31 May 2017
Annual Results Presentation
Tower Strategy 1
Financial Highlights 2
Operational Highlights 3
Tower at a Glance 4
Management Team 5
Financial Results 6
Financial Results 7
Borrowings 8
Operational Performance 9
Top 10 Properties By Value 10
Greening 11
Agrokor Update 12
Agrokor Update 13
Corporate Social Responsibility 14
Success Stories - Croatian 15
Success Stories - Cape Quarter 16
Success Stories - VMD 17
Developments - Napier Street 18
Developments - Piazza 19
Top 10 Shareholders 20
Additional Capital 21
Prospects 22
Link Hills | R220 million
Presentation Outline
Tower aims to generate competitive investment performance by adding value through local and international property asset management, acquiring properties in strong nodes with growth opportunities, selling properties which have reached the peak of their value and the cost-effective greening of its property portfolio resulting in lower operational expenditure and increased tenant retention.
Tower aims to expand its portfolio through management’s network of contacts throughout South Africa and abroad.
VMD Kvart | R411 million
Tower Strategy
• Base re-set in January 2017
• Re-set guidance of 80 cents – 82 cents per share for FY May 2017
• Distribution of 38.7 cents per share
• Decision not to pay out Agrokor arrears until finalised
• 16% reduction on corresponding period due to re-setting of the base and Agrokor arrears
• Headline earnings up 95% to R320 million
• Distributable earnings up 18% to R262 million
• Portfolio expanded to 49 properties
• Portfolio value of R5 billion
• Market capitalisation of R2.5 billion
• Loan-to-value of 39%
• Net asset value of R9.61 per share
• Nine properties currently for sale at >R515 million
Cape Quarter Square | R681 million
Financial Highlights
De Ville Retail Center | R245 million
• Internalisation of the asset management company
• Vacancies increased to 5.9% (SA 6.8%, Croatia 7%)
• WALE (portfolio) – 4.4 years
• WALE (SA) – 2.8 years
• Tenant retention ratio 90%
• Net operating cost ratio of 14% (gross of 29%)
• Acquisition of Agrokor portfolio of €66.4 million
Operational Highlights
Revenue
9%
42%
49%
RETAIL OFFICE INDUSTRIAL Sectoral Profile
Revenue
Geographic Profile
10%
39%
23%
28%
GAUTENG CROATIA WCAPE KZN
Property portfolio value: R5bn
Rentable area (GLA): 311 000m²
Occupancy rate (GLA) (July 2017): 94%
Gearing (LTV): 39%
(expected to reduce to 31% should sales materialize)
Average gross rental R108.08m2
Existing lease escalations 7.80%
Number of properties 49
Average property value R100m
1 2 3 4 5 6
Listing Q3 Q1 2014 Q1 2015 Q1 2016 Q1 2017Q2 Q2 Q2Q3 Q3 Q3Q4 Q4Q4Q4
Tower Asset Growth
%
Cost Evaluation
Tower at a glance
Marc Edwards
Chief Executive
Strategy, Acquisitions, Debt and Capital Raising
Johan Malherbe
Asset Manager
Western Cape, Structured Finance, Acquisitions and Strategy
Bruce Rogerson
Asset Manager
Gauteng and KwaZulu-Natal, Acquisitions and Disposals
Joanne Mabin
Chief Financial Officer
Financial Controls and Management
Meridijan | R232 million
Management Team
Condensed consolidated statement of profit and loss and other comprehensive income
Audited 12 months ended Audited 12 months ended
31 May 2017 31 May 2016
R'000 R'000
Revenue 447 341 376 451
Net property operating expenses (34 259) (30 733)
Net property rental and related income 413 082 345 718
Administration expenses (16 394) (23 946)
Other income 533 10 377
Impairment of goodwill (3 006) -
Foreign exchange gain/(loss) 63 874 (30 519 )
Net operating profit 458 089 301 630
Fair value adjustments 111 544 (18 137)
Profit from operations 569 633 283 493
Net finance costs (124 559 ) (115 040)
Indirect capital raising expenses (557 ) (894)
Profit before taxation 444 517 167 559
Taxation - -
Profit for the period 444 517 167 559
Other comprehensive income ( items that may subsequently be reclassified to profit and loss
Exchange difference on foreign operations (54 119) 42 968
Total comprehensive income for the period 390 398 210 527
Basic and diluted earnings per share ( weighted 129.8 67.1
average shares in issue (cents)
Financial Results
Condensed consolidated statement
of financial position Audited 12 months ended Audited 12 months ended
31 May 2017 31 May 2016
R’000 R’000
Assets
Non-current assets 4 690 991 3 945 530
Current assets 707 260 251 673
Total assets 5 398 251 4 197 203
Equity and liabilities Equity
Stated capital 3 035 344 2 236 244
Retained income 237 031 89 390
Foreign currency translation reserve (9 155) 41 949
Shareholders’ interest 3 263 220 2 367 583
Non-controlling interest 24 627 20 228
Total equity 3 287 847 2 387 811
Liabilities
Non-current liabilities
Secured financial liabilities 1 755 835 1 054 748
Current liabilities 354 569 754 644
Total equity and liabilities 5 398 251 4 197 203
Financial Results (continued)
Maximum targeted loan-to-value 40%
Current LTV 39%
Total borrowings R2bn*
Fixed debt 72%**
Weighted average rate 5.76%***
* 35% ZAR debt, 65% Euro debt
**ZAR debt 72%, Euro debt 72%
***ZAR debt 9.14%, Euro debt 3.91%
Sunclare | R248 million
Borrowings
Space let in the period 56 240m2
New space let 27 570m2
Renewable space let 28 670m2 Total vacant space (SA) 18 360m2 Total vacant space (Croatia) 7%*
* Excluding Konzum head lease (expected to be let by year end).
Vacant Monthly <May-18 <May-19 <May-20 <May-21 <May-22 <May-23 <May-24
Lease expiry profile by GLA per sector
0 5 10 15 20 25
%
Industrial Office Retail
Vacant Monthly <May-18 <May-19 <May-20 <May-21 <May-22 <May-23 <May-24
Lease expiry profile by Revenue per sector
0 5 10 15 20 25 30 35 40
%
Industrial Office Retail
Operational Performance
Property Sector Value (R) Location Cape Quarter Square Mixed use 682m Cape Town*
Sub City Retail 501m Dubrovnik, Croatia**
VMD KVART Office 414m Zagreb, Croatia**
Sunclare Office 248m Claremont
De Ville Retail/Office 245m Durbanville
Meridijan Retail 232m Zagreb, Croatia**
Link Hills Retail 220m Waterfall, KZN
Super Konzum Retail 195m Zagreb, Croatia**
Upper Grayston Office 178m Sandton
Cape Quarter Piazza Retail/Office 187m Cape Town
* Cape Quarter precinct, post sale of residential units, anticipated value in excess of R1.2 billion (Including development profit)
** at R14.89 to the Euro
Top 10 Properties By Value
• Total of 1.3 million kWhs per annum being generated from solar
• 1.9 million kWhs of lighting saved per annum
• Circa 2.9 million kgs of carbon off-set per year
• R4 million per annum saved as a result of green initiatives
• Cape Quarter awarded a 4 Star Green Star
“existing building” rating through the Green Building Council of South Africa
• Cost of all greening (solar and lighting) work undertaken since the start of the fund in 2016 is R15.36 million
• Total saving of 3.2 million kWhs which equates to R4 million p.a. (26% yield) and is equivalent to 608 cars being taken off the road
• Projects undertaken in the past financial year include: 308 Kent Road - PV solar, 32 Napier and Piazza - Green Star Rating
Cape Quarter Square | R682 million
Greening
Konzum
• Four retail centres acquired for €66 million
• Twelve-year triple net head lease from Konzum, guaranteed by Agrokor
• Agrokor is the leading food producer and retailer in Southeastern Europe
• Employs 65 000 people - accounts for 16%
of Croatian GDP
• Konzum is owned by Agrokor and anchors each centre
Sub City - Debrovnik | R501million
Agrokor Update
Konzum/Agrokor
• Konzum has 740 outlets in the Balkans
• Agrokor experienced an unforeseen business rescue in April 2017
• New law (“Lex Agrokor”) established to save the business due to its national importance
• Tower owed circa R10 million in rental arrears.
Decision not to pay out distribution until resolution
• Current rental up to date
• Konzum committed to ongoing rentals
Sub City - Debrovnik | R501million
Agrokor Update (continued)
• Ubuntu Trust
• The Ubuntu Football Academy offers intensive coaching, quality education and holistic mentorship to exceptional young football players over a
sustained period of six years (13-18 years)
• 65 children currently being placed through school (bursaries)
• Ubuntu has established its first school with 35 learners in January 2017
Corporate Social Responsibility
Croatia
• Portfolio valued at R1.4 billion
• GDP growth forecast to be 3% for 2017
• GDP growth driven by record tourism season, strong investment and a pick-up in consumption
• Unemployment has reduced from >17% in 2014 to a forecast 11% in 2017
• Agrokor business rescue has not had a marked effect on the economy
• Tower has strong relationships with leading businesses and banks in the region
Croatia Portfolio | R1.4 billion
Success Stories
Cape Quarter
• 1 400m² of new additional GLA added
• Tenant mix improved
• Trading densities increased by 6.2% year on year
• Footfall increase year on year of 15%
• 140 parking bays added from August 2017
• Value at completion of residential addition circa R1.2 billion
• Tenant retention 100%
Success Stories (continued)
VMD
• Increased value due to strengthening cap rates (reduced from 8.5% on acquisition to 7.25% in May 2017)
• Most energy-efficient office block in Croatia
• Compliments Tower’s green strategy
• Four-year head lease
• Fully let to blue chip tenants
• Rental up-tick from €13.50/m² to €14.50/m²
VMD Kvart | R414 million
Success Stories (continued)
Napier Street | R295 million (projected)
Napier Street
• Nineteen apartments in addition to two floors of retail and offices
• 140 parking bays
• Current asking prices circa R68 000/m² (ex VAT)
• Anticipated capital profits of R20 million
• Will add to footfall of Cape Quarter
Developments
Piazza
• At least 54 apartments in addition to existing retail and offices
• Municipal approval received in December 2016 for construction late 2017
• Will utilise units to best effect
• Capital profit of circa R110 million anticipated
• Value on completion: R414 million
Piazza | R414 million (projected)
Developments (continued)
Major Fund Managers
% holding 1 Allan Gray Asset Management 28.10
2 Bridge Fund Managers 17.27
3 Prescient Investment Management 14.92
4 Coronation Fund Managers 9.48
5 Personal Trust International 3.22 6 Sanlam Investment Management 2.07
7 Plexus Wealth 1.32
8 3 PM Investments 0.47
9 Momentum Wealth 0.44
10 Momentum Investments 0.40
VMD Kvart | R414 million
Top 10 Shareholders
• Napier Street R20 million*
• Piazza R110 million*
• Croatian asset spin off R80 million
• Re-financing debt
* Assumes current selling price remains achievable with no capital expenditure increase.
Additional Capital Profits
• A number of REIT’s reporting flat or negative growth
• Tower 2018 distribution growth of 6-8% p.a.
• Once-off capital profits anticipated in 6-30 months
• Capital profits to be re-invested - reducing debt (to circa 31%) or repurchasing shares which will add >7c to distributable earnings
• Croatian properties to be reversed into separate vehicle, focusing on off-shore acquisitions
• Continue to focus on redevelopment opportunities
• >R515 million anticipated from sale of non-core properties
• Additional savings through greening (solar, water and wastage)
*Assumes no major tenant failures and no large vacancies
Rosebank | R695 million (projected)
Prospects
towerpropertyfund.co.za
