Hyprop Investments, the owner of landmark shopping centres like Joburg’s Rosebank Mall and Canal Walk in Cape Town, launched and closed an equity raise on the JSE on Tuesday in a surprise move that brought in R358 million.
It announced the equity raise at around 08h30, noting that the bookbuild would be issued under Hyprop’s general authority to issue shares for cash, as approved by shareholders at its annual general meeting (AGM) held on November 24, 2020.
In a JSE Sens update issued just before 13h30 the retail-focused property fund revealed that it had raised circa R358 million in the bookbuild. However, it did not say what the equity raise would be earmarked for.
Hyprop’s JSE sponsor Java Capital acted as the sole bookrunner for the equity raise.
“Shareholders are advised that the bookbuild is now closed, having raised [circa] R358 million at R28 per share by the issuance of 12 794 725 shares pursuant to the general authority to issue shares for cash,” Hyprop noted in its update.
“The book was oversubscribed at this level,” the fund added.
“Subject to approval by the JSE, listing and trading of the new Hyprop shares is expected to commence at 09h00 on Thursday, May 20, 2021,” it said.
The market reacted negatively to the equity raise, with Hyprop’s share price falling 4.65% to close at R27.90 on Tuesday. This is most likely due to the dilutionary impact of the capital raise.
Hyprop’s share price is flat year-to-date, up less than 1%. But the fund is trading at a sizeable discount to its net asset value (NAV). It current market cap is around R8.26 billion.
Despite being relatively small, the bookbuild came somewhat unexpectedly, considering the group not publicly touting an equity raise being on the cards.
Sum raised won't really make any large dent in LTV ratio, so this begs question why the placement? Maybe they need cash to settle Hystead debt – which isn't a bad idea given currency strength. But difference between R105 and R28 is truly staggering!
— Syd Vianello (@Siddels1000) May 11, 2021
However, the AGM decision (allowing for a possible equity raise) seems to have given Hyprop another card up its sleeve to bring down its debt level and loan-to-value (LTV) ratio in the face of lingering uncertainty around the future impact of the Covid-19 pandemic.
Market watchers believe the bookbuild could be a well-timed move by Hyprop’s management to take advantage of the stronger rand to pay down some of its debt linked to its European-based Hystead investment.
Hyprop however is yet to comment on the bookbuild’s allocation plans.
Commenting on Hyprop’s bookbuild, Kundayi Munzara, an executive director and portfolio manager at Sesfikile Capital, tells Moneyweb: “Although we would normally view any capital raise at a substantial circa 60% discount to NAV as negative for real estate investment trusts, context matters in this case.”
He notes that a key priority for many retail-biased property companies, locally and globally (including the likes of Unibail-Rodamco-Westfield in Europe and Macerich in US as), has been to repair over-geared balance sheets.
“Hyprop’s R358-milllion capital raise was limited by the company’s authority to issue up to approximately 12.8 million shares for cash,” he says
“We believe the company could have raised more [had they had the authority] to make a bigger dent in lowering its LTV,” adds Munzara.
“The current raise will marginally lower the LTV and will have minimal dilutive impact on the NAV per share. In addition, given Ikeja Mall [in Nigeria] seems to be taking longer than expected to dispose, we find the move a prudent one in the current environment,” he points out.
Hyprop’s share price fell by a further 1.83% on Wednesday, closing at R27.39.