JSE-listed Tower Property Fund’s revenue increased by 38% to R118-million for the six months ended November 30, 2014, owing to active asset portfolio management that continued to reduce operating costs.

Despite “an increasingly difficult trading environment”, the fund also increased its operating profit by 37% to R96-million, while distributable earnings were R63-million. Distributions of 42c a share were declared.

In the period under review, the fund acquired two properties for a collective R122-million, including a portion of the Constantia View Office Park in Quellerina that it did not already own and the Medscheme building in Florida North, Gauteng.

However, vacancies had increased to 10%, as two large tenants in the Clearview Motor Village absconded from their lease obligations. “Legal action is currently being taken to recover the debt,” Tower noted.

Vacancies were expected to drop below 8% following the latest acquisitions. “The management team is focused on reducing vacancies and encouraging renewals as tenants face the impact of a tightening economy,” it said.

Selected properties, held since listing, would be sold in due course, as the fund focused increasingly on establishing a portfolio of well-located properties with value-add potential to ensure maximum returns for shareholders.

MORE PROPERTIES
After the end of the reporting period, Tower concluded the acquisition of three convenience shopping centres, worth a combined R238-million. The acquisitions were settled 50% in cash and 50% in shares which were issued at R9.10 a share.

“These shopping centres provide Tower with exposure to the fast-growing lower living standards measure consumer market. Management continues to focus on the acquisition of strategic properties to ensure the sustainability of the fund and to enhance returns for investors,” it said.

Further, it bought a portion of an office block for R193-million. The deal was still subject to Competition Commission approval.

A smaller office property in Gauteng, which it bought for R51-million, was also in the process of being transferred.

Tower was also in negotiations for the acquisition of commercial property totalling R900-million. All new properties were expected to transfer by May 1, taking the company’s portfolio to R3.5-billion, compared with the R2.2-billion as at November 30.

GREENING UP
Tower implemented a number of greening initiatives during the period, including lighting retrofits at the Cape Quarter and the De Ville Shopping Centre.

“Savings at Cape Quarter have exceeded predictions, with up to R850 000 a year as a result of lighting changes, while the electricity demand of the property has been reduced by 13%,” it stated.

Similar initiatives wiould be undertaken at other properties. 

Further, a large solar installation at Cape Quarter, which was predicted to yield a 17% return, would also bolster the company’s green initiative. “Most of the roof space is being used to generate energy,” it said.

The solar initiative would save over R350 000 a year and accounted for 5% of the building's demand.

“The fund's greening strategy will be crucial in this competitive environment to reduce occupancy costs to ensure the retention of tenants,” it said.

DEBT MANAGEMENT
Tower had loan facilities totalling R811-million as at November 30. Interest rates were hedged on 74% of the total loan facility and the weighted average rate of interest is 8.33% for the portfolio.

The fund entered into an agreement with Standard Bank to refinance R475-million of debt with other institutions, which would reduce rates by 87 basis points and result in a R4.15-million interest saving a year.