Tower Property Fund first to list on JSE under new REIT structure

REITs (Real Estate Investment Trusts) have been introduced in SA to bring the listed property sector in line with international standards and are tax advantaged investment vehicles that invest in, and derive their income from, income-producing property and distribute rental income to the holders of shares or units.

"By investing in REITs, investors are given exposure to a diversified portfolio of properties, which may be high-quality office, industrial and retail properties, in one investment," said Marc Edwards, CEO of the Tower Property Fund.

Tower was well received by investors and its shares rose from the initial offering of R8.70 to R10 per share on the first day of trading. The fund has benefitted from its REIT status as a number of smaller developers have placed their properties into the fund in exchange for shares to take advantage of the Capital Gains Tax Rollover relief they obtain.

The fund's property portfolio is diversified and consists of 27 properties worth R1.65 billion (comprising 30% retail and 70% offices), and includes the Cape Quarter complex in Green Point, Cape Town, and a five-star Green Star-rated office complex in Grayston Drive, Sandton.

Strong investment returns

"Tower aims to provide investors with strong investment returns, comprising a growing income stream and capital value. This will be achieved, firstly, by adding value through active property asset management and, secondly, through the cost-effective 'greening' of properties in the portfolio, which will result in reduced occupation costs for tenants and increased investment performance," said Edwards.

"Our investment strategy is to target acquisitions of medium-sized (R30 million to R200 million) properties, diversified across the retail, office and industrial sectors, and geographically across the major metropolitan areas. Competition for medium-sized properties is less intense, and well-located, good-quality, medium-sized properties provide a diversified earnings base, better yields, and, frequently, the opportunity to improve performance. However, larger properties will not be excluded where suitable opportunities arise.

"Properties acquired, and to be acquired, by Tower were and will be selected for their potential to generate and sustain strong rental income streams," explained Edwards. "Diversification is a key component of the company's investment strategy and is achieved through a geographic spread of properties across major urban centres, a mix of property types, a staggered lease-expiry profile, and the fund's active greening strategy."

According to Edwards, Towers' initial greening focus will be on improving energy efficiency, which will result in significant savings in electricity costs, thus making buildings more competitive and helping to "future proof" them against future rises in tariffs. Basic cost-effective energy and water savings measures that can be implemented at low or no cost will be applied immediately, while additional measures will be implemented over time as opportunities arise.

"We will be benchmarked against the Green Building Council of South Africa's 'Energy and Water Benchmarking Tool' and improvement in performance will be monitored and reported on. These measures will increase the competitiveness and values of buildings in Tower's portfolio over time."