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The share price of top South African real estate investment trust (Reit) Growthpoint Properties plunged more than 13% at noon Thursday, after the group confirmed that it had raised R4.3 billion in new capital through an oversubscribed placement.
Growthpoint initially announced plans for a capital increase of R4 billion on the JSE after the market closed on Wednesday. In a statement from JSE Sens, it noted that the cash placement is tied to “authorized but not issued common shares of the company, which would go to qualified institutional investors.”
Reit, which is listed on the country’s largest stock exchange, said in a follow-up statement Thursday that it had “successfully closed” the considerable capital increase of R4.3 billion, adding that the placement was 2.74 times more underwritten. .
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 satisfied” with the success of the accelerated book creation, which “enjoyed strong demand, especially overseas.”
Norbert Sasse, CEO of the Growthpoint group of JSE-listed properties. Image: supplied
He noted: “Local support totaled 57% of capital raising, with the balance coming from notable 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 and expressed concern that it will dilute shareholders.
The Growthpoint share issue will place 10% of your shares, but will only reduce 2% of your debt. So it’s pretty obvious that it’s massively thinner. Combine that with a collapse in your payout rate (100% ~ at least 75%) and the future performance looks pretty crappy.
– Keith McLachlan (@keithmclachlan) November 12, 2020
Growthpoint said the capital raised in the book construction will go towards reducing leverage and “keeping the balance sheet strong” in support of operational flexibility and to undertake certain development and investment activities.
“This strong balance sheet will position the company well for growth opportunities that may arise in the future … Revenues raised from book construction will be used in part to pay down the debt from the Growthpoint subscription and the cash offering. partial by Capital & Regional shares in December 2019 ”, he added.
Read: Growthpoint isn’t overpaying for Capital & Regional, says Sasse
“The capital increase is part of Growthpoint’s larger capital plan that includes cost savings and capital expenditures, partial retention of earnings through the Dividend Reinvestment Plan. [DRIP] and a dividend payment index of at least 75% of distributable income, which complies with SA Reit legislation, ”the group said.
He said that the capital plan also includes a non-core asset disposal program 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% as of June 30, 2020, will be reduced to approximately 41.5% on a pro forma basis.
“My feeling is that Growthpoint is trying to get ahead of the rest as finite capital, certainly from a local market perspective … [But] our preference would have been to sell assets, even if, for example, a 10-15% discount on book value, rather than [a] deeply discounted capital increase, “said Craig Smith, director of research and ownership at Anchor Stockbrokers.
He noted that there was a decent buy-in from offshore investors given the difference of international banks involved in the capital increase.
“I think one can expect other Reits to try to hit the market to raise capital and repair balance sheets in the face of the economic fallout from Covid-19,” Smith added.
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