JSE-listed real estate investment trust Tower Property Fund, which has a diversified portfolio of properties in South Africa and Croatia, achieved a 1.8% increase in its tangible net asset value per share (NAVPS) to R9.14 for the six months ended November 30, 2018.
This is compared with the NAVPS reported for the financial year ended May 30, 2018.
Tower’s return on its property portfolio over the past 12 months was about 10.2%, the company reported on Thursday.
During the period, R300-million in capital proceeds were reinvested and used to buy back shares.
Tower’s loan-to-value reduced to 33% from 39% as at May 30, 2018.
Meanwhile, Tower said a number of factors, all of which relate to planned transactions and initiatives which strengthen the company in the long term, have resulted in a reduction in distributable income during the six-month period under review.
The combination of these factors has resulted in Tower’s distributable income for the six-month period of about R117-million and the board has declared a dividend of 36.8c apiece – 9.5% lower than the previous corresponding period.
Revenue decreased by 3% to R206-million when compared to the corresponding period, primarily as a result of certain noncore properties being sold and the rental reduction at Vukovarska, in Croatia.
Similarly, operating profit decreased by 9% to R136-million, as a result of properties being sold, as well as the increase in net property operating and administration expenses.
Tower’s investment in Croatia, through its 74% holding in TPF International is stable and income and capital growth is expected in the medium term.
TPF International is expected to grow Tower’s distributable income arising from Croatia through asset management activities and accretive acquisitions in its pipeline.
In South Africa, noncore properties sold during the period included the Pick n Pay Distribution Centre, in KwaZulu-Natal for R96-million; and Nampak Industrial, in KwaZulu-Natal for R27-million.
The proceeds generated from these sales will be used to reduce gearing and re-invest in the company.
There are five more properties which classified as held for sale and management expects these properties to be sold in the next six months.
Tower indicated that its South African property portfolio performed well with vacancies reducing in what the company indicated remains a difficult market, with property income remaining flat.
The Croatian portfolio has also performed in line with the company’s expectations, with property income decreasing by 3% as a result of the agreed rental reduction on the Vukovarska property. Without this reduction, the company indicated that property income from the Croatian portfolio would have remained flat.
As a result, property income across the combined portfolio was marginally down for the six months.
Portfolio vacancies decreased to 4.4% as at November 30, 2018, the lowest on record.
The tenant retention rate for the period was 96%.
Seventy-three per cent of leases expiring in the period were renewed.
New leases were signed at Sunclare, De Ville, Musgrave, Napier, Linkhills, Cape Quarter, Constantia View, Clearview Village and Whitby Office Estate, filling “stubborn” vacancies at these properties.
Tower’s change of strategy from an income focused fund to one equally focused on income and tangible net asset value growth, is slowly taking shape.
This change of strategy and resultant focus on prudent balance sheet management has and may continue to result in the sacrifice of short-term distributable income in favour of long-term sustainable growth of the company.
Property is a long-term business and Tower is confident that this focus will yield positive long-term results.