Growth­point bets on UK re­cov­ery

Group en­ters talks to buy com­pany with re­tail ex­po­sure in smaller towns

Business Day - - FRONT PAGE - Alis­tair An­der­son Prop­erty Writer an­der­[email protected]­nesslive.co.za

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.

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