Growthpoint bets on UK recovery
Group enters talks to buy company with retail exposure in smaller towns
After seeing peers burnt in the Brexit turmoil, SA’s largest real estate group, Growthpoint Properties, is taking a bet on a UK recovery. The group has entered talks to buy Capital & Regional, a property company with retail exposure to convenience centres in smaller towns and cities, including Blackburn, Hemel Hempstead, Ilford, Luton and Maidstone.
Despite seeing peers burnt in the Brexit turmoil, SA’s largest real estate group Growthpoint Properties is taking a bet on a UK recovery.
The group has entered talks to buy Capital & Regional, a property company with retail exposure to convenience centres in smaller towns and cities including Blackburn, Hemel Hempstead, Ilford, Luton and Maidstone.
The UK government is seemingly in turmoil while its parliament is suspended in the run-up to October 31, when it is scheduled to leave the EU.
The Brexit process, which began in 2016, has claimed highprofile SA victims.
Sisa Ngebulana’s Rebosis Property Fund recently exited UK-based New Frontier Properties, selling its 49.4% stake in the company for a mere £40 (about R730), after buying the interest for R1.2bn in 2015.
SA fast-food and restaurant group Famous Brands, which owns Wimpy and Steers, wrote down its investment in UK chain Gourmet Burger Kitchen by R874m in late 2018, about two years after investing in it.
Brait, in which retail magnate Christo Wiese holds a 35% interest, took a hit in the UK as its investment in high-street clothing retailer New Look turned sour, with its £783m investment having been written down to zero.
Growthpoint, which has a market capitalisation of R68bn and R134bn in assets in SA, Poland, Romania and Australia, said it wanted to take advantage of many UK-listed property companies trading at hugely inflated discounts to their net asset values.
Capital & Regional’s market capitalisation was about R2.4bn at the end of trade on Wednesday after its share price closed 7.42% higher at R3.33. Capital & Regional listed on the JSE in October 2015, but has had a disappointing performance on the Johannesburg bourse. The group’s share price has fallen 77% since then and closed at R3.33 at Wednesday’s close.
Growthpoint group CEO Norbert Sasse said talks were at an early stage between the companies and he could not reveal details yet, including how much the deal would be worth and how it would be funded.
“I can say that while we are primarily invested in SA, we are currently looking to move capital to places where it can give us better returns. These places include eastern Europe where we are already invested [in] Romania and Poland. We think Capital & Regional offers value.”
Evan Robins, a portfolio manager at Old Mutual Investment Group said Growthpoint’s proposed takeover of Capital & Regional could turn out to be highly profitable.
“I think what is key here is that Growthpoint would invest in convenience retail. Most of the problems have been at the higher end of UK retail, which competes with online more. Capital & Regional owns convenience malls with lower rentals, so tenants are not under so much pressure and people are still driving to do convenience shopping,” Robins said.
Growthpoint was investing at the bottom of a property cycle and not using a large amount of capital to do so, he said.
“Considering they are the largest listed property group on the JSE, with more than R130bn in assets, they are still being conservative with their capital if they buy Capital & Regional. There are risks but there are also risks at home.”
Meanwhile, Growthpoint, which released financial results for the year to June 2019 on Wednesday, grew its dividend 4.6% to 218.1c a share, marginally ahead of market guidance of 4.5%. This was the 16th year of dividend growth in Growthpoint’s history. It warned that its dividend would achieve nominal if any growth at all in the year to June 2020, largely because of pressure on rentals in its SA portfolio, and vacancies.