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DAVID FISCHEL is no doubt relieved United States real estate giant Simon Property Group has given up on its hostile overtures to buy Capital Shopping Centres (CSC), clearing an important hurdle in CSC’s bid for the £1,65bn (around R18,15bn) Trafford Centre in Manchester. However, the acquisition of the 190 000sq m trophy property is by no means a done deal. The CE of Britain’s largest mall owner would only know the outcome on 26 January, when shareholders voted on the Trafford acquisition.
But chances appeared favourable that more than 50% of CSC’s shareholders would approve the deal. That despite Simon – a 5,11% shareholder in CSC and the largest listed property company in the world, with a market cap of US$29,14bn (R201bn) – urging fellow CSC shareholders to vote against it. South Africans, including the 14% stake of the Donald Gordon family, control around 45% of CSC through its dual listing on the JSE.
Simon claims CSC is paying too much for Trafford, despite the recently revised offer from £1,6bn (R17,6bn) to £1,575bn (R17,325bn). The latter will be funded by a share issue, cash and convertible bonds to the Peel Group, the current owner of Trafford, which will see Peel become the biggest single shareholder in CSC with a 23,2% stake.
He says in a recent circular: “The Trafford transaction remains deeply unattractive for CSC shareholders, as it will transfer significant control of CSC to Peel, diluting existing shareholders’ stake in CSC.”
However, SA property analysts and fund managers say Simon’s claims are for the most part self-serving: any plans by Simon to to resume its takeover attempts will no doubt be more difficult and expensive once the Trafford deal is approved. English law allows Simon to make another offer for CSC in six months’ time.
Evan Robins, head of listed property at Old Mutual Investment Group, says Simon made some fair and some ill-founded criticisms that, on balance, they don’t support. “The Trafford acquisition may not be cheap and pricing can be debated but this is an uncommon opportunity to acquire a superior centre to any currently in the CSC portfolio. And the deal is for shares not cash.”
Robins notes Simon’s intentions to make an offer for CSC has in fact benefited CSC shareholders to the tune of R1bn. “Because of Simon, the capital-raising was done at a materially higher share price and the proposed Trafford centre acquisition was renegotiated at better terms.”
Stanlib is also in favour of the acquisition. “We believe Trafford is not only a great asset but also a scarce one, providing CSC with further critical mass and diversity,” says Stanlib’s head of property funds, Keillen Ndlovu.
CSC’s revised terms to acquire 100% of Trafford implies the centre will be bought at a nominal equivalent yield of around 5,8%, which isn’t too demanding, given the mall is rated as one of Britain’s four biggest and most valuable shopping centres, says Jamie Boyes, property analyst at Cape Town-based Catalyst Fund Managers. It also compares favourably with some of CSC’s existing retail assets, such as Lakeside at Thurrock and its other Manchester mall, The Arndale, which are currently trading at yields of 5,75% and 5,99% respectively.
The Trafford acquisition will bring CSC’s regional shopping centres in Britain to 14, boosting its net asset worth by 33% to £6,742bn (R74,162bn). Peel’s chairman – British billionaire and veteran entrepreneur John Whittaker (69) – will become deputy chairman and a non-executive director at CSC, bringing new expertise and gravitas to the CSC board.
Whittaker took the Peel group from a textile and farming company worth £200 000 (R2,2m) in 1971 to a transport infrastructure and property conglomerate with current assets approaching £6bn (R66bn).
CSC’s Fischel stresses just how rare opportunities are to buy existing regional shopping centres in Britain: no controlling stakes have changed hands in any one of Britain’s top 10 malls (in terms of size and value) over the past 10 years. It’s also difficult to obtain planning consent from the British government to build new out-of-town centres. In fact, Fischel says it took 12 years for the Peel group to obtain planning consent for Trafford.
The timing of the acquisition – barely a year past the largest decline in property values Britain has seen in decades – also appears favourable. The IPD shopping centre capital value index in Britain shows a decline in retail property values of 40% between 2006 and 2009. Fischel says although prices of shopping centres have since recovered somewhat, IPD capital values are still at 2002 levels, with 50% upside to return to pre-recession peak levels.
There’s also potential for strong rental recovery over the next five years that Fischel says will be driven by, among other things, a limited amount of new regional shopping space likely to come on stream, a steady recovery in retail spending and a structural shift in shopping patterns towards large centres with a strong food and leisure offering.
Trafford is particularly well placed to benefit from the latter trend. The centre – with its glam Romanesque architecture similar in style to Cape Town’s Canal Walk – has one of the largest food courts in Europe.
Key question is: Why sell such a prized asset to CSC, particularly at a 4,5% discount to its current market value? Peel’s Whittaker is adamant the deal isn’t a sell-out but rather a merger. And it increases Peel’s exposure from one regional mall to 14.
Analysts say CSC’s share price falling more than 10% so far this year – on the back of Simon withdrawing its takeover plans – signals a buying opportunity. It also seems a good time to take advantage of a strong rand and to secure a hard currency income, with CSC’s yield now around 4%.
But chances appeared favourable that more than 50% of CSC’s shareholders would approve the deal. That despite Simon – a 5,11% shareholder in CSC and the largest listed property company in the world, with a market cap of US$29,14bn (R201bn) – urging fellow CSC shareholders to vote against it. South Africans, including the 14% stake of the Donald Gordon family, control around 45% of CSC through its dual listing on the JSE.
Simon claims CSC is paying too much for Trafford, despite the recently revised offer from £1,6bn (R17,6bn) to £1,575bn (R17,325bn). The latter will be funded by a share issue, cash and convertible bonds to the Peel Group, the current owner of Trafford, which will see Peel become the biggest single shareholder in CSC with a 23,2% stake.
He says in a recent circular: “The Trafford transaction remains deeply unattractive for CSC shareholders, as it will transfer significant control of CSC to Peel, diluting existing shareholders’ stake in CSC.”
However, SA property analysts and fund managers say Simon’s claims are for the most part self-serving: any plans by Simon to to resume its takeover attempts will no doubt be more difficult and expensive once the Trafford deal is approved. English law allows Simon to make another offer for CSC in six months’ time.
Evan Robins, head of listed property at Old Mutual Investment Group, says Simon made some fair and some ill-founded criticisms that, on balance, they don’t support. “The Trafford acquisition may not be cheap and pricing can be debated but this is an uncommon opportunity to acquire a superior centre to any currently in the CSC portfolio. And the deal is for shares not cash.”
Robins notes Simon’s intentions to make an offer for CSC has in fact benefited CSC shareholders to the tune of R1bn. “Because of Simon, the capital-raising was done at a materially higher share price and the proposed Trafford centre acquisition was renegotiated at better terms.”
Stanlib is also in favour of the acquisition. “We believe Trafford is not only a great asset but also a scarce one, providing CSC with further critical mass and diversity,” says Stanlib’s head of property funds, Keillen Ndlovu.
CSC’s revised terms to acquire 100% of Trafford implies the centre will be bought at a nominal equivalent yield of around 5,8%, which isn’t too demanding, given the mall is rated as one of Britain’s four biggest and most valuable shopping centres, says Jamie Boyes, property analyst at Cape Town-based Catalyst Fund Managers. It also compares favourably with some of CSC’s existing retail assets, such as Lakeside at Thurrock and its other Manchester mall, The Arndale, which are currently trading at yields of 5,75% and 5,99% respectively.
The Trafford acquisition will bring CSC’s regional shopping centres in Britain to 14, boosting its net asset worth by 33% to £6,742bn (R74,162bn). Peel’s chairman – British billionaire and veteran entrepreneur John Whittaker (69) – will become deputy chairman and a non-executive director at CSC, bringing new expertise and gravitas to the CSC board.
Whittaker took the Peel group from a textile and farming company worth £200 000 (R2,2m) in 1971 to a transport infrastructure and property conglomerate with current assets approaching £6bn (R66bn).
CSC’s Fischel stresses just how rare opportunities are to buy existing regional shopping centres in Britain: no controlling stakes have changed hands in any one of Britain’s top 10 malls (in terms of size and value) over the past 10 years. It’s also difficult to obtain planning consent from the British government to build new out-of-town centres. In fact, Fischel says it took 12 years for the Peel group to obtain planning consent for Trafford.
The timing of the acquisition – barely a year past the largest decline in property values Britain has seen in decades – also appears favourable. The IPD shopping centre capital value index in Britain shows a decline in retail property values of 40% between 2006 and 2009. Fischel says although prices of shopping centres have since recovered somewhat, IPD capital values are still at 2002 levels, with 50% upside to return to pre-recession peak levels.
There’s also potential for strong rental recovery over the next five years that Fischel says will be driven by, among other things, a limited amount of new regional shopping space likely to come on stream, a steady recovery in retail spending and a structural shift in shopping patterns towards large centres with a strong food and leisure offering.
Trafford is particularly well placed to benefit from the latter trend. The centre – with its glam Romanesque architecture similar in style to Cape Town’s Canal Walk – has one of the largest food courts in Europe.
Key question is: Why sell such a prized asset to CSC, particularly at a 4,5% discount to its current market value? Peel’s Whittaker is adamant the deal isn’t a sell-out but rather a merger. And it increases Peel’s exposure from one regional mall to 14.
Analysts say CSC’s share price falling more than 10% so far this year – on the back of Simon withdrawing its takeover plans – signals a buying opportunity. It also seems a good time to take advantage of a strong rand and to secure a hard currency income, with CSC’s yield now around 4%.
