Tower Property Fund, which has assets in SA and Croatia and is struggling to deliver income growth is turning to its Cape Quarter residential development to boost returns.
CEO Marc Edwards said the company had to find innovative ways of getting value out of its assets while it sat with a growing vacancy factor.
The company’s dividend shrank 4.9% in the half year to November, results showed on Friday, as it grappled with difficulties in filling vacancies because of rising municipal failures and costs and SA’s weak economic prospects.
Tower’s vacancy level across the portfolio grew to 5.5% in the reporting period from 4.4% a year earlier.
“Listed property owners continue to face real challenges in the South African operating environment with failing municipalities, power outages and the threat of ratings downgrades. This is particularly evident in our letting activities where vacant space takes longer than expected to fill, while tenant renewals often do not materialise or are concluded at significantly lower levels,” Edwards said.
Tower had to focus on assets which provided “maximum growth in a weak economy” which included its residential project, he said.
Tower is selling 56 apartments at its Cape Quarter building located in De Waterkant, a subdistrict of Green Point in Cape Town.
Edwards said this building, which was the largest in the subdistrict, was attracting R80,000/m² indicating that Cape real estate still offered returns found in growing economies.
“Cape Quarter is becoming a prized asset for us and we are excited that if we continue to deploy capital into it, we will be rewarded during the rest of this financial year and next year,” he said.
Tower owns 43 properties valued at R5bn, with six assets in Croatia accounting for 32%. The Croatian assets are held by its subsidiary TPF International.
The total return from Croatia for the 12 months to end-November was 8.9% in euro terms, the group said.
The company faced a one-off funding cost of R1m and was investigating a potential separate listing of its Croatian assets.
“While there was interest from Croatian institutions in a listing, at this stage it has been decided that, instead of raising fresh capital, TPF International will look to recycle capital through the sale of low growth properties in Croatia and the reinvestment of the proceeds into new higher-growth properties,” the company said.
Edwards said Tower would focus on investing in retail in Croatia and that malls in the tourism driven eastern European country were trading well.
Locally, the company would try to extract more value from existing properties in nodes including Claremont in Cape Town and Rosebank in Johannesburg.
The fund would also relet the expiring Deloitte and Pernod Ricard premises in the Cape Quarter.
“While we expect distributions for the full year to May 2020 to be slightly down on last year, we are confident that the fund will deliver real growth to shareholders in the medium to long term,” he said.
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