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Johannesburg - UK property group Capital Shopping Centres (CSC) on Friday announced revised terms for its proposed acquisition of leading UK shopping mall the Trafford Centre.
The company published a circular to shareholders setting out its view of the strong prospects for an independent CSC, why it believes the indicative proposal from Simon Property Group received on December 15 substantially undervalues the company and its prospects, and why shareholders should vote in favour of the revised acquisition.
CSC said the board has identified significant incremental value opportunities, which imply a total potential net asset value of 536 pence per CSC share following the revised acquisition.
In addition, DTZ has independently identified a further potential 89p/share of value that they believe would be appropriate for a purchaser of the portfolio as a whole to pay, given the unique and strategic nature of CSC's shopping centres. This corresponds to a potential net asset value of up to 625p/CSC share.
In term of the revised acquisition, the CSC shares being issued in respect of the Trafford Centre are being issued based on a higher price of 400p/share rather than the 368p/share originally agreed.
As a result, the number of shares Peel will receive has reduced from 224.1 million shares to 205.9 million shares - on a fully diluted basis a reduction of 18.2 million shares.
Peel's resultant holding in CSC will reduce to 23.2% of CSC's enlarged issued share capital on a fully diluted basis from a previous 24.7%, with Peel's initial ordinary shareholding remaining at 19.8%.
The company said CSC is poised for strong growth prospects.
"CSC is poised for net rental income recovery which is the key driver of growth in earnings and dividends. The company has substantial reversionary potential with the current independent valuers' estimated rental value (ERV) of £355m compared to a passing rent and other income of £289m," CSC said.
In addition, CSC has potential to increase rental levels beyond the ERV from the limited amount of potential supply in the next few years of prime regional shopping centre space. This is due to planning and economic factors and rising demand for CSC's large flagship stores and catering space, as realised through new lettings achieved in 2010, it said.
It also stands to benefit from the structural shift in shopping patterns towards large centres with a strong catering and leisure offer and the growth prospects for new space such as St David's, Cardiff and Eldon Square, Newcastle which were opened during the recent economic downturn, as well as the contribution of expertise and complementary skills from Peel to further enhance CSC's prospects, combining best practices across CSC and the Trafford Centre and the management of shopping centres as destinations in their own right.
EGM to decide on acquisition
Like-for-like net rental income grew consistently until 2007, with an annualised compound growth rate of 5.5% per annum between 2000 and 2007.
The resilience of CSC's rental income was demonstrated by the performance in the difficult retail environment of 2008 and 2009 which saw like-for-like NRI falls of only 4.3% in 2008 and 3.4% in 2009, recovering to a fall of only 0.4% in H1 2010, with the market now projecting positive growth. Occupancy has now been restored to around 99%.
CSC said Simon's proposal substantially undervalues CSC. The property sector is barely a year past the largest decline in commercial property values that the UK has seen in decades.
Even if CSC's portfolio were to revalue to no better than the mid-cycle average observed since 2000, with no allowance being made for inflation, this would offer value upside of £775m or 87p/CSC share.
CSC has identified significant and tangible active asset management and development opportunities amounting to £279m, or 30p/CSC share, of undiscounted value creation.
Taking into account the scale and quality of CSC's portfolio, and in the context of a highly regulated planning environment with a limited existing pipeline in the UK, DTZ considers that CSC's assets would warrant a premium of 12.5 to 16.0% over the total of the individual property valuations if disposed as a portfolio on the open market today.
Applying a 12.5% premium would increase the value of CSC's portfolio by £801m or 89p/CSC share.
Including the Trafford Centre, DTZ estimates the premium to be between 12.5 to 16.0%; without the Trafford Centre, the premium is estimated to be between 11.0 to 14.5%, CSC noted.
CSC said its board believes that the group, having come through an economic period which has proved difficult for the entire UK property sector, is now strongly positioned for income and value growth which will be to the benefit of all shareholders.
The board, which has been advised by Merrill Lynch International and UBS Limited, said it considers the indicative proposal substantially undervalues CSC and its prospects.
It recommends that shareholders vote in favour of the Trafford Centre acquisition, now on revised terms, at the forthcoming adjourned extraordinary general meeting scheduled for January 26.
The company published a circular to shareholders setting out its view of the strong prospects for an independent CSC, why it believes the indicative proposal from Simon Property Group received on December 15 substantially undervalues the company and its prospects, and why shareholders should vote in favour of the revised acquisition.
CSC said the board has identified significant incremental value opportunities, which imply a total potential net asset value of 536 pence per CSC share following the revised acquisition.
In addition, DTZ has independently identified a further potential 89p/share of value that they believe would be appropriate for a purchaser of the portfolio as a whole to pay, given the unique and strategic nature of CSC's shopping centres. This corresponds to a potential net asset value of up to 625p/CSC share.
In term of the revised acquisition, the CSC shares being issued in respect of the Trafford Centre are being issued based on a higher price of 400p/share rather than the 368p/share originally agreed.
As a result, the number of shares Peel will receive has reduced from 224.1 million shares to 205.9 million shares - on a fully diluted basis a reduction of 18.2 million shares.
Peel's resultant holding in CSC will reduce to 23.2% of CSC's enlarged issued share capital on a fully diluted basis from a previous 24.7%, with Peel's initial ordinary shareholding remaining at 19.8%.
The company said CSC is poised for strong growth prospects.
"CSC is poised for net rental income recovery which is the key driver of growth in earnings and dividends. The company has substantial reversionary potential with the current independent valuers' estimated rental value (ERV) of £355m compared to a passing rent and other income of £289m," CSC said.
In addition, CSC has potential to increase rental levels beyond the ERV from the limited amount of potential supply in the next few years of prime regional shopping centre space. This is due to planning and economic factors and rising demand for CSC's large flagship stores and catering space, as realised through new lettings achieved in 2010, it said.
It also stands to benefit from the structural shift in shopping patterns towards large centres with a strong catering and leisure offer and the growth prospects for new space such as St David's, Cardiff and Eldon Square, Newcastle which were opened during the recent economic downturn, as well as the contribution of expertise and complementary skills from Peel to further enhance CSC's prospects, combining best practices across CSC and the Trafford Centre and the management of shopping centres as destinations in their own right.
EGM to decide on acquisition
Like-for-like net rental income grew consistently until 2007, with an annualised compound growth rate of 5.5% per annum between 2000 and 2007.
The resilience of CSC's rental income was demonstrated by the performance in the difficult retail environment of 2008 and 2009 which saw like-for-like NRI falls of only 4.3% in 2008 and 3.4% in 2009, recovering to a fall of only 0.4% in H1 2010, with the market now projecting positive growth. Occupancy has now been restored to around 99%.
CSC said Simon's proposal substantially undervalues CSC. The property sector is barely a year past the largest decline in commercial property values that the UK has seen in decades.
Even if CSC's portfolio were to revalue to no better than the mid-cycle average observed since 2000, with no allowance being made for inflation, this would offer value upside of £775m or 87p/CSC share.
CSC has identified significant and tangible active asset management and development opportunities amounting to £279m, or 30p/CSC share, of undiscounted value creation.
Taking into account the scale and quality of CSC's portfolio, and in the context of a highly regulated planning environment with a limited existing pipeline in the UK, DTZ considers that CSC's assets would warrant a premium of 12.5 to 16.0% over the total of the individual property valuations if disposed as a portfolio on the open market today.
Applying a 12.5% premium would increase the value of CSC's portfolio by £801m or 89p/CSC share.
Including the Trafford Centre, DTZ estimates the premium to be between 12.5 to 16.0%; without the Trafford Centre, the premium is estimated to be between 11.0 to 14.5%, CSC noted.
CSC said its board believes that the group, having come through an economic period which has proved difficult for the entire UK property sector, is now strongly positioned for income and value growth which will be to the benefit of all shareholders.
The board, which has been advised by Merrill Lynch International and UBS Limited, said it considers the indicative proposal substantially undervalues CSC and its prospects.
It recommends that shareholders vote in favour of the Trafford Centre acquisition, now on revised terms, at the forthcoming adjourned extraordinary general meeting scheduled for January 26.
