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Tower Property Fund beefs up its office sector exposure

Company makes an acquisition in Cape Town for R192 million.

Tower Property Fund (Tower) has concluded an agreement to acquire an office block in Claremont, Cape Town from HBW Group for a purchase consideration of R192 million.

Tower, with a market capitalisation of R1.4 billion, said the office block has a diverse mix of tenants and low vacancies of below 1% – indicative of a strong investment case for the acquisition.

CEO of Tower Marc Edwards told Moneyweb that the latest acquisition will provide the counter with a solid office building in one of Cape Town’s premier office nodes.

“It is a well located property and people know it very well. There is a definite upside to the area and the property going forward,” Edwards said.

The property has 14 786 square metres of rentable space, with the average rental per square metre of R105. Edwards said the office block offers the property counter a rental yield of 9%. He added that neighbouring office properties in the area offer rentals of R190 per square metre.

Tower is not new to the Claremont area as, according to Edwards, the company used to manage a property in proximity to the latest transaction.

The acquisition will also be yield-enhancing for Tower as the company has noted that it will provide a “good quality source of income.”

The transaction will be settled in cash and still subject to Competition Commission approval.

Despite the office sector being under pressure, characterised largely by stagnant rental yields and high vacancies, Edwards said office sector opportunities are part of Tower’s strategy. “We are not scared of the office sector,” he said.

When the company listed in 2013 as a Real Estate Investment Trust (REIT), Edwards said the company reduced its retail exposure, which is now at 40%, with the balance mainly made up of the office sector.

“Our goal in the medium to long term is to get retail up to 50% and 50% for the office sector as well,” he said. The fund might investigate industrial sector opportunities.

The fund currently has 32 properties with a Western Cape bias. Some of its assets includes the De Ville Shopping Centre, which was purchased in April for R226 million – making it the second biggest property in its portfolio.

The shopping centre, located in Durbanville, has 2 500 square metres and 13 500 square metres of office and retail space respectively. The acquisition, Tower said at the time, was in line with its focus of targeting good quality and mid-sized commercial properties in the major metropolitan areas.

The biggest asset in its portfolio is the 20 327 square metre mixed-use development Cape Quarter Square with 50% of commercial and 50% of retail space.

Edwards said the fund has a R1 billion acquisition pipeline, as Tower targets a portfolio worth R3.5 billion by June, from its current R2.06 billion.

Tower’s shares were up 3.3% to R9.50 by 14:47 on Friday.

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