Tower Property Fund’s diverse portfolio turns into a bastion of resilience
CAPE TOWN - TOWER Property Fund’s strategy to sell non-core properties to refinance its euro-denominated debt helped the company weather the impact of Covid19 in the half-year to end November.
Tower owns a diversified R4.5billion portfolio of 41 properties in South Africa and Croatia. The four Croation properties that represent 34 percent of its value, produced a Euro-based property return of 5.9 percent compared to the return on the local portfolio of -11.6 percent.
Chief executive Marc Edwards said the group focused on ensuring that the company and its tenants weather the crisis and navigate the second wave of the pandemic while reducing portfolio risk by selling non-core assets in South Africa.
“Cash reserves were strong going into lockdown. The sale of R392m of commercial property enabled it to reduce debt and strengthen its balance sheet,” he said.
The board opted to retain cash reserves and deferred the interim dividend as a result of uncertainties around tenant performance due to the second wave.
Edwards said the convenience retail properties in Croatia and South Africa as well as certain better located office properties in South Africa proved the most defensive during lockdown. However, all sectors had been hit hard.
He said vacancies increased to 15.2 percent, the highest level ever for the fund.
“The vacancy level in South Africa was 17.9 percent. Most of these are in the Cape Quarter with the departure of Deloitte, the anchor tenant who moved into their own new building in Cape Town,” Edwards said. “Pernod Ricard also vacated on expiry of their lease while another tenant went into liquidation.”
However, he said all retail space at Cape Quarter Square was now under offer to lease, including the Deloitte premises, with total vacancies in the portfolio expected to improve towards 12 percent by year end in May 2021.
Link Hills in KwaZulu-Natal and Cape Quarter were severely impacted by the lower consumer demand, with the Cape Quarter particularly vulnerable given the large numbers of office tenants in the property who usually frequent the retail shops.
Edwards said the Croatian Sub City shopping centre in Dubrovnik was impacted by a poor tourist season and the anchor tenant Konzum experienced a 16 percent decline in turnover.
The Konzum store in the Meridijan shopping centre in Zagreb showed a 5 percent growth in turnover. A cable car development adjacent to the centre was completed recently and the increased foot traffic in the area was expected.
The fund’s revenue fell 17 percent to R171m due to a reduction in rental from the sale of non-core properties, rental concessions and increased vacancies.
However, this was partially offset by the weakening of the rand.
Net property income fell 22 percent to R151m, attributable mainly to the sale of properties and the impact on rentals during the lockdown.
The share price was 1.92 percent lower at R2.55 on Friday afternoon, after falling 54 percent over a year, in line with the general Covid-19 decline.