Tower Property Fund, which owns properties in SA and Croatia and has seen its dividend shrink in 2019, is optimistic that the worst is behind it.
The company’s distributable earnings and dividend fell in the year to end-May as it grappled with lower rental hikes, higher costs and foreign exchange losses, results showed on Friday. The company said, however, that it expects to achieve better net property income growth in 2020.
Distributable earnings slipped 11.4% to R235m and its distribution per share dropped 7.3% to 74.2c.
Tower owns a portfolio of 45 properties in SA and Croatia valued at R5.2bn. The six properties in Croatia represent 32% of the fund’s total value. Tower focuses mainly on convenience retail, 46% by value, while office properties make up 47% of its portfolio by value.
“The SA economy has experienced poor growth and institutional instability, which has resulted in a sluggish economy forcing downward pressure on rentals,” the fund said. “This has resulted in certain property sectors — mainly office and more recently retail — showing relatively flat or negative lease escalations, with increasing costs, across the sector resulting in rising vacancies.”
Earnings were also dented by property sales “at yields above our cost of funding”, the establishment of a Mauritian entity, and other initiatives aimed at “strengthening the company”.
CEO Marc Edwards said he expects 2020 to be a much better year for Tower.
“We are working under very difficult conditions and had to write down the values of some of some of our assets. We had warned the market that our distributions would drop. I can say that we have renegotiated some leases, including those at our Croatian assets, improved our hedging and some of our assets have been re-rated to higher values. Overall, this should lead to dividend growth in the 2020 financial year,” said CEO Marc Edwards.
He said net property income was expected to grow by 3.5% in SA and between 1% and 2% in Croatia on a like-for-like basis in the 2020 financial year to May.
The group plans to keep its loan-to-value ratio below 35% while it develops and sells residential apartments at the Cape Quarter.
Tower may also repurchase its own shares with excess cash “should the opportunity arise”.
Tower said the past two years “have been the worst” in the sector’s history in SA, with distributions reducing in some instances by more than 50%.
“The period, however, represents a very small percentage of the period in which property has been a star performer in SA, so this must be viewed in context,” said Edwards. “I think the market will need to expect distribution growth that is close to or better than consumer price inflation for the next few years,”
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