Johannesburg-listed real estate investment trust Growthpoint Properties said on Thursday it has reached agreement with Capital & Regional on the acquisition of a 51.2% stake in the UK shopping centre investor.
Under the proposed deal, Growthpoint will acquire both existing shares in Capital & Regional – equating to a 30.3% interest in the company – and subscribe to still-to-be-issued shares. On completion of the share issue, and together with the existing shares, Growthpoint will own a majority 51.2% interest in the UK REIT.
The first part of the investment involves Growthpoint buying 219,786,924 existing Capital & Regional shares at 33 pence per share in cash. The offer price represents a premium of around 100% to the closing price of Capital & Regional share of 16.5 pence on 10 September 2019, the day prior to the announcement of Growthpoint’s offer.
The proposed share issue – the second part of the investment - is aimed at raising around £77.9 mln (€90 mln), the bulk of which will be used to reduce leverage, with the remainder going towards funding Capital & Regional’s project pipeline in line with its community shopping centre strategy.
London-listed Capital & Regional currently owns seven shopping centres predominantly in London and the South East of England. It also owns and operates the Snozone Leisure Business. The firm’s consolidated property assets total approximately £764 mln in value. Besides its listing on the main market of the London Stock Exchange, the UK REIT also has a secondary listing on the main board of the Johannesburg Stock Exchange.
Commenting on the proposed transaction, Hugh Scott-Barrett, chairman of Capital & Regional, said he believed it provided ‘a transformational catalyst’ for the future growth of the company. ‘Not only does it provide a liquidity event for shareholders at a significant premium to the company’s share price prior to this announcement, it also delivers a cash injection of approximately £77.9 mln that de-risks the business and provides a long-term foundation for growth.
‘This puts Capital & Regional on the front foot by reducing leverage and allowing our strong management team to focus its full attention onto executing its strategy and implementing the roll out of its community centre asset management plan.’
Growthpoint describes its investment philosophy as investing into existing property platforms, whereby it backs existing management teams and provides them with ongoing access to capital to pursue growth opportunities. To date, it has provided around £1 bn of capital to companies and their management teams as part of this strategy.
The South African company said on Thursday it will support Capital & Regional ‘to acquire further assets in the UK retail market, taking advantage of current market conditions’.
However, it noted that Capital & Regional’s existing balance sheet ‘will need to be deleveraged more in line with Growthpoint’s existing treasury policy of between 35% and 45% LTV first in order to obtain the required financial flexibility and target an improved dividend pay-out level’.
Francois Marais, chairman of Growthpoint, said: ‘Growthpoint views its investment in Capital & Regional as an exciting next step in the execution of its internationalisation strategy.
‘Growthpoint’s strategic intent is to support the growth of Capital & Regional in the same way it has done following its investments in GOZ and GW. The result of Growthpoint’s investment in GOZ and GW was a significant improvement in profitability, growth in their property portfolios, both in size and quality, and a value uplift for shareholders.’
Capital & Regional is being advised on the transaction by Numis and JP Morgan Cazenove. Goldman Sachs International (GSI) is acting as financial adviser to Growthpoint.
The deal is expected to complete by the end of 2019.