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First property fund listing under REIT structure: Marc Edwards CEO, Tower Property Fund

Tower Property Fund lists next Friday.

HILTON TARRANT: The JSE’s newest listing will make its debut next Friday. Tower Property Fund will list under the new REIT structure and is being launched by Spire Property Group. Mark Edwards is chief executive of Tower.
   Mark, the million-dollar question – why list and why now?

MARC EDWARDS: Well, to raise capital. The access to capital on the unlisted side has been very difficult and last year, when we assembled the fund, we initially wanted to be unlisted for a while, but very quickly realised that the access to capital is in the market. And we needed to get back in.
   We were in before when we had Paramount Property Fund, and it’s what we know and what we return to. So we are quite excited to bring this portfolio of R1.65bn to market.

HILTON TARRANT: The volatility in the market at present is I guess not helping things too much?

MARC EDWARDS: No. We would have loved things to have been what they were six weeks ago. Things were going rosy up until kind of May 20, when the bonds started to go out, and the US got a bit twitchy. And then it’s been very, very volatile ever since.
   It seems to have settled down a little bit in the last two weeks with bonds coming back slightly. You know, we believe property is a long-term play. We are property players … and this is not an opportunistic fund. This is a long-term game for us, and…to factor that and to raise capital in various cycles – and we’ve probably picked the most difficult cycle to raise it in. But it’s going quite well, fortunately.

HILTON TARRANT: Twenty-seven properties in the portfolio, R1.65bn as you mentioned. What’s in the portfolio, what will investors be familiar with?

MARC EDWARDS: It’s got a nice mix of current listed assets and assets from the private sector. So 50% of it is made up of assets which are brand new to the market, two of which are rather iconic assets in the country. The first is Cape Quarter, which is a mixed-use development in Cape Town, a very large development in the new kind of CBD of Cape Town, which is moving towards the Waterfront quite rapidly. It’s located on Somerset Road in Greenpoint and is a mixed-use property with 50% commercial and 50% retail. It’s got the most successful Spar in it from an awards point of view in the country. Deloitte’s head office is in there for quite a few years and it’s a lovely trendy iconic centre in town.
   And then we are very excited to have obtained the Upper Grayston office block development in Sandton which was put together by private developers, a triple-A commercial office scheme of which we have two green-star rated properties. One is a five-star green-star property and one is soon to be a six green-star property, which is the highest rating offered by the Green Building Council of South Africa. And it’s an emphasis that we are placing a lot of our time on. One of our shareholders, Bruce Kerswill, started the Green Building Council of South Africa and this is an angle that we are looking to exploit in the small-cap sector of the market, mainly through occupancy cost reduction, but we are very fortunate to have those two assets which are green-star-rated in our fund. There are only about 30 of those assets in the country. So for a small cap like ourselves to get it is a great achievement.

HILTON TARRANT: Mark, 30% retail, 70% office at this point. Where do you see that settling at?

MARC EDWARDS: Ja, we are overweighted office, and our strategic intent is to bring that back to about 50% retail. We’ve got a pipeline in the near future of just over R1bn which we can bring on mainly for a combination of shares and cash. A lot of the smaller developers are seeing the opportunity that the REIT structure presents to come and partner with us. So we’d like to reduce that office exposure and bring some industrial into the fund as well.

HILTON TARRANT: And the yield that you are targeting?

MARC EDWARDS: We are coming to the market on Friday at a 9% forward yield and we’ve got 10.8% per annum growth. So it’s a pretty attractive offering.

HILTON TARRANT: Thanks to Mark Edwards. David, 9% forward yield?

DAVID SHAPIRO: Very attractive. I understand the properties. I think if you are happy with the properties – and I know where both of them are – I think they are OK. At 9% – brave man in this market.

HILTON TARRANT: Very, very brave.

DAVID SHAPIRO: Even I think today is another day when property trusts just keep coming down as bond yields go up.

HILTON TARRANT: Have you been to that Spar at the Cape Quarter?

DAVID SHAPIRO: I’m going to Cape Town next week, but I’m not sure I’ll be around there.

HILTON TARRANT: It’s one of the most amazing Spars…

DAVID SHAPIRO: I know it in holiday season – it’s very, very attractive, but I’m not sure what makes it a different Spar. You are a shopper, I’m not.

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