Growthpoint bids for UK mall owner

JSE-listed company makes first foray into Brexit-weakened Britain

SA’s largest real estate company, Growthpoint Properties, will buy a controlling stake in UK shopping centre owner Capital & Regional in a deal worth R2.9bn. Growthpoint will pay 33p a share to acquire about 30.3% of Capital & Regional a 100% premium to the latter company’s share price as of September 10.

SA’s largest real estate company, Growthpoint Properties, will buy a controlling stake in UK shopping centre owner Capital & Regional in a deal worth R2.9bn as it launches an investment platform in Britain.

Growthpoint, which has property exposure worth close to R140bn spread across SA, Australia, Romania and Poland, is venturing into the UK for the first time while other funds steer clear of a region that has been drowning in Brexit uncertainty.

Growthpoint will pay 33p per share to acquire about 30.3% of Capital & Regional a 100% premium to the latter company’s share price as of September 10.

Growthpoint first announced in September that it was in talks, but no specific details about the deal were provided.

It would subscribe to acquire 311-million new Capital & Regional shares at 25p per share, which would leave Growthpoint holding about 51.2% of the company, as it looks to create an investment platform in the world’s fifth-largest economy.

It would be funded through a mix of debt and equity.

“There is a lot of value on offer in the UK. We are entering at a great point when perceptions around Brexit have weakened prices to very low levels. We feel that the UK is a very strong market which will rebound over time,” group CEO Norbert Sasse said.

A Brexit deal may take time to be implemented, but the underlying UK property market would continue to trade and to grow, he said.

“It’s not going to disappear into the North Sea overnight.”

Evan Robins, listed property manager of Old Mutual Investment Group’s Macro Solutions boutique, said Growthpoint’s takeover of Capital & Regional could prove to be a masterstroke.

“There is a lot of noise and negative perception around UK retail. It is the large malls which are struggling the most to compete with online retail and to manage tenant failures.

“Capital & Regional owns convenience retail, which is holding up. These malls charge lower rentals and their tenants have tended to perform quite well in recent months,” he said.

Robins said some critics may be unhappy with the premium that Growthpoint is paying for the stake in Capital & Regional but one could only judge its merits in a couple of years’ time.

“The deal looks good on paper but we need to see how it pans out. It could be a success like what they did in Australia but it could also be disappointing, as has been the case with some other funds which bought retail assets in the UK,” he said.

JSE-listed Rebosis Property Fund earlier in 2019 sold its investment in New Frontier, a UK mall owner, for a mere £40 (about R730), after buying the interest for R1.2bn in 2015. The investment lost all its value after the company began to trade at a huge discount to net asset value.

Sasse said Capital & Regional’s management team would be kept in place and it would continue to be listed on the JSE and in London. The deal meant as much as 34% of Growthpoint’s assets would be offshore.

“Right now people may say the UK economy is struggling but I think the SA economy is doing relatively worse,” he said.