Ghost Bites (Exemplar REITail | Hyprop | Jubilee Metals | Ninety One | Primary Health Properties | Standard Bank | Tharisa | Zeder)

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Exemplar REITail wants to raise capital via a bookbuild (JSE: EXP)

A capital raise has become a rare sight on the JSE

Exemplar REITail wants to reduce its loan-to-value ratio and try to improve the spread of institutional holders. The problem is that the net asset value (NAV) per share was R14.10 at the end of February 2023 and the share price is R10.10, so any share issuance would be at a discount to NAV.

In this case, the company doesn’t seem too bothered by this. Minority shareholders won’t be thrilled, as the planned capital raise is a bookbuild process rather than a rights issue, so not every shareholder would be able to participate. I think it’s even worse when the raise is simply to reduce debt, especially when the current loan-to-value ratio of 36.3% isn’t even very high!

It’s not a small raise either, with a plan to issue up to 99,687,204 shares – a very precise indication indeed, especially since the circular doesn’t give an intended rand value! The issue price for the bookbuild is a discount of up to 10% to the 30-day VWAP calculated at a future point in time. If we just use the current price for simplicity, this is a raise of roughly R900 million by a company with a market cap of R3.4 billion. Shareholders who don’t get to participate in the bookbuild likely aren’t going to be happy about this.

The loan-to-value will be under 25% after this deal. The company doesn’t plan to stay there, as the headroom on the balance sheet would be used for further acquisitions.

In other words, instead of raising equity capital for a specific purpose, the management team wants to issue shares at a discount and effectively be given a blank cheque for further acquisitions. I’m quite happy to not be invested here.

Hyprop is acquiring Table Bay Mall (JSE: HYP)

This mall perfectly captures the semigration trend

Table Bay Mall is in Sunningdale, which is in the part of Cape Town that is growing really quickly and attracting many families from Gauteng. I have shopped there multiple times and I can tell you with confidence that this is a good asset.

I was less pleased to read in the Hyprop acquisition announcement that there are 5,000 to 7,500 residential units in the pipeline for the area over the next 5 – 10 years. The traffic simply isn’t going to cope.

Practical worries aside, Hyprop is investing in the right area and relatively early in the life cycle of this particular property. The deal is worth R1.625 billion and it will be settled in cash. Hyprop will use existing undrawn borrowing facilities and might use some of the proceeds from the pending dividend reinvestment programme.

After this deal, Hyprop’s loan-to-value ratio is expected to be around 40.3%.

Interestingly, the solar installation has been noted separately in the transaction, with a value of R23.3 million.

By now, you must be itching to know what the acquisition yield was. The net property income for the mall was R108.6 million for the year ended February 2023 and the projection for the next 12 months (i.e. 1 November 2023 to 31 October 2024) is R125.7 million. This puts it on a forward yield of 7.7%, so this was anything but a cheap transaction.

The price may seem high, but I do like the strategic nature of this property.

Separately, Hyprop announced that GCR Ratings has upgraded the credit rating on the Domestic Medium-Term Note Programme. The outlook for Hyprop is Stable according to the agency.

Jubilee Metals is awarded a slag project in Zambia (JSE: JBL)

This is a joint venture with Mopani Copper Mines

The large Mufulira Slag Project has been awarded to Jubilee Metals in the form of a joint venture with Mopani Copper Mines. There are 13 million tonnes of historical slag to be processed, estimated to contain 0.7% copper and 0.27% cobalt in addition to slag arisings. The copper grades within the slag are believed to be double those of standard tailings, so Jubilee is rather excited.

This is quite the project, as it requires the development of the processing solution and the raising of capital as well. At this stage, no numbers regarding future potential profits or returns have been provided.

Ninety One’s AUM continues to drop (JSE: N91)

This isn’t encouraging news ahead of the release of interim results

Ninety One has announced its assets under management (AUM) as at 30 September 2023. This has come in at £123.1 billion, below £124.8 billion at the end of June and £129.3 billion at the end of March this year. For a 12-month view, AUM was £132.3 billion as at the end of September 2022.

Results for the six months to September will be released on 15 November.

The JSE is getting a new listing (and this isn’t a typo) (JSE: PHP)

Primary Health Properties joins us from the UK

Brace yourself: there’s a new listing on the JSE. It’s an offshore REIT, which is perhaps predictable given the popularity of REITs on the JSE. Primary Health Properties (or PHP) is a healthcare REIT that derives 89% of its income from government bodies in the UK and Ireland. Unlike in South Africa, it’s likely that the government actually pays the rent in those countries.

Goodness knows that this isn’t the most exciting way to make money, but the dividend has increased for 27 consecutive years. The annual rent roll is £147.4 million off a property portfolio worth £2.783 billion, so that’s a yield of 5.3% before expenses and debt. Net overheads come to around 10.1% of gross rental income.

97% of the company’s debt is fixed or hedged for a weighted average period of just under seven years, so there’s some protection against this high interest rate environment. Still, low yielding European funds haven’t exactly been having fun, as this chart of the share price in London shows:

There is no capital raise as part of this listing, so this is simply the implementation of a secondary listing to try tap into the South African investor market to drive interest in the shares. It will be interesting to see whether local investors put much value on the defensive tenant base and the hard currency earnings, as this interest rate cycle isn’t finished dishing out pain.

Standard Bank keeps waving its flag (JSE: SBK)

The latest quarter is another strong result

Standard Bank releases a quarterly update to the market because the group needs to provide high level numbers to the Industrial and Commercial Bank of China (ICBC) to enable that entity to equity account its investment in Standard Bank.

This is great because we get more regular updates than would otherwise be the case.

For the first nine months of the year, earnings are up by 30% year-on-year. Both income and cost growth was slower in Q3 than the first six months, but the group still achieved positive JAWS (higher operating margin). The credit loss ratio for the nine months remains within the group’s target range of 70 to 100 basis points.

Over the nine months, the Africa regions contributed 44% to group headline earnings.

Chrome numbs the pain at Tharisa (JSE: THA)

The PGM numbers look really tough

For the year ended September 2023, chrome production was essentially flat at Tharisa and 6E PGM production fell sharply by 19.3%. That’s only the first part of the story. The other part, of course, is commodity pricing. Average chrome prices increased by 25.8% and average PGM prices fell 26.2%. The divergence between the commodities couldn’t be more stark.

This divergence has driven a decision to slow down the Karo Platinum Project, with the commissioning date pushed out 12 months to June 2025. The timeline can be accelerated if markets become more favourable for PGMs.

Production guidance for FY24 is for a flat or slightly higher production number for 6E PGMs, with chrome production expected to increase by as much as 14%.

The net cash position has decreased from $141.5 million at the end of June 2023 to $126.6 million.

The share price closed 5% lower after this update.

Zeder releases results and declares another dividend (JSE: ZED)

This dividend is the starter, with the future proceeds from Capespan as the main course

Zeder has been on a classic “value unlock” journey, which means selling off assets and returning cash to shareholders. This works when the share price is trading at a discount to net asset value (NAV) per share. Based on the results for the six months to August, the NAV per share is R2.62 and the share price closed 5.4% higher at R1.72. So, there’s still a gap.

To help close that gap, a special dividend of 10 cents per share has been declared. This is just a teaser for what is to come, as the company is selling Capespan (excluding the Pome Farming Unit) to 3 Sisters. Zeder holds 92.98% in Capespan and will receive R511 million in proceeds. On a market cap of R2.5 billion, that’s a decent chunk of money that has mostly been earmarked for a future distribution to shareholders.

Along with the Pome Farming Unit that is being retained, Zeder will then focus on growing the remaining investee companies. This makes it sound like much of the value unlock strategy has already played out, so it’s by no means a guarantee that the remaining discount to NAV will close.

Little Bites:

• Director dealings:
  • Guess what? Des de Beer has bought R2.7 million worth of shares in Lighthouse Properties (JSE: LTE).
  • The spouse of the CEO of Calgro M3 (JSE: CGR) has bought shares worth R270k.

• To assist with the successful implementation of the deal with the Government Employees Pension Fund, two non-executive directors of Attacq (JSE: ATT) will no longer be retiring this year as was previously communicated.

• enX Group (JSE: ENX) has renewed the cautionary announcement related to the possible disposal of the interest in Eqstra Investment Holdings. Negotiations are ongoing.

• The yield is tiny, but it’s still worth noting that holders of N shares in Prosus (JSE: PRX) will receive a 7 euro cents distribution in the form of a capital repayment. It is possible to elect to receive a dividend rather than a capital repayment instead, with different tax considerations.

• Delta Property Fund (JSE: DLT) is still in a fight for survival. It’s therefore good to see something positive out of the company, with Alex Phakati (who has loads of experience in the property sector) joining the board.

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