Tower Property Fund (Tower) has continued its acquisition spree, this time bulking up its industrial sector exposure by acquiring HTP Holdings which owns a property portfolio of eight industrial properties.
The transaction which is worth R190 million will see Tower, with a market capitalisation of R1.6 billion, raise its industrial sector exposure from 0.9% to approximately 12%.
HTP Holdings’ portfolio is valued at R375 million, with properties located in Gauteng (Edenvale, Isando, Johannesburg, Pretoria and Irene) and KwaZulu-Natal (three properties in Pinetown).
The properties fetch rentals of up to R65 per square metre and the largest property is 12 027 square metres in size. Tower will acquire the properties from HBW Group, a real estate company.
The latest acquisition will add to its property portfolio of 32 properties valued at a collective R2.2 billion. Some of the properties include the Western Cape’s De Ville Shopping Centre, Cape Quarter Square and more.
Cape Town based Tower says the acquisition is yield accretive and is in line with its strategy of growing its asset base with well-located and diversified properties throughout South Africa.
The acquisition is expected to be effective from April 1. In the interim, Tower will scramble its funding mix for the deal. Tower’s funding mix will include cash, issuing shares to HBW Group and embark on a private placement of shares to the market.
The real estate investment trust (REIT) will put down R3.7 million to the deal, issue 4.9 million shares to HBW Group and place 15.6 million shares at an issue price of R9.10 to the market in a bid to raise R142 million.
The acquisition is still subject to the approval by the Competition Commission – which is expected by “no later than May 29 2015.” Tower also needs to procure a bank guarantee up to a maximum of R185 million for the repayment of debt owed by HTP Holdings to Investec and Nedbank.
The industrial sector is seen as a strong sector, despite sluggish economic growth, a depreciating rand, structural issues including unstable electricity supply, labour unrest and a ballooning current account deficit, which has impacted the commercial property sector.
According to a recent IPD annual South African property index, which measures the total return of directly held property investments, overall sector total returns declined to 12.9% in 2014 from 15.9% in 2013.
The best performing sector for the year was industrial, netting total returns of 14.1%, followed by retail (13.3%) and the laggard being the office sector (12.1%).
Although the commercial property market is still recovering from the negative impact of the global financial crisis and a local economy that is not shooting the lights out, the sector is still amassing decent returns for investors.
Tower has been on an acquisition drive. It recently concluded the acquisition of a Johannesburg-based mixed-use building in Parktown for R80.5 million from the Alchemy Property Investments Trust. The 4 316 square metre property has both office and retail space and a weighted average rental per square metre of R153.
Tower also acquired an office block in Claremont, Cape Town also from HBW Group for R192 million. The office block’s location is considered to be a premier node, with the property being 14 786 square metres of rentable space, with the average rental per square metre of R105.
The property counter is also investigating residential opportunities within its portfolio. For now, its 20 327 square metre flagship mixed-use asset Cape Quarter precinct in Cape Town is showing a strong investment case for residential development.
CEO of Tower, Marc Edwards, told Moneyweb in the past that the company is now going into the value-add phase and making its portfolio work optimally.
“We are looking for pockets of spaces in our portfolio that is underdeveloped space. We have a lot of that at Cape Quarter,” Edwards said.