Johannesburg - Proposed residential developments at the Cape Quarter precinct in Cape Town by Tower Property Fund were expected to have a positive impact on the listed group’s future distributable income.
The group also plans to sell non-core properties to strengthen its balance sheet and reduce debt and is reviewing the strong growth pipeline that exists in Croatia, eastern Europe and South Africa relative to the access to and the cost of capital in South Africa.
Marc Edwards, the chief executive of Tower, said yesterday that the residential apartments it planned to develop in the Cape Quarter precinct would be sold over time given the high demand for residential property in the area.
“Our planned residential developments at the Cape Quarter will have a positive impact on earnings and we are waiting on local authority approval to commence building.”
Shortly after the end of Tower’s financial year to May, the group completed its largest acquisition to date with the purchase of a portfolio of four retail stores and shopping centres in Zagreb and Dubrovnik in Croatia for R1.1 billion.
They are anchored by Konzum, the largest supermarket chain in Croatia, and increased Tower’s portfolio to 50 properties with a value of R5.1bn, with South Africa representing 69 percent by value and Croatia 31 percent.
Tower raised R740 million through a bookbuild to partially fund the new properties.
The fund’s retail sector exposure has increased to 50 percent to achieve the fund’s objective set at the time of listing.
“The recent Croatian acquisition could prove transformative as it aligns the group with Konzum’s owners Agrokor, which is the largest company in the Adriatic region,” Edwards said. “However, this is not the end game for Tower as we believe there is a strong growth pipeline in Croatia.”
Tower made its first international acquisition in August last year when it purchased 15 floors of the premium grade VMD KVART office property in Zagreb in Croatia for R320m.
Edwards said Tower’s offshore exposure diversified risk and served as a hedge against the volatility of the rand.
“In the 10 months since we acquired our first Croatian property, its value has increased by R130 million, owing mainly to currency weakness.”
The value of the portfolio increased 65 percent to R5.1bn from R3.9bn and expanded to 46 properties at end-May.
Tower yesterday reported a 6 percent growth in total distribution a share to 92c in the year to May from 86.8c in the previous year, which was in line with the fund’s earnings growth forecast.
Revenue increased by 52 percent to R376.5m from R247.7m. Operating profit improved by 50 percent to R301.6m from R200.8m. Vacancies increase to 5 percent at year-end but declined to 4 percent following the Croatian transaction.
Tower forecast growth in core earnings, which represented tenant rental income less operating costs and debt, of more than 10 percent for the year ahead. It said this would translate into total distribution growth of 6 percent.
Tower shares rose 3.25 percent yesterday to close at R8.25.
BUSINESS REPORT