Tower Property Fund records its highest vacancy levels

Tower Property Fund's Cape Quarter Square in Cape Town (image source:

Tower Property Fund has deferred its interim distribution for its financial year ended on the 31st of May 2021, due to the uncertainty around tenant performance during the second wave of the pandemic.

The REIT’s income available for distribution for the reporting period was 29.9 cents per share, a 49.6% reduction on the prior year. Tower plans to distribute 75% of its distributable income, resulting in a dividend share of 22.4 cents being declared for the year.

With its distributable income down during the second half of the 2021 financial year, its property net income decreased by R28 million on a like-for-like basis due to vacancies, negative rental reversions, and an increase in its bad debt write-offs of R11 million.

Rental income from Cape Quarter Square decreased by R12 million due to reduced market-related rentals for new tenants, including space take-up in the new Rain (Pty) Ltd. lease. The company attributes the settlement of Euro debt and the strengthening of the Rand affecting inflows from its Croatian investments as factors contributing to the decrease of its distributable income.

However, Tower’s Western Cape and Croatian portfolios, accounting for 59% of its income and 68% of its value, have performed well operationally but its Gauteng portfolio (accounting for 32% of its income and 24% of its value) has performed poorly due to the weighting of its decentralized offices.

The company’s total property returns in Croatia were significantly higher than its South African property which decreased by 6.7% (retail: 2.5%; office – -16.4%; and industrial: -9.2%). In Europe, the returns were 6.1% (retail: 6.1%; office: 6.1%; and industrial: 6.9%). The company calculates its total property return as the income return plus the capital return of its properties.

Revenue decreased by 18.4% from R395.6 million to R323 million and its net property operating expenses increased from R34.4 million to R55.1 million.

South Africa

On a like-for-like basis, property net income in South Africa was 32.7% down for the year, predominantly because of increased vacancies to 19.9% (its highest figure recorded), Covid-19 concessions granted, negative rental reversions, increased bad debts written-off and the reduction in recoveries due to increased vacancies.

Cape Quarter, one of its largest local assets, experienced a large net income reduction due to the anchor office tenant lease (Deloitte) expiring and the replacement tenant (Rain Pty Ltd.) taking up its full premises on a stepped basis over two years. With a new occupation effective from the 1st of April 2021, the company was unable to achieve the gross rental paid by the previous tenant who took occupation of the premises for a ten-year period. This means that expiry on rental had escalated considerably above market-related rentals. Therefore, the income for Cape Quarter is down for the year – a drop of R9.1 million net property income for this tenancy.

The Pernod Ricard space was vacant for nine months which equated to approximately R4.5 million net property income lost for this period. Tower has refurbished this space into a 1 850m2 shared workspace and it has achieved rentals of 60% higher than traditional office rentals (R190 / m2 net rental against R120 / m2 for traditional office space). Cape Quarter is now fully let and the net income should improve going forward.


On a like-for-like basis, property net income in Croatia was down 1.2% in Euros due to the VMD headlease which expired on the 31st of July 2020. The net property income from VMD was down €25 581 per month which resulted in a €10 699 reduction in rental income and €14 882 additional property management fees. Tower has retained the services of the VMD Group to manage these two properties.

Excluding VMD, the Croatian like-for-like net property income has increased by 3.8%. Its property income excludes the straight-line lease accrual and currency fluctuations, and it is measured on a like-for-like bases, excluding acquisitions, disposals of property and once-off rates and electricity credits received.

In July 2020, Tower announced its short-term objective of reducing its Euro debt secured by South African properties to reduce currency risk. This has since been achieved through the repayment of €11.6 million debt from the proceeds of the sales of Vukovarska and Velika Gorica and the refinancing of €31.5 million debt from €47 million to €3.9 million. This has had a negative impact on its distributable earnings but it significantly de-risks the company’s balance sheet.

As announced in late May 2021, Tower has received a non-binding expression of interest from RDC Properties Limited, for a proposed transaction of acquiring all shares in Tower for a consideration of R4 per share, less the divided declared elsewhere in these results. Both parties remain in discussions.

Civil unrest in Gauteng and KwaZulu-Natal

Tower’s Evagold Shopping Centre was severely damaged by looting resulting in a SASRIA insurance claim being lodged for damages and loss of income. Assessors have been appointed and repairs will take place as soon as possible. Shops that were not damaged will begin trading as soon as viably possible and the company has employed additional resources in Gauteng to assist with the management of its portfolio and the team. Non-core sales are being realised and vacant space is being let. Tower’s focus remains on using excess capital to reduce debt with its loan-to-value (LTV) target being below 40% in South Africa.

Tower’s near-term focus remains the leasing of vacancies in Gauteng, the sale of its non-core assets in Gauteng and KwaZulu-Natal, the completion of the redevelopment of the Old Cape Quarter, including the completion of the development of the fifty-five new residential units by the end of August 2021, and the unlocking of additional value and income growth in its Croatian portfolio through its shareholding in TPF International Limited.