year.
“Trading conditions have not improved in most sectors with the third wave of Covid-19 resulting in further lockdowns affecting the economy via increasing vacancy levels,” Edwards said.
Tower’s distributable income fell heavily in the second half of the 2021 financial year.
Net property income fell R28m on a like-for-like basis after vacancies, negative rental reversions and an increase in
‘OUR WESTERN CAPE PROPERTIES HAVE RECOVERED STRONGLY WITH THE CAPE QUARTER BEING VIRTUALLY FULLY LET’
bad debt write-offs of R11m.
Cape Quarter Square’s rental income decreased R12m due to reduced market-related rentals for new tenants, now virtually fully let, including space take-up in the new Rain lease.
RDC Properties, a multinational African property and investment group listed on the Botswana Stock Exchange and which owns 7.2-million shares or about 2% of Tower, said in May that it intends to buy out the company at R4 a share.
Tower would then be delisted from the JSE.
“As a fund we have been through some of the toughest operating conditions imaginable recently. But we have been able to determine what our very best assets are. Our plan is to trim our portfolio so that it can operate optimally. That will be whether the RDC deal goes through and the fund is delisted, or if it continues to be a listed company,” said Edwards.
Edwards said Tower wanted to buy more convenience retail centres in SA. “I believe that Tower’s performance will improve next year as the economy opens up following the Covid-19 vaccination rollout.”