JSE-listed real estate investment trust (Reit) Tower Property Fund says it is well positioned to grow its core earnings and expects strong distribution growth in the year ahead.

Reporting on its results for the six months ended November 2016, the Reit said it expects to realise R240-million in one-off profits in the next 12 to 30 months that will be reinvested in the company to reduce debt and repurchase shares.

Meanwhile, the R1-billion acquisition of a retail property portfolio in Croatia last year had lifted Tower’s portfolio value to over R5-billion.

“Currently 28% of Tower’s properties by value are located in Croatia,” CEO Marc Edwards said in a presentation on Wednesday.

He noted that Tower’s portfolio in Croatia was now valued at over R1.3-billion and was growing steadily from a low base after a recession in that country, which ended in 2015.

“The risk on our Croatian properties is low as we have secured long-term head leases from the sellers. We are planning to ring-fence our Croatian portfolio into a new investment vehicle to provide greater opportunity for growth in this exciting region,” he stated.

He added that Tower’s South African portfolio was performing well, with additional profits from refurbishments and other initiatives expected in the medium term.

The company’s development of over 70 residential units at the Cape Quarter Lifestyle Village, in Cape Town, is expected to come on stream from December through to mid-2019.

“Given the high demand for residential property in the area, Tower will dispose of all the units and reinvest the profits in the business.”

Portfolio vacancies have reduced to 4%, with vacancies of 4.6% in South Africa and no vacancies in Croatia owing to the long-term head leases on the properties.

The weighted average lease expiry of the fund is 4.5 years, with the domestic portfolio at 3.5 years.

Meanwhile, Edwards said the company continues to make an effort to “green” its existing portfolio.

Cape Quarter Tower’s largest asset in South Africa was recently awarded a 4-Star existing building performance Green Star SA rating by the Green Building Council of South Africa - the first lifestyle centre to receive this award.

FINANCIAL RESULTS 
The Reit’s revenue for the six months to November 2016 increased by 22% to R223-million, while operating profit was up by 47% to R195-million despite difficult trading conditions.

Distributable earnings for the period increased to R130-million.

Following the board’s decision to no longer distribute one-off earnings to shareholders as dividends, Tower’s distribution a share declined by 15% to 38.4c a share.

“2016 was a watershed year for Tower. Our asset management company was internalised in line with market best practice and the company took the prudent decision to only distribute to shareholders its core earnings, being tenant rental, less expenses and interest,” Edwards said.