File picture: James White

CAPE TOWN – Tower Property Fund’’s share price shot up 7.34 percent after an update announcing the sale of its Medscheme office property, where the lease was recently renewed for seven years for R97.5 million. This was in contrast to the FTSE/JSE Reits index, which was down 0.73 percent.

The transaction equated to a 9.8 percent selling capitalisation rate. As at May 31, the property fund had a book value of R103m, a statement said on Tuesday.

About 31 percent of the revenue from Tower’s R5.2 billion property portfolio is generated from properties in Gauteng, 24 percent in Croatia, 37 percent in Western Cape and 8 percent in KwaZulu-Natal.

Tower’s like-for-like loan to value ratio will fall to 31.6 percent compared with 34.1 percent for the year ending May 31, 2019, following the sale of the Medscheme property and the recently announced disposal of the Meadowbrook property.

Part of Tower’s strategy is to sell non-core and lower growth properties, which it believes to have reached full value, so that it can realise capital for reinvestment in the existing portfolio and other growth assets.

Proceeds of the Medscheme and Meadowbrook disposals would be used to reduce Tower’s loan to value, particularly until the redevelopment of Old Cape Quarter mixed-use development was adequately de-risked. Proceeds would also be used to acquire Tower shares, if appropriate.

Tower, which owns 45 properties in South Africa and Croatia, reported a 10.7 percent return on its property portfolio for the year to May 2019.

Construction at the Old Cape Quarter redevelopment was expected to be completed by January 2021.

Tower said last month that it had sold five apartments at the Old Cape Quarter for R60m, including two penthouses, in a slow residential market, realising the highest selling price for an apartment in the De Waterkant area to date.

The Meadowbrook Distribution Centre, valued at R86m at May 31, was sold for R91.6m. Chief executive Marc Edwards said in the annual report that the near-term attention was focused on developing 55 residential units at Old Cape Quarter, unlocking additional value and income growth in the Croatian portfolio through its shareholding in TPF International and reducing euro debt secured by South African properties.

Tower would assist TPF International management in growing its property income by “sweating” the Croatian properties through increasing rentals and turnover.

Tower's shares closed 4.59percent up at R5.70 on the JSE on Tuesday.