Tower Property Fund, which owns properties in SA and Croatia, has sold a retail asset in the East European country as it tries to decrease euro-denominated debt it is struggling to finance.
The company has been under pressure from rising vacancies in its South African portfolio, which includes Woodlands office parks in Woodmead and Fourways.
“Tower is pleased to advise shareholders of the conclusion of an agreement to sell the Vukovarska retail property in Croatia at an 11% premium to its book value. Tower’s objective is to deliver growing total returns to shareholders by investing in properties in strong nodes with the potential to deliver value over the medium to long term,” the company said.
CEO Marc Edwards said Tower needed to recycle assets once they had reached their growth potential and there were opportunities to do so in Croatia.
Vukovarska was held via Tower Retail which is wholly owned by Tower’s subsidiary, TPF International.
TPF International is based in Mauritius and is 74% owned by Tower.
The disposal amount is 11% higher than Vukovarska’s most recent independent valuation of €11.2m (R207m), and reflects the strength and desirability of Tower’s Croatian assets, even amid the current market uncertainty, Edwards said.
Chief investment officer at Bridge Fund Managers, Ian Anderson, said the deal was highly beneficial to Tower.
“It’s a very good deal for Tower as it gives them the opportunity to reduce their gearing in Europe — something investors are extremely concerned about right now across the sector. While reducing euro-denominated debt is earnings dilutionary in the short term, it strengthens the balance sheet at a time when uncertainty is peaking and many investors are asking how far property prices could fall in a protracted economic downturn in Europe,” he said.
Tower said it would use its attributable portion, 74% of net proceeds of the disposal worth about €6.5m after settlement of the mortgage bond and other costs, to reduce this debt.
“Given the low cost of the euro debt, this will dilute distributable income. But it will strengthen Tower’s balance sheet and substantially reduce Tower’s currency-related risks, which the board considers a more pressing concern in the current environment,” Edwards said.
Tower and TPF International would continue to consider offers on properties which either become noncore to the business strategy or where funds could be more optimally deployed to the benefit of shareholders.