NewRiver REIT is weighing up a bid for shopping centre landlord Capital & Regional.
In a stock market release this morning, Capital & Regional revealed that it was aware that its majority shareholder Growthpoint Properties (which holds 68.13% of the company’s issued share capital) had received a preliminary expression of interest from NewRiver REIT in relation to a possible offer in cash and shares for Capital & Regional. No formal proposal has been made at this stage.
The board of Capital & Regional also confirmed press speculation that it had received a non-binding indicative proposal from Vukile Property Fund ( a retail-focused REIT operating in South Africa and Spain) regarding a possible cash and share offer for the company.
NewRiver REIT said that it believes that a combination with Capital & Regional would substantially accelerate its growth ambitions, whilst delivering significant value for both Capital & Regional and NewRiver shareholders and also maintaining its core operational expertise in retail real estate.
It added that it would be significantly accretive to its earnings and result in a pro-forma Loan to Value (LTV) ratio that is broadly in-line with its guidance.
NewRiver’s rationale for a potential bid is:
- Capital & Regional’s high quality and complementary portfolio: Capital & Regional’s portfolio comprises six community shopping centres predominantly located in London and South East England, let to essential and value-oriented retailers that would be highly complementary to NewRiver’s existing portfolio. NewRiver knows these assets well and believes that the disposal of non-core assets in recent years and the acquisition of The Gyle in Edinburgh in September 2023 have led to an improvement in the quality and complementary nature of Capital & Regional’s remaining portfolio. Against this real estate background, the Board believes that the financially accretive aspects of the combined business strategy can be readily achieved;
- Combination expected to unlock substantial cost synergies and deliver significant earnings accretion: NewRiver sees the opportunity to unlock substantial cost synergies, including the elimination of duplicative operational and public listing costs. NewRiver also anticipates income growth opportunities through active asset management. NewRiver expects the combination with Capital & Regional to deliver significant earnings accretion, enabling the Combined Group to pay a materially higher, covered dividend;
- Well-diversified portfolio with enhanced scale: the Combined Group would have a retail focused portfolio with a comparable yield profile, valued at c.£920m (comprising 42 assets), and assets under management of c.£1.7bn (comprising 63 assets) based upon the last reported figures for both companies. The combined portfolio would continue to benefit from a well-diversified and complementary tenant base with low levels of tenant concentration; and
- Increased trading liquidity: As a result of its enhanced scale, it is expected the Combined Group would benefit from increased share trading liquidity, enlarged index weightings, enhanced debt optionality and potential cost of capital improvements.