Shareholders of UK mall owner Capital & Regional have approved selling a controlling stake in the company to SA’s largest real estate company, Growthpoint Properties, for about R2.9bn.
Growthpoint group CEO Norbert Sasse said that the deal marks the company’s first foray into UK commercial property and that Brexit uncertainty has created opportunities for the R68.5bn JSE-listed powerhouse.
He said UK property prices have bottomed and are set to recover in 2020 after the Brexit process has been completed. Sasse said that even if a Brexit deal took a long time to be implemented, the underlying UK property market would continue to trade and to grow.
Shareholders voted 97.41% in favour of the proposed deal, in which Growthpoint will take just more than a 51% stake in the company. Votes cast during the general meeting on Tuesday represented just more than three-quarters of the company shares.
New shares
Under the deal, Growthpoint will pay 33p (about R6.28) per share to acquire about 30.2% of Capital & Regional. It is a 100% premium to the latter company’s share price on September 10, the day before the proposal was announced.
Growthpoint will also subscribe to acquire 311-million new Capital & Regional shares at 25p per share.
“It is very pleasing to see such strong shareholder support for the proposed transaction, endorsing the board’s view that this will provide a transformational catalyst for the future growth of Capital & Regional,” said chair Hugh Scott-Barrett.
In afternoon trade on Tuesday, Capital & Regional’s share price was up 2.8% to R5.50, a seven-month high. Since September 10, the company’s share price has risen 66.6%.
Large discount
Growthpoint, which has a market capitalisation of about R68.5bn and R134bn in assets in SA, Poland, Romania and Australia, wants to invest in Britain while many UK-listed property companies are trading at hugely inflated discounts to their net asset values.
Capital & Regional owns convenience centres in Blackburn, Hemel Hempstead, Ilford, Luton and Maidstone. Its asset portfolio is worth £797m (about R14.6bn) but its share price trades at a large discount to net asset value, with a market capitalisation of about R4bn.
Evan Robins, listed property manager of Old Mutual Investment Group’s Macro Solutions boutique, said Growthpoint’s takeover of Capital & Regional offers an interesting investment case but the price is far too high.
“They are paying a significant premium to where the market is, which I think changes the merits of the deal. It may not be such a large investment relative to others they have made but it is interesting because of what Capital & Regional owns, which is convenience retail,” he said.
Large shopping malls are struggling the most to compete with online retail and to manage changes in retail, but smaller centres are performing as normal, he said.
Peter Clark, a portfolio manager at Investec Asset Management, said convenience centres are holding up well in the UK economy.
“Retail properties have all been brushed with a similar stroke. However, it is all about specific assets at the end of the day. Convenience centres in dense catchment areas with the right access and good tenants should survive, although rentals may still need to be adjusted,” he said.
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