CAPITAL RAISE ROAD SHOW May 2016 1
PRESENTATION OUTLINE 1. Disclaimer 2. Tower History 3. Offer Summary 4. Executive Summary 5. Strategy 6. Management Team 7. Major Properties 8. Tower Post Konzum 9. Croatian Strategy 10. Agrokor Transaction 11. Agrokor Information 12. Croatia Retail Aquisition 13. Manco Internalisation 14. Benefits of Investing in Tower
DISCLAIMER This document has been prepared and issued by and is the sole responsibility of the management of Tower Property Fund Limited (the Company ) and its subsidiaries. No information made available in connection with this presentation may be passed on, copied, reproduced, in whole or in part, or otherwise disseminated, directly or indirectly, to any other person. The contents of this presentation are to be kept confidential. This document does not constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for, any securities of the Company nor shall it or any part of it nor the fact of its distribution form the basis of, or be relied on in connection with, any contract commitment or investment decision in relation thereto nor does it constitute a recommendation regarding the securities of the Company. Investors and prospective investors in securities of the Company are required to make their own independent investigation and appraisal of the business and financial condition of the Company and the nature of the securities. Any decision to purchase securities in the context of a proposed offering of securities, if any, should be made solely on the basis of information contained in an offering circular or prospectus published in relation to such an offering. This document and its contents are directed only at and may only be communicated in the United Kingdom to (i) persons who have professional experience in matters relating to investments falling within Article 19 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the FPO ), or (ii) high net worth entities and other persons to whom it can otherwise lawfully be communicated falling within Article 49(2)(a) to (d) of the FPO, all such persons in (i) and (ii) together being referred to as relevant persons. It is being made on a confidential basis and is furnished to such persons solely for their information. By accepting this material the recipient confirms that he or she is a relevant person. This document must not be acted on or relied on by persons who are not relevant persons. Any investment activity to which this communication relates is available only to relevant persons and will be engaged in only with relevant persons. Persons who are not relevant persons should not attend the presentation and should immediately return any materials relating to that meeting currently in their possession. Securities of the Company may not be offered or sold in the United States absent registration under the US Securities Act of 1933, as amended (the Securities Act ) or pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. No public offer of securities of the Company is being made in the United States. 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Subject to certain exceptions, securities of the Company may not be offered or sold within the United States, Canada, Australia or Japan or to any national, resident or citizen of Canada, Australia or Japan This presentation and any materials distributed in connection with this presentation may include certain forward-looking statements, beliefs or opinions, including statements with respect to the Company s business, financial condition and results of operations. These statements, which contain the words anticipate, believe, intend, estimate, expect, forecast and words of similar meaning, reflect the Directors beliefs and expectations and involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. No representation is made that any of these statements or forecasts will come to pass or that any forecast results will be achieved. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these statements and forecasts. Past performance of the Company cannot be relied on as a guide to future performance. Forward-looking statements speak only as at the date of this presentation and the Company expressly disclaims any obligations or undertaking to release any update of, or revisions to, any forward-looking statements in this presentation. No statement in this presentation is intended to be a profit forecast. As a result, you are cautioned not to place any undue reliance on such forward-looking statements. This document speaks as of the date hereof. No reliance may be placed for any purposes whatsoever on the information contained in this document or on its completeness, accuracy or fairness. This information is still in draft form and has not been legally verified. The financial information included herein is in draft form and unaudited. The Company, its advisers and each of their respective members, directors, officers and employees are under no obligation to update or keep current the information contained in this presentation, to correct any inaccuracies which may become apparent, or to publicly announce the result of any revision to the statements made herein except where they would be required to do so under applicable law, and any opinions expressed in them are subject to change without notice. No representation or warranty, express or implied, is given by the Company, or any of its subsidiary undertakings or affiliates or directors, officers or any other personas to the fairness, accuracy or completeness of the information or opinions contained in this presentation and no liability whatsoever for any loss howsoever arising from any use of this presentation or its contents otherwise arising in connection therewith is accepted by any such person in relation to such information. 1
TOWER HISTORY Assembled and managed by a team with decades of property experience (Spire and others) Spire founded Paramount Property Fund Spire founded the Green Building Council of South Africa Tower listed at the worst possible time with global macro economic instability. No significant balance sheet behind the company at listing Listing portfolio contained a number of B Grade assets Those assets have been sweated over time and now offer value with small properties being sold Current portfolio arguably the most attractive of the small cap funds Major shareholders are Allan Gray, Coronation, Stanlib, Grindrod, Nedgroup and Prescient 2
OFFER SUMMARY Issuer Tower Property Fund Year end 31 May Offer Primary issue to fund the acquistion of high quality Croatian Properties to diversify and enhance shareholder returns Private placement of up to R820m1 Offer price of R8.00 per share Pricing Includes dividend for the 6 months ending 31 May 2016 of 47.7 cents per share2 (effective issue price of R7.53) Guidance for the year ending 31 May 2017 is for a dividend of 97.5 cents per share assuming the Konzum and Manco acquisitions are effected3 Effective forward yield of 13% (10.8% based on core earnings of at least 81.5 cents per share4) NAV per share of R10.07 at 30 November 2015. Issue price of R8.00 is at a 20.6% discount to NAV Bookrunner Java Capital Timing General meeting at 10am on Tuesday, 24 May 2016. Offer to open shortly thereafter Notes: 1 Pro formas and forecasts have been prepared assuming R820m is raised by issuing 97.6 million shares at an issue price of R8.40 per share. 2 Midpoint of guidance provided (assuming Konzum transaction concluded). 3 These forecasts have not been audited or reviewed by Tower s auditors. 4 A maximum of R38 million or 16 cents per share can be utilised from a pool of value add profits and fees in order to achieve or exceed the growth forecast 3
EXECUTIVE SUMMARY July 2013, first new Real Estate Investment Trust Sectoral Profile by Revenue (Nov 2015) Geographic Profile by Revenue (Nov 2015) ( REIT ) to list on the JSE Market capitalisation R2.2bn1 Loan to value 39%1 NAV of R10.07 per share1 Portfolio of 48 properties valued at 4bn1 Forward yield >11.5% 20 000sqm of developable bulk available with some 35% Retail Revenue 10% Industrial 55% Office 44% Gauteng 14% KZN 34% Western Cape 8% Croatia currently being developed Note 1: As at 30 November 2015 4.5 4.0 3.5 3.0 Tower Asset Growth 2.5 2.0 Valuations 30 Nov 2015 2.0 1.5 1.0 0.5 Listing Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 4
STRATEGY Tower targets properties with sound fundamentals, strong cash flows and good growth potential Adds value through property asset management, developing bulk and the cost effective greening of properties Risk diversification through investing in South African and off-shore properties Targets mainly medium-sized (R80m to R300m) properties with a diversified sectoral and geographic spread 5
MANAGEMENT TEAM Marc Edwards Chief Executive Officer Strategy, acquisitions, debt and capital raising Bruce Kerswill Executive Director Strategy, Marketing and Greening Joanne Mabin Chief Financial Officer Financial controls and management Johan Malherbe Asset Manager Western Cape Keith Craddock Executive Director Financial, administration, property management Bruce Rogerson Asset Manager Gauteng and KwaZulu-Natal 6
MAJOR PROPERTIES PROPERTY LOCATION SECTOR VALUATION % OF PORTFOLIO VALUE GLA (SQM) VACANCY Cape Quarter Square Greenpoint, Cape Town Mixed Use 630 000 000 15.8% 21 350 0.0% VMD Kvart Zagreb, Croatia Office 380 000 000 9.5% 10 650 0.0% Link Hills Shopping Centre Waterfall, KZN Retail 230 000 000 5.8% 13 230 3.2% Sunclare Claremont, Cape Town Office 223 000 000 5.6% 14 900 1.3% De Ville Shopping Centre Durbanville, Cape Town Retail & Office 205 000 000 5.1% 13 470 0.0% Upper Grayston Sandton, Gauteng Office 175 000 000 4.4% 8 600 8.0% TOTALS 1 843 000 000 46.2% 82 200 1.6% 7
CAPE QUARTER Exciting opportunities with all sectors showing impressive growth New tenants incuding Jenny Morris and Bootleggers Deloitte grown into additional 800sqm Spar taking additional space Other major tenants include Pernod Ricard, Lindt, JWT, Uwe Koeter and Zone Fitness Successful greening initiatives showing excellent returns Development of 70 residential apartments (2016 to 2017) Addition of 130 basement bays at attractive yields Strong demand for rental apartments 8
VMD KVART VMD has attracted top office users in Zagreb, viz, National Bank of Croatia, Swiss Embassy, Unilever, Grey Worldwide and is currently negotiating with KPMG Rentals already showing growth as the remaining vacancies are taken up Short leases are signed in order to take advantage of positive reversions Due to its impressive green credentials VMD has the lowest operating costs and has no equal in Croatia 9
LINK HILLS SHOPPING CENTRE The centre is poised to take advantage of the growth being experienced in the Waterfall node following the completion of new road upgrades and extensions Watercrest Mall has dramatically changed the footfall to the area from which Link Hills benefits Greening initiatives are being considered in order to address operating cost reductions. 10
SUNCLARE Strong demand for offices in the Claremont node has provided Tower with the opportunity to increase rentals between 15% and 25% Tigers Milk is opening in June 2016 which will help to revitalise the area and provide turnover upside Greening opportunities exist with plans to introduce PV panels and lighting retrofits to reduce operating costs in order to remain competitive in the node. 11
DE VILLE SHOPPING CENTRE Anchored by Pick n Pay, Clicks and Virgin Active Fully let Recently completed greening initiatives reducing operating costs Under utilised roof space to be amended to GLA Change of Pick n Pay family store lease to corporate store 12
TOWER POST KONZUM Market capitalisation of R2.7bn Sectoral Profile by Revenue (Post Konzum) Geographic Profile by Revenue (Post Konzum) 51 properties valued at R5.1bn Portfolio GLA of 318 500sqm Occupancy of 97% LTV of 39% (SA debt fixed 130%) 30% of the portfolio diversified off-shore Average property size R100m. 48% Retail Sector 8% Industrial 44% Office 33% Gauteng 27% Western Cape 30% Croatia 10% KZN In 5.0 4.0 3.0 2.0 1.0 Tower Asset Growth Valuations 1 June 2016 Listing Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2015 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 13
CROATIAN STRATEGY Management, concerned with growth in South Africa, sought an off-shore presence Drawn to Croatia through management relationships Connectivity in the country is deep, leading management to the best possible opportunities Similar security to Western Europe from a tenancy perspective however still offering deeply discounted prices (for now) In August 2015, Tower acquired its first off-shore property, an effective 80% interest in the VMD KVART office block, in Zagreb, Croatia (rated A from a Croatian green perspective and was acquired on an 8.5% yield) Croatia is a European Union member state and has started to emerge from the recessionary years following the 2008 global financial crisis. Property values and rentals reduced dramatically during the recession and therefore present an excellent buying opportunity for the company Croatia finds itself at opposite ends of the property cycle to South Africa and therefore Tower s acquisitions in this country diversify shareholder risk to South African macroeconomic issues Tower has a strong local equity and management partner through VMD Grupa d.o.o. 14
AGROKOR TRANSACTION A transformative opportunity to acquire an attractive Croatian property portfolio for 66.6m (R1.13bn) Quality properties backed by 12-year triple net head lease from leading tenant in the region Weighted average monthly rental of 13.87/sqm (from 1 April 2016 to 31 March 2017) High trading densities per store (as high as R10 000/sqm/month) Lease escalations are indexed to Croatian inflation (assumed to be 2%), and exclude: Turnover rental payable by Konzum (based on predictions this should result in 4%-5% overall lease growth per annum) ; and Tower s pro rata share of possible increases following the re-letting of existing leases Average annualised property yield of 7.7% (from 1 April 2016 to 31 March 2017) Attractive funding costs of circa 4% Leverages off prior experience and existing relationships in the region 15
AGROKOR INFORMATION The Agrokor Group is the largest company in the Adriatic region, and since acquiring the Mercator business has also become the leading food retailer and wholesaler in the markets of Serbia, Slovenia and Montenegro, employing 60 000 people in over 2 000 stores Agrokor is the controlling shareholder of Konzum, the largest supermarket retailer in Croatia, Bosnia and Herzegovina. Konzum employs over 14 000 people in more than 740 stores in Croatia alone. Konzum is listed on the Croatian Stock exchange The properties are situated in prime locations, built to European standards and feature internationally renowned tenants: the Zagreb property and the Velika Gorica property are standalone superkonzum stores (equivalent to the South African Hypermarket stores) the Dubrovnik property and the Gračani property are shopping centres in which Konzum is the anchor tenant and other strong line shop tenants make up the balance Triple Net Leases (with 3 methods of growth) from Agrokor and Konzum for a period of 12 years will provide Tower with strong, defensible cash flows from an A grade counterparty A turnover clause on the Konzum tenancies provides the majority of the growth. 16
CROATIA RETAIL ACQUISITION Sub City, Dubrovnik PURCHASE PRICE: 28 746 000 (43% of portfolio value) CONSTRUCTED: 2015 GLA: 12 259sqm ANCHORS TENANTS: 8 915sqm (73%) KONZUM: GLA 2 834sqm (23%) H&M: GLA 2137sqm (17%) MULLER: GLA 2 410sqm (20%) NEW YORKER: GLA 1 071sqm (9%) DM: GLA 463sqm (4%) LOCATION: The shopping centre is located on the Adriatic Highway that links Dubrovnik airport and the world renowned Old City of Dubrovnik approximately 10km from the city. The centre is situated alongside the newly opened Sheraton Hotel on the coast of Croatia and borders on residential and commercial nodes with excellent visibility and access. 17
CROATIA RETAIL ACQUISITION (continued) Meridijan 16, Shopping Centre, Zagreb PURCHASE PRICE: 15 668 000 (24% of portfolio value) CONSTRUCTED: 2014 GLA: 9 362sqm ANCHOR: KONZUM GLA 2 943sqm (56% of the retail component), situated on the ground floor OTHER TENANTS: DM, Ghetaldus, Intersport, Mana, Farmacia, Zoo City, coffee bars, gym, outdoor football court and a ballet school LOCATION: Gracani is an up market residential area located in the northern part of the City with approximately 30 000 residents. Access and visibility is excellent from Gracanska Street, the main arterial road that passes the centre. 18
CROATIA RETAIL ACQUISITION (continued) Konzum Superstore, Vukovarska, Zagreb PURCHASE PRICE: 13 152 000 (20% of portfolio value) CONSTRUCTED: 1996 GLA: 3 223sqm ANCHOR: KONZUM GLA 2 858sqm (89%). This particular store produces an annual turnover of 10 000/sqm per annum which is equivalent to R15 000/sqm per month LOCATION: The property is located at a busy intersection in a commercial and industrial node in the South East of Zagreb. The node is close to a residential area with good access to public transport. 19
CROATIA RETAIL ACQUISITION (continued) Konzum Superstore, Velika Gorica PURCHASE PRICE: 8 810 000 (13% of portfolio value) CONSTRUCTED: 2006 GLA: 5 510sqm ANCHOR: KONZUM GLA 5 272sqm (95%) LOCATION: Velika Gorica is the most populous town in Zagreb County and is situated 16km South of Zagreb. The centre is located on a busy intersection in a residential, business and industrial area with excellent visibility and accessibility. 20
MANCO INTERNALISATION To align interests of management and shareholders Priced to be earnings neutral Independent fairness opinion undertaken showing the transaction as fair to shareholders 21
BENEFITS OF INVESTING IN TOWER Strong, well located local and international properties underpinned by predictable cash flows Conservative local debt with strong hedging. Excellent European debt rates showing significant positive gearing due to competitive Eastern European yields Experienced, internalised management (post Konzum transaction) with a reputation of delivering, irrespective as to market conditions International properties strengthened through key, in-country, management and equity partnerships Strong forward yield with re-rating potential Strong development and acquisition pipeline to enhance growth Major focus on greening to future proof properties Major properties expected to grow ahead of market. 22
www.towerpropertyfund.co.za 23 Interim Results for the period 30 November 2015