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Growthpoint plunges over 16% after R4.3bn capital raise

Move surprises the market and some analysts
Image: Moneyweb

The share price of blue-chip South African real estate investment trust (Reit) Growthpoint Properties plunged over 16% on Thursday, after the group confirmed it had raised R4.3 billion in new capital through an oversubscribed placement.

Growthpoint initially announced plans for a R4 billion capital raise on the JSE after the market closed on Wednesday. It noted in a JSE Sens statement that the cash placing is linked to “authorised but unissued ordinary shares in the company, which would go to qualifying institutional investors”.

The country’s largest listed Reit said in a follow-up statement on Thursday that it had “successfully closed” the sizeable R4.3 billion equity raise, adding that the placement was 2.74 times oversubscribed.

This represents approximately 12% of Growthpoint’s existing issued ordinary share capital.

Commenting on the move, Growthpoint Group CEO Norbert Sasse said the company was “extremely pleased” with the success of the accelerated bookbuild, which “enjoyed robust demand particularly from offshore”.

Norbert Sasse, Group CEO of JSE-listed Growthpoint Properties. Image: Supplied

He noted: “Local support totalled 57% of the capital raise, with the balance coming from noteworthy international interest. It is encouraging to receive strong support from so many local and global investment institutions.”

Some analysts such as Keith McLachlan have questioned the move, raising concerns that it is dilutive for shareholders.

Growthpoint said that the capital raised in the bookbuild will go towards reducing leverage and to “maintain balance sheet strength” in support of operating flexibility and to undertake certain development and investment activities.

“This balance sheet strength will position the company well for growth opportunities that may arise in the future … Proceeds raised from the bookbuild will in part be used to repay the debt from Growthpoint’s subscription and partial cash offer for shares in Capital & Regional in December 2019,” it added.

Read: Growthpoint is not overpaying for Capital & Regional, says Sasse

“The capital raise is part of Growthpoint’s larger capital plan which includes cost and capital expenditure savings, partial retention of earnings through the Dividend Reinvestment Plan [DRIP] and dividend payout ratio of at least 75% of distributable income, which is compliant with SA Reit legislation,” the group noted.

It said the capital plan also includes a non-core asset disposal programme of between R1 billion and R1.5 billion in the current financial year.

As a result of the R4.3 billion placement, Growthpoint’s loan-to-value ratio, which was 43.9% at 30 June 2020, will decrease to approximately 41.5% on a pro-forma basis.

“My sense is that Growthpoint is trying to get ahead of the pack as capital is finite, certainly from a local market perspective… [But] our preference would have been to instead sell assets, even if at say between a 10% to 15% discount to book value, as opposed to raising equity at a deep discount to reported NAV [Net Asset Value],” said Craig Smith, head of research and property at Anchor Stockbrokers.

“The fact that disposals haven’t been executed in a meaningful way indicates that there is limited capital available for direct property acquisitions, or that there is still a wide gap between purchasers and sellers, which could suggest that book values [even after recent write downs] are still too high,” he added.

He noted that there was decent uptake from offshore offshore investors, which was “not surprising” given the range of international banks involved in the accelerated bookbuild.

“I think one can expect other Reits to potentially try come to market to raise equity to repair balance sheets in the face of the Covid-19 economic fallout,” added Smith.

Growthpoint’s share price slide on Thursday affected the Reit sector as a whole, which lost over 6% by the time markets closed. Industry peers Redefine Properties was down more than 8%, Hyprop down over 7% and Resilient Reit lost over 3%.

Growthpoint share price

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Agree with Keith McLachlan-rubbish forward yield, minimal affect on balance sheet, hugely dilutive.

Time for new and invigorated top management. Norbert and Estienne have done what they are capable of doing

This was a really pathetic decision and very disappointed in Growthpoint management. Who is their new master?! This is shocking for shareholders who have lost so much during this period.

And now they add insult to injury. Maybe it’s your time to leave Narberth.

Well nothing like property gurus hitting a wall on their high horses..

Suddenly actual skill is demanded to be a property portfolio manager

one spectacle to thank COVID for

Good for consumers

The populist, redistributive policies of the ANC have stolen the asset value and income of listed property companies. The redistributive municipal rates and taxes, the labour laws and militant unions, cadre-deployment and the resulting lack of service delivery, the cost of electricity combined with load-shedding, plus lockdown measures, destroy capital formation. Then they are still debating another crude, populist attack on property rights in parliament? The property sector is a barometer of the health of the economy and indicates the quality of collateral and assets in the banking system.

If I were the governor of the Reserve Bank, I would have sleepless nights. You guys at the Reserve Bank better be prepared and grease the bearings of the printing press and fill it up with jet-fuel while you have some time.

the managers and investors of these companies plus covid and the new future of work from home probably have more to do with the value adjustment.

I doubt that property companies with mainly factories and warehouses will have corrected as much?

there should never have been a tax advantage that would predictably create over indebtedness

Every ANC member in parliament, every Cosatu member working for the government and everybody working at SOEs and municipalities own these listed property companies in their pension funds. When these members of the Tripartite Alliance support the redistributive, vote-buying policies of the ANC, they are in fact siphoning off their own personal asset value in their pension funds and redistributing it among squatters in informal settlements. They are funding their policy of asset redistribution with the purchasing power of their own pension funds.

Consider the effect of the expropriation bill and redistributive policies. Then it becomes clear that members of the Tripartite Alliance sit in parliament to make laws that force them to steal from themselves.

Look at the downfall of Intu plc

It just kept digging deeper.
At one point I thought they were playing games, callinv the bluff, and I lost some money.

Ingu plc owned 17 of the best shopping malls in the uk and eu.

Capitalists have capitalized. Someone got screwed.

SA and the JSE is littered with this sort of thing.

Mamaparas.

End of comments.

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