Growthpoint may sell the minority shareholding NewRiver Reit it stands to receive after recently conditionally agreeing to sell its 69% stake in Capital & Regional as the JSE-listed property investment company seeks to simplify its business.
Growthpoint said on September 25 the deal was part of a broader transaction in which NewRiver made a full takeover offer for Capital & Regional for about £147m (about R3.4bn), or 62.5p a share.
The purchase price, to be paid in cash and NewRiver shares, would see Growthpoint receive £50.7m in cash and 67.4-million new NewRiver shares, amounting to a stake of about 14%.
Growthpoint CEO, Nobert Sasse told Business Day the group was evaluating its options regarding the NewRiver shares.
“The 14% minority shareholding in NewRiver does not align with our core strategy of holding controlling interests in our underlying investments, and we may consider exiting this investment in due course, to continue simplifying our business and with the benefit of bringing down our gearing and loan-to-value ratio,” Sasse said.
The group initially invested in Capital & Regional in 2019.
Despite the potential divestment from the UK market, Sasse said Growthpoint strongly believed in its in Growthpoint Properties Australia and would continue to support it.
“We also have a 29.5% interest in AIM-listed Globalworth Real Estate Investments, where we continue to evaluate all options to maximise value from this investment,” Sasse said.
Growthpoint reported a 10.3% decline in distributable income for the year ended June 30 compared with a year earlier, which it blamed on higher funding costs in Europe and a reduced dividend from Growthpoint Australia, even as most SA Reits delivered a positive performance.
The company forecasts a further 2%-5% decrease in distributable income per share for 2025.
Growthpoint regards Capital & Regional as attractive with a high-quality portfolio of assets and strong prospects, though the investment was identified by as noncore.
NewRiver shares were trading at about 74.5p at the time of it making the offer for Capital & Regional and have since increased to about 80p.
Naeem Tilly, head of research and portfolio manager at Sesfikile Capital, said Growthpoint had grown rapidly over the past 20 years, with its portfolio now consisting of the SA business, the V&A Waterfront, Growthpoint Australia, Globalworth, Capital & Regional and its third-party asset management business.
“In our view, the resultant size and complexity hasn’t allowed Growthpoint the necessary focus on its core SA business and furthermore dilutes any positive impact that they are able to achieve. The sale of Capital & Regional allowed the company to begin simplifying its group structure while providing some cash to improve its balance sheet,” Tilly said.
Capital & Regional’s portfolio had performed well since Covid-19 though the loss of its CEO Lawrence Hutchings was a significant setback, Tilly said. In addition, further capital investment to rejuvenate the portfolio might have posed a challenge for Growthpoint, which saw its group loan-to-value (LTV) ratio rise to 42.3% by June 30, 2024.
“In addition to simplifying its group structure, the cash received (£50.7m) on the sale would improve its LTV to 41%. Given the liquidity of New River shares, Growthpoint could reduce its stake or exit it entirely should it wish too, Tilly said.
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