Johannesburg - Newly listed Tower Property Fund has described itself as “an attractive lady” to suitors in the listed property sector because it was trading at a discount to net asset value.
Mark Edwards, the chief executive, said yesterday that corporate activity was a reality in the listed property sector given the limited opportunity for funds to acquire high quality assets. But there was only a limited amount Tower could to do to protect its share price.
The shares of the real estate investment trust (Reit) closed at R8.20 yesterday, up 40c on the day, compared with the net asset value a share of R9.066 stated in its results for the six months to November last year.
Edwards said Tower would like to position itself to be on the front foot and initiate strategic discussions with funds it had an interest in, while not taking “its eye off the ball, where the ball is the asset”.
He said the fund would like to tweak the value of its portfolio through refurbishments and reducing operating costs. It was also considering acquiring its own shares. “We see our shares as very well priced.”
Ian Anderson, the chief investment officer at Grindrod Asset Management, said this week that he believed consolidation would take place in the listed property sector this year, and there was tremendous value in some of the second tier funds, which were likely to be the target of consolidation.
“Tower, Synergy and maybe even Arrowhead that are trading on yields of 10 percent plus are going to be the target of the larger listed property companies looking to buy good portfolios at discounts to their asset value,” he said.
Tower declared a maiden interim dividend yesterday of 33c a share for the six months to November to exceed its pre-listing forecast of 31.4c. It forecast a dividend of 40.3c a share for the second half of its financial year to May, which Edwards indicated the Reit expected to achieve.
Tower owns 27 properties valued at R1.64 billion and is negotiating potential acquisitions worth R300 million and evaluating a pipeline of a further R500m in acquisitions.
Edwards said the fund was on track to increase the value of its portfolio by R1.2bn by the end of this financial year, and within five years aimed to increase its value to upwards of R4.5bn to R5bn.
He said Tower was committed to a strategy of “greening” to increase the competitiveness and value of buildings in the portfolio, initially focusing on strategies with zero or low upfront capital costs.
He said greening of properties was expected to result in reduced occupancy costs for tenants, reduced vacancies over time because of the lower occupation costs and make properties more valuable and marketable to prospective tenants.
Two greening projects had been initiated at Tower’s flagship property, Cape Quarter, involving a lighting retrofit programme that was expected to reduce operating costs by about R1m a year.
Edwards said there was a one-year payback on this project and Tower would share the savings with the tenants.
The fund was also far advanced in looking at solar opportunities across the group.
Edwards said the fund ultimately wanted to generate its own power and “our ultimate dream is to make our premises more marketable by reducing the operating costs for tenants”. - Business Report