Norbert Sasse, Group CEO of SA’s largest primary JSE-listed property fund Growthpoint Properties, insists that the company is not overpaying for a controlling stake in UK-based Capital & Regional.
The group’s R2.9 billion bid – made up of a partial cash offer to existing shareholders and a subscription of new shares in Capital & Regional – will effectively give Growthpoint a 51.2% stake in the shopping centre landlord.
Sasse tells Moneyweb that Growthpoint has secured majority support from Capital & Regional’s shareholders for the partial cash offer, which now makes the deal unconditional. This comes after the UK fund announced last Thursday that more than 97% of its shareholders voted in favour of Growthpoint’s offer.
As part of the partial cash offer component of the deal, Growthpoint offered existing Capital & Regional shareholders 33 (UK) pence per share, which represents a 100% premium to the fund’s share price on September 10. The subscription component of the deal will see Growthpoint acquiring new shares in Capital & Regional as part of a capital raise at 25 pence per share.
“We presented an attractive offer to them, but I don’t think Growthpoint is overpaying for the controlling stake,” says Sasse. “You’ve got to appreciate that this is a complicated transaction, so you can’t just look at what Capital & Regional’s share price was trading at.”
He says that while he is happy with the strong support Growthpoint has received for the offer, Capital & Regional’s shareholders had to not only vote on the partial cash offer but also on issuing new shares in the group, which meant diluting their shareholdings.
Concerns over Brexit, online retail growth
Some industry analysts, including Reitway Global’s chief investment officer Garreth Elston, have questioned whether Growthpoint may be overpaying for the controlling stake in Capital & Regional. Shopping centre-focused property funds in the UK have been particularly badly affected by uncertainty around Brexit and the growth in online retail in the country.
Speaking to Moneyweb in October when Growthpoint officially proposed the offer, Elston said he was not convinced that UK’s retail fall had reached the bottom. He also raised concerns that the UK’s economic growth may slow further.
Sasse, however, says the UK will remain a major economy and believes there is upside long-term value for Growthpoint to invest in the country.
“This is our first foray into the UK, but I must emphasise it is also in line with Growthpoint’s internationalisation strategy.
“We have gone about this in a disciplined way and are not betting the house to make this UK acquisition. It is not a £1 billion deal and is relatively small, at £150 million [around R2.9 billion],” he explains.
‘The right time’
“We believe that we are coming in at the right time into the UK. We want to replicate what we achieved in Australia here in the UK. Growthpoint is investing for the longer term and we believe the UK convenience and commuter retail property sector offers value right now,” adds Sasse.
He says with the deal set to be finalised soon, Growthpoint will be looking at further acquisition opportunities in the UK.
“The focus has been on securing the Capital & Regional deal over the last six months, so it’s fair to say that we have not been actively looking at other acquisition opportunities. However, we want to scale up our presence in the UK over time, like we did with Growthpoint Properties Australia.”
The share subscription component of the deal will see some £75 million raised for Capital & Regional. As part of the overall deal, Growthpoint has agreed with the company that at least £50 million of the proceeds will be used to reduce debt and to fund capital expenditure.