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TOWER PROPERTY FUND LIMITED - Disposal of Velica Gorica property in Croatia and update on COVID-19

Release Date: 01/06/2020 16:00
Code(s): TWR     PDF:  
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Disposal of Velica Gorica property in Croatia and update on COVID-19

TOWER PROPERTY FUND LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2012/066457/06)
JSE share code: TWR ISIN: ZAE000179040
(Approved as a REIT by the JSE)
(“Tower” or the “company”)


DISPOSAL OF VELICA GORICA PROPERTY IN CROATIA AND UPDATE ON COVID-19


1.    INTRODUCTION AND RATIONALE

      Tower is pleased to advise shareholders of the conclusion of an agreement to sell its Velica Gorica retail
      property in Zagreb, Croatia (the “property” or “Velica Gorica”) at its book value of Euro 9.1 million (the
      “disposal consideration”).

      As with the recently announced Vukovarska disposal, this disposal is line with Tower’s strategy of actively
      recycling assets which are considered to have reached their growth potential, and where Tower believes the
      sale proceeds could be better utilised elsewhere.

      Tower has been focused on strengthening its balance sheet, reducing its loan to value across the board, and
      particularly reducing Euro debt secured against its South African portfolio. In the SENS announcement
      dated 17 April 2020, we advised that post the receipt of our share of the proceeds from the disposal of
      Vukovarska Tower’s loan to value was expected to reduce to 38%. The application of the proceeds from the
      sale of Velica Gorica against Euro debt will further reduce the loan to value ratio of the company to 37%.

      The sale agreement has been concluded between Tower Europe Retail No. 2 d.o.o. (“Tower Retail”) and
      3D Real Estate No.1 d.o.o. (“3D Real Estate”). Tower Retail is a wholly-owned Croatian subsidiary of
      TPF International Limited (“TPF”), Tower’s Mauritian 74% owned subsidiary which houses Tower’s
      Croatian assets.

      Velica Gorica, which measures 15 741m2 in extent, with a GLA of 4 858m2, comprises a stand-alone Super
      Konzum with a small number of line shops linked to the property. The property was acquired in 2016 for
      €8.8 million and the disposal consideration represents a 7.5% yield.

2.    TERMS OF THE DISPOSAL AND CONDITIONS PRECEDENT

      The disposal is subject to certain conditions, including the cooperation of the seller with 3D Real Estate’s
      bankers and the final transfer of the property. The effective date of the disposal is the first day following
      payment of the full purchase price, which is expected to be in July 2020.

      The agreement in respect of the disposal contains warranties, undertakings and indemnities which are
      normal for a disposal of this nature.

3.    PROPERTY SPECIFIC INFORMATION

      Property name                                                      Zagreb superKonzum Velica Gorica
      Location                                                                            Zagreb, Croatia
      Sector                                                                                       Retail
      Total GLA (m2)                                                                              4 858m2
      Weighted average rental per m2 per month (€)                                              €11.73/m2
      Disposal consideration (€ million)                                                             €9.1
      Value attributed to the property (€ million)                                                   €9.1
      Net operating income (1 December 2018 – 30 November 2019) (€ million)                          €0.7
      Estimated transaction costs (€ million)                                                        €0.4
 
      The disposal consideration is considered to be in line with the fair market value of the property, as
      determined by the directors of the company. The directors of the company are not independent and are not
      registered as professional valuers or as professional associate valuers in terms of the Property Valuers
      Profession Act, No. 47 of 2000.

4.    CATEGORISATION OF THE DISPOSAL

      The disposal is classified as a category 2 transaction in terms of the JSE Listings Requirements and is not
      subject to approval by shareholders.

5.    SOUTH AFRICAN OPERATIONAL UPDATE – COVID-19

      Since the national lockdown commenced at midnight on 26 March 2020, Tower’s credit committee has
      met regularly in order to evaluate rental concession requests received from tenants. To date, Tower has
      approved rental concessions with a total value of R3.3 million (excluding value-added tax) for tenants most
      impacted by the lockdown (including, amongst others, coffee shops, restaurants, travel agents and event
      management businesses). A further R4.2 million (excluding value-added tax) of rental payments has been
      deferred for periods ranging from six to twelve months.

      Of the rental invoiced for April, Tower has collected 76% after rental concessions, and as at 25 May 2020,
      had received 61% of May’s rentals due, which represents an approximately 10% lower collection rate than
      at the same point in April. Sectoral collections for April and May are as follows:

      % collections
      Retail                                                               65%
      Office                                                               71%
      Industrial                                                           85%

6.    CROATIAN OPERATIONAL UPDATE – COVID-19

      Croatia’s lockdown measures have been gradually lifted over the past few weeks, with all businesses now
      permitted to trade. The Croatian rental income is billed monthly in arrears. Tower has collected 90% of the
      rental billed for April. The full May rental is not yet due.
      
      Tower has granted VMD a 15% rental reduction for April and May 2020 with regard to the head lease over
      the VMD Office Block in Zagreb. In addition, the company has offered Konzum, the head lease tenant of
      its retail portfolio, a rental reduction of 50% for the line stores under sublease for the same period, which
      offer has been accepted. Tower’s share of the total rental reduction granted to VMD and Konzum amounts
      to €108 321 and assists in ensuring that Tower’s properties retain a strong tenant mix. Essential services
      tenants, including the large supermarkets, are paying full rental over this period. From 1 June 2020 VMD
      and Konzum will pay full rental.

1 June 2020


Sponsor
Java Capital

Date: 01-06-2020 04:00:00
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