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You are here: Announcement

Friday 07 January, 2011


RNS Number : 0766Z
Capital Shopping Centres Group PLC
07 January 2011
 



NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART, IN, INTO, OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION

 

CAPITAL SHOPPING CENTRES GROUP PLC

7 January 2011

 

Capital Shopping Centres Group PLC

Announcement of Revised Trafford Centre Acquisition and Publication of CSC Circular

 

The Board of Capital Shopping Centres Group PLC (the "Company" or "CSC") is today announcing the terms of a revised Trafford Centre acquisition (the "Revised Acquisition") and is publishing a circular to shareholders (the "Circular") setting out its view of the strong prospects for an independent CSC, why it believes the indicative proposal from Simon Property Group, Inc. ("Simon") received on 15 December 2010 (the "Indicative Proposal") very substantially undervalues the Company and its prospects, and why shareholders should vote in favour of the Revised Acquisition.

The Board of CSC 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 89 pence per 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 625 pence per CSC share.

Revised Trafford Centre acquisition

The key terms of the Revised Acquisition are:

·      The CSC shares being issued in respect of The Trafford Centre are being issued based on a higher price of 400 pence per share rather than the 368 pence per 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 per cent. of CSC's enlarged issued share capital on a fully diluted basis (previously 24.7 per cent.), with Peel's initial ordinary shareholding remaining at 19.8 per cent.; and

·      The transaction is accretive to CSC's NAV per share.

Strong CSC growth prospects

CSC is poised for net rental income ("NRI") 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 £355 million compared to a passing rent and other income of £289 million.

In addition, CSC has potential to increase rental levels beyond the ERV from the following:

·      The very limited amount of potential supply in the next few years of prime regional shopping centre space due to planning and economic factors;

·      The rising demand for CSC's large flagship stores and catering space, as realised through new lettings achieved in 2010;

·      The structural shift in shopping patterns towards large centres with a strong catering and leisure offer;

·      The growth prospects for new space such as St David's, Cardiff and Eldon Square, Newcastle which were opened during the recent economic downturn; and

·      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.

Like-for-like net rental income grew consistently until 2007 with an annualised compound growth rate of 5.5 per cent. 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 per cent. in 2008 and 3.4 per cent. in 2009, recovering to a fall of only 0.4 per cent. in H1 2010, with the market now projecting positive growth. Occupancy has now been restored to around 99 per cent.

Simon's proposal very substantially undervalues CSC

CSC's potential net asset value of up to 625 pence per CSC share following the Revised Acquisition is calculated as follows:

·      Updated pro forma NAV per share (excluding retained profits since 30 June 2010) of 390 pence per CSC share(1), reflecting both an uplift in property valuations of 1.9 per cent. or £89 million on existing assets since the pro forma NAV of 375 pence per CSC share as set out in the combined circular and prospectus published by CSC on 26 November 2010, and the Revised Acquisition terms;

·      Adding back Stamp Duty Land Tax (SDLT) of 4 per cent., which has been deducted within CSC's stated property valuations and would not be payable by an acquirer of the Company as a whole - this corresponds to a further £256 million or 29 pence per CSC share and an aggregate value of 419 pence per CSC share;

·      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 £775 million or 87 pence per CSC share;

·      CSC has identified significant and tangible active asset management and development opportunities amounting to £279 million, or 30 pence per CSC share, of undiscounted value creation; and

·      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 per cent.(2) over the total of the individual property valuations if disposed as a portfolio on the open market today. Applying a 12.5 per cent. premium would increase the value of CSC's portfolio by £801 million or 89 pence per CSC share.

(1)   30 June 2010 NAV per share, pro forma for the Revised Acquisition, the Placing, updated CSC valuations to 31 December 2010 and additional advisory fees incurred since the Acquisition was announced

 

(2)   Including The Trafford Centre, DTZ estimates the premium to be between 12.5 to 16.0 per cent.; without The Trafford Centre the premium is estimated to be between 11.0 to 14.5 per cent.

Recommendation

The Board believes that CSC, 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 so advised by Merrill Lynch International ("Merrill Lynch") and UBS Limited ("UBS"), considers that, as outlined above, the Indicative Proposal very substantially undervalues CSC and its prospects and recommends that shareholders vote in favour of the Trafford Centre acquisition, now on revised terms, at the forthcoming adjourned EGM scheduled for 26 January 2011 (the "Adjourned EGM"). In providing advice to the Board, Merrill Lynch and UBS have taken into account the Board's commercial assessments.

Further details relating to the Revised Acquisition and the full text of the Chairman's letter incorporated in the Circular are attached as appendices to this announcement.

Shareholders will be sent further information and instructions in due course regarding the Adjourned EGM.

 

Contacts:

Capital Shopping Centres Group PLC:                              +44 (0)20 7887 4220

David Fischel               Chief Executive           

Matthew Roberts         Finance Director

Kate Bowyer               Investor Relations

Hudson Sandler (UK Public Relations)                               +44 (0)20 7796 4133

Michael Sandler

Wendy Baker

College Hill Associates (SA Public Relations)                    +27 (0)11 447 3030

Nicholas Williams

BofA Merrill Lynch                                                             +44 (0)20 7628 1000

Simon Mackenzie-Smith

Simon Fraser

Noah Bulkin

UBS Investment Bank                                                        +44 (0)20 7567 8000

Hew Glyn Davies

Jonathan Bewes

Liam Beere

Merrill Lynch International, which is authorised and regulated in the United Kingdom by the FSA, is acting exclusively for CSC and no one else in relation to the matters referred to in this announcement and will not be responsible to anyone other than CSC for providing the protections afforded to its clients or for providing advice in relation to the contents of this announcement.

UBS Limited is acting exclusively for CSC and no one else in relation to the matters referred to in this announcement and will not be responsible to anyone other than CSC for providing the protections afforded to its clients or for providing advice in relation to the contents of this announcement.

This announcement does not constitute a prospectus or prospectus equivalent document.

This announcement has been prepared for the purposes of complying with English law and the City Code on Takeovers and Mergers (the "Code") and the information disclosed may not be the same as that which would have been disclosed if this announcement had been prepared in accordance with the laws of jurisdictions outside the United Kingdom.

No statement in this announcement is intended to be a profit forecast and no statement in this announcement should be interpreted to mean that earnings per share of the Company for the current or future financial years would necessarily match or exceed the historical published earnings per share of the Company.

The release, publication or distribution of this announcement in certain jurisdictions may be restricted by law. Persons who are not resident in the United Kingdom or who are subject to other jurisdictions should inform themselves of, and observe, any applicable requirements.

This announcement contains statements about the Company that are or may be forward looking statements. All statements other than statements of historical facts included in this announcement may be forward looking statements. Without limitation, any statements preceded or followed by or that include the words "targets", "plans", "believes", "expects", "aims", "intends", "will", "may", "anticipates", "estimates", "projects" or words or terms of similar substance or the negative thereof, are forward looking statements. Forward looking statements include statements relating to the following: (i) future capital expenditures, expenses, revenues, earnings, synergies, economic performance, indebtedness, financial condition, dividend policy, losses and future prospects; (ii) business and management strategies and the expansion and growth of the Company's operations; and (iii) the effects of government regulation on the Company's business. Such forward looking statements involve risks and uncertainties that could significantly affect expected results and are based on certain key assumptions. Many factors could cause actual results to differ materially from those projected or implied in any forward looking statements. Due to such uncertainties and risks, readers are cautioned not to place undue reliance on such forward looking statements, which speak only as to the date hereof. The Company disclaims any obligation to update any forward looking or other statements contained herein, except as required by applicable law.

Dealing Disclosure Requirements

Under Rule 8.3(a) of the Code, any person who is interested in 1 per cent. or more of any class of relevant securities of the Company or of any paper offeror (being any offeror other than an offeror in respect of which it has been announced that its offer is, or is likely to be, solely in cash) must make an Opening Position Disclosure following the commencement of the offer period and, if later, following the announcement in which any paper offeror is first identified. An Opening Position Disclosure must contain details of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the Company and (ii) any paper offeror(s). An Opening Position Disclosure by a person to whom Rule 8.3(a) applies must be made by no later than 3.30 p.m. (London time) on the 10th business day following the commencement of the offer period and, if appropriate, by no later than 3.30 p.m. (London time) on the 10th business day following the announcement in which any paper offeror is first identified. Relevant persons who deal in the relevant securities of the Company or of a paper offeror prior to the deadline for making an Opening Position Disclosure must instead make a Dealing Disclosure.

Under Rule 8.3(b) of the Code, any person who is, or becomes, interested in 1 per cent. or more of any class of relevant securities of the Company or of any paper offeror must make a Dealing Disclosure if the person deals in any relevant securities of the Company or of any paper offeror. A Dealing Disclosure must contain details of the dealing concerned and of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the Company and (ii) any paper offeror, save to the extent that these details have previously been disclosed under Rule 8. A Dealing Disclosure by a person to whom Rule 8.3(b) applies must be made by no later than 3.30 p.m. (London time) on the business day following the date of the relevant dealing.

If two or more persons act together pursuant to an agreement or understanding, whether formal or informal, to acquire or control an interest in relevant securities of the Company or a paper offeror, they will be deemed to be a single person for the purpose of Rule 8.3.

Opening Position Disclosures must also be made by the Company and by any offeror and Dealing Disclosures must also be made by the Company, by any offeror and by any persons acting in concert with any of them (see Rules 8.1, 8.2 and 8.4).

Details of the Company and any offeror in respect of whose relevant securities Opening Position Disclosures and Dealing Disclosures must be made can be found in the Disclosure Table on the Takeover Panel's website at www.thetakeoverpanel.org.uk, including details of the number of relevant securities in issue, when the offer period commenced and when any offeror was first identified. If you are in any doubt as to whether you are required to make an Opening Position Disclosure or a Dealing Disclosure, you should contact the Panel's Market Surveillance Unit on +44 (0)20 7638 0129.

General

A copy of this announcement will be made available, free of charge, at www.capital-shopping-centres.co.uk/investors/shareholder_info, later today. You may request a hard copy of this announcement, free of charge, by contacting Capita Registrars Limited at 34 Beckenham Road, Beckenham, Kent BR3 4TU. You may also request that all future documents, announcements and information to be sent to you in relation to the Proposal should be in hard copy form.

Capitalised terms used in this announcement but not defined herein shall have the meaning attributed to them in the announcement released by the Company at 7:00 a.m. on 25 November 2010 in connection with the Trafford Centre acquisition.

 

APPENDIX 1

CHAIRMAN'S LETTER (EXTRACTED FROM THE CIRCULAR)

"Dear Shareholder

I am writing to set out details of the revised terms of the Trafford Centre acquisition (the "Revised Acquisition"), as well as the Board's view of the strong prospects for CSC and why the Board believes the indicative proposal (the "Indicative Proposal") from Simon Property Group, Inc. ("Simon") very substantially undervalues the Company and its prospects.

The key terms of the Revised Acquisition are:

·      The CSC shares being issued in respect of The Trafford Centre are being issued based on a higher price of 400 pence per share rather than the 368 pence per 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 per cent. of CSC's enlarged issued share capital on a fully diluted basis (previously 24.7 per cent.), with Peel's initial ordinary shareholding remaining at 19.8 per cent.; and

·      The transaction is accretive to CSC's NAV per share.

On 15 December 2010, Simon made the Indicative Proposal to purchase the Company at a price of 425 pence per share in cash (including the CSC expected final dividend of 10 pence per share).

The Board unanimously rejected the Indicative Proposal, which it regarded as inadequate for a number of reasons. These are set out in this document. The Board believes that Simon continues to seek to frustrate the acquisition of The Trafford Centre and that the Indicative Proposal is highly opportunistic, very substantially undervaluing the Company and its prospects (as explained below). The Board recommends that shareholders vote in favour of the Revised Acquisition at the EGM scheduled for 26 January 2011 (the "Adjourned EGM").

Further terms of the Revised Acquisition

The Revised Acquisition will involve the issue of 167.3 million ordinary shares, as before, and Convertible Bonds with an aggregate nominal amount of £154.3 million (reduced from £209.0 million). The initial conversion price of the Convertible Bonds has increased from 368 pence per share to 400 pence per share, resulting in a reduction in the number of ordinary shares underlying the Convertible Bonds from 56.8 million to 38.6 million. The Convertible Bonds will bear interest at the rate of 3.750 per cent. per annum (previously 4.076 per cent. per annum). As part of these revised terms, Peel's cash subscription reduces from £74.4 million to £67.4 million.

The revised terms represent an implied discount of 4.5 per cent. to The Trafford Centre independent external valuation of £1.65 billion at 1 November 2010 on the basis of CSC's updated NAV per share excluding the Revised Acquisition (previously a 3 per cent. discount on the basis of CSC's 30 June 2010 NAV per share).

It has also been agreed that the Wider Peel Group will be restricted under the Relationship Agreement from holding more than 24.9 per cent. of CSC's issued share capital on a fully diluted basis for the second and third year after completion (previously 29.9 per cent.). The 24.9 per cent. limit for the first year is unchanged.

CSC has agreed to pay a fee to Peel of £7.5 million in the event that Shareholders do not approve the Revised Acquisition and a further fee of £9.0 million if any offer by Simon completes (or any other offer, which is announced before the completion or lapse of any offer by Simon, completes). The total amount of £16.5 million is equivalent to 1 per cent. of the value of The Trafford Centre.

Further details of the Revised Acquisition terms are set out in Appendix [4].

Strong CSC growth prospects

CSC is poised for net rental income ("NRI") recovery which is the key driver of growth in earnings and dividends.

As set out on page 9, the independent valuers' current estimated rental value ("ERV") is £355m, compared with a passing rent and other income of £289m, indicating substantial reversionary potential in CSC.

In addition, CSC has potential to increase rental levels beyond the ERV from the following:

·      the very limited amount of potential supply in the next few years of prime regional shopping centre space due to planning and economic factors;

·      the rising demand for CSC's large flagship stores and catering space, as realised through new lettings achieved in 2010;

·      the structural shift in shopping patterns towards large centres with a strong catering and leisure offer;

·      the growth prospects for new space such as St David's, Cardiff and Eldon Square, Newcastle which were opened during the recent economic downturn; and

·      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.

Like-for-like net rental income grew consistently until 2007 with an annualised compound growth rate of 5.5 per cent. 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 per cent. in 2008 and 3.4 per cent. in 2009, recovering to a fall of only 0.4 per cent. in H1 2010, with the market now projecting positive growth. Occupancy has now been restored to around 99 per cent.

CSC is in a strong financial position, with LTV of 47 per cent.(1), headroom in terms of cash and committed facilities of £392 million post-Placing, and no major asset-specific debt refinancing requirements until 2015.

(1)   30 June 2010 LTV adjusted for the Placing and adjusted CSC valuations to 31 December 2010

 

The property sector is barely a year past the largest decline in commercial property values that the UK has seen in decades

By making an approach at this point in the cycle, Simon is being entirely opportunistic. Between 2006 and 2009 capital values in the IPD UK annual shopping centres capital value index declined by 40 per cent., or, to put this in context, capital values in the index are currently at the same level as in 2002. 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 upside of 87 pence to our updated value per share of 419 pence, adjusted for SDLT costs as referred to on page 11.(2)

(2)   30 June 2010 NAV per share, pro forma for the Revised Acquisition, the Placing and updated CSC valuations to 31 December 2010 and additional advisory fees incurred since the Acquisition was announced

 

CSC has significant value creation potential from identified development and active management opportunities

There is significant untapped potential for further value creation in CSC's portfolio through redevelopment and other asset management opportunities. As an example of this, 1.4 million sq. ft. of extension opportunities have already been identified across three existing centres at Lakeside, Nottingham and Braehead, equivalent to opening a major new regional shopping centre. We estimate that there is 19 pence per share or £170-£175 million of value creation potential across these centres, once planning consent has been obtained. In addition, the Company has further value creation potential estimated to be equivalent to 11 pence per share from ongoing asset management initiatives including at The Trafford Centre.

CSC owns an unrivalled and irreplaceable portfolio of assets

It is inconceivable that a third party could organically create a portfolio of equivalent quality and scale to that owned by CSC. The planning regime in the UK ensures that the delivery of new shopping centre schemes is tightly controlled and, indeed, there is only one large centre, greater than 500,000 sq. ft, currently under construction in the entire United Kingdom with no foreseeable prospect of planning changes to alter this position. Furthermore, no controlling stakes in the top 10 UK shopping centres have been sold in the last 10 years.

UK comparison shopping is increasingly consolidating into prime centres in what the Board believes is a structural shift, which enhances the strategic importance of such assets, and is likely to benefit CSC's portfolio.

Taking these factors into account, DTZ considers that CSC's assets, including The Trafford Centre, would warrant a premium of 12.5 per cent. to 16.0 per cent. over the total of the individual property valuations if disposed as a portfolio on the open market today. Applying a 12.5 per cent. premium would increase the updated pro forma NAV per share by 89 pence. Without The Trafford Centre, the premium is estimated by DTZ to be between 11.0 per cent. and 14.5 per cent.

In addition, as required under valuation guidelines, the independent valuers' market value of each individual property is stated (in CSC's financial statements) after deducting purchaser's costs including Stamp Duty Land Tax (SDLT) at 4 per cent. The reversal of the SDLT deduction would add a further 29 pence of value per share to CSC. Simon would not pay SDLT on its proposed acquisition of the shares of CSC as a whole, as opposed to buying the properties individually, saving a significant transaction cost already deducted from the property valuations.

The Indicative Proposal entirely ignores the value added by The Trafford Centre acquisition

In May 2010, Liberty International demerged its non-shopping centre activities and renamed itself Capital Shopping Centres Group PLC, to enable CSC to pursue a clear strategy as the leading owner, manager and developer of pre-eminent UK regional shopping centres, enhancing their attractiveness as destinations. The Revised Acquisition is absolutely in line with this stated intention. It is a very rare opportunity to acquire 100 per cent. of a pre-eminent UK out-of-town regional shopping centre and is expected to:

·      strengthen CSC's position as the leading operator of pre-eminent UK regional shopping centres and enhance the overall quality of the portfolio. After completing the Revised Acquisition, CSC will own fourteen UK shopping centres, including ten of the top 25 and four of the top six out-of-town shopping centres;

·      increase significantly CSC's presence in the key North West regional retail market, alongside Manchester Arndale;

·      provide an opportunity to combine management and best practices across CSC and The Trafford Centre including, for example, adding features from The Trafford Centre's successful leisure and catering offering to CSC's portfolio;

·      enhance further the attractiveness of CSC's portfolio to retailers;

·      provide significant asset management opportunities to grow ERV at The Trafford Centre with an estimated £50 million of investment opportunities already identified; and

·      enhance further the overall financial position of CSC with the addition of The Trafford Centre's high-quality income stream and long-dated CMBS debt, which will extend CSC's average debt maturity.

Peel's confidence in the future value creation strategy of CSC is clearly demonstrated since Peel will not receive cash as consideration and is in fact investing further capital in the Company as part of the Revised Acquisition. Peel's objective is to be a long-term supportive shareholder in CSC. John Whittaker will become Deputy Chairman and a non-executive Director of the Company, contributing considerable expertise to the Board.

Recommendation

The Board believes that CSC, 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 so advised by Merrill Lynch International ("Merrill Lynch") and UBS Limited ("UBS"), considers that, as outlined above, the Indicative Proposal very substantially undervalues CSC and its prospects and recommends that shareholders vote in favour of The Trafford Centre acquisition, now on revised terms, at the forthcoming Adjourned EGM. In providing advice to the Board, Merrill Lynch and UBS have taken into account the Board's commercial assessments.

Shareholders will be sent further information and instructions in due course regarding the Adjourned EGM.

Yours sincerely,

 

Patrick Burgess

Chairman"

 

APPENDIX 2

VALUATIONS AT 31 DECEMBER 2010

The valuation reports of the Group's properties have been prepared in accordance with Rule 29 of the City Code on Takeovers and Mergers and RICS Valuation Standards.

1         Valuation reports as at 31 December 2010

As at 1 November 2010, the market value of the Group's investment and development properties was £5.0 billion. As at 31 December 2010, the Group's investment and development properties were valued at £5.1 billion, representing an increase of £0.1 billion since 1 November 2010.

2         Table of investment and development properties



31 December 2010


1 November 2010


Ownership %

Market value (£m)

Initial yield %

Nominal equivalent yield %


Market value (£m)

Initial yield %

Nominal equivalent yield %

Lakeside, Thurrock

100

1,053

5.19

5.75


1,025

5.32

5.90

Metrocentre, Gateshead

90

843

5.70

6.33


810

5.96

6.65

Braehead, Glasgow

100

575

5.20

6.12


569

5.27

6.22

The Harlequin, Watford

93

353

5.15

6.65


352

5.06

6.65

Victoria Centre, Nottingham

100

337

5.33

6.40


326

5.44

6.60

The Arndale, Manchester(1)

48

336

5.76

5.99


328

5.84

6.13

Eldon Square, Newcastle upon Tyne

60

250

4.62

7.01


244

4.42

7.16

St David's, Cardiff

50

243

3.47

6.09


237

3.24

6.40

Chapelfield, Norwich

100

236

5.22

6.80


233

5.15

6.90

Cribbs Causeway, Bristol(1)

33

221

5.49

6.05


220

5.43

6.12

The Chimes, Uxbridge

100

217

6.01

6.50


214

6.09

6.60

The Potteries, Stoke-on-Trent

100

201

6.43

7.25


201

6.49

7.25

The Glades, Bromley

64

178

5.61

7.25


177

5.68

7.25

Other


48




49



Total


5,092

5.32

6.30


4,985

5.39

6.46

(1) The Arndale, Manchester is held through a JV which has a 95 per cent. interest in the Arndale and 90 per cent. interest in New Cathedral Street. Cribbs Causeway is held through a JV which has a 66 per cent. interest in The Mall at Cribbs Causeway and a 100 per cent. interest in the Retail Park, Cribbs Causeway

 

The valuation reports are contained in the Circular which will be posted to the Company's shareholders. A copy of the valuation reports and the consent letters from the independent valuers will be made available on the Company's website at www.capital-shopping-centres.co.uk/investors/shareholder_info. They may also be inspected during usual business hours on any Business Day at the registered office of the Company, at the offices of Linklaters LLP, One Silk Street, London EC2Y 8HQ, United Kingdom, and at the offices of Merrill Lynch 251 South Africa (Pty) Ltd, 138 West Street, Sandown, Sandton 2196, South Africa and will also be available for inspection at the CSC Adjourned EGM on 26 January 2011 for at least 15 minutes prior to and during the meeting.

 

APPENDIX 3

PRO FORMA STATEMENT OF NET ASSETS

The unaudited pro forma statement of net assets set out below has been prepared to illustrate the effect of the Placing and the Revised Acquisition as if those events had taken place as at 30 June 2010. The unaudited pro forma statement of net assets, which has been produced for illustrative purposes only, by its nature addresses a hypothetical situation and, therefore, does not represent the Group's actual financial position or results. The unaudited pro forma statement of net assets is presented on the basis of the accounting policies adopted by the Group in preparing the unaudited interim report for the half year ended 30 June 2010. The unaudited pro forma statement of net assets has been prepared on the basis set out in the notes below and in accordance with the requirements of items 1 to 6 of Annex II to the PD Regulation and item 13.3.3R of the Listing Rules of the UK Listing Authority.

Pro Forma Statement of Net Assets

 



                               Adjustments



CSC
 30 June 2010
(1)

Placing (2)

Trafford Centre Group

31 March 2010 (3)

Other

adjustments (4)

Pro forma

Assets






Investment, development and trading properties

4,915.5

-

1,678.4

124.4

6,718.3

Goodwill

-

-

-

10.8

10.8

Cash and cash equivalents

127.7

216.2

44.2

48.4

436.5

Investments

48.0

-

-

(5.0)

43.0

Derivative financial instruments

23.0

-

0.2

-

23.2

Trade and other receivables

111.0

-

19.0

12.8

142.8

C&C US - assets

429.6

-

-

-

429.6

Other assets

8.2

-

0.4

-

8.6

Total assets

5,663.0

216.2

1,742.2

191.4

7,812.8

Liabilities






Borrowings

(2,884.5)

-

(847.5)

5.0

(3,727.0)

Trade and other payables

(216.0)

-

(77.4)

(33.0)

(326.4)

Derivative financial instruments

(413.5)

-

(24.3)

-

(437.8)

C&C US - liabilities

(285.6)

-

-

-

(285.6)

Deferred tax

-

-

(343.8)

343.8

-

Other liabilities

(1.4)

-

-

-

(1.4)

Total liabilities

(3,801.0)

-

(1,293.0)

315.8

(4,778.2)

Net assets

1,862.0

216.2

449.2

507.2

3,034.6

Net assets (diluted, adjusted) (5)

2,309.1




3,489.4

Net external debt (6)

2,622.4




3,156.1

Loan to value (7)

53%




47%

Diluted number of shares (million) (8)

626.7




894.9

Net assets per share (diluted, adjusted) (9)

368p




390p

 

 

Notes:

 

(1)   The financial information of the Group has been extracted without material adjustment from the unaudited interim report of the Group for the half year ended 30 June 2010.

 

(2)   The proceeds of the placing completed on 25 November 2010 in which the Group issued 62.3 million new ordinary shares at 355 pence per share, net of costs of £5 million.

 

(3)   The financial information of The Trafford Centre Group has been extracted without material adjustment from the historical financial information in Part A of Part VIII of the Original Prospectus (''Historical Financial Information of The Trafford Centre Group'').

 

(4)   Adjustments to reflect the Revised Acquisition and consolidation of The Trafford Centre Group are included as follows:

(a)   Pre-acquisition adjustment to reflect the fact that a liability of £12.8 million recognised in the 31 March 2010 Trafford balance sheet will be met by the Peel Group as it falls due under the terms of one of the ancillary documents to the Acquisition Agreement. This results in the recognition of an asset of £12.8 million within trade and other receivables.

 

(b)   The Original Prospectus included investment and development property valuations that had been updated to 1 November 2010, which resulted in an adjustment of £21.9 million representing an increase of £57.9 million in respect of the Group investment and development property and a decrease of £36.0 million in respect of The Trafford Centre Group investment and development property.    

 

        The Group investment and development property valuations have been updated to 31 December 2010 resulting in a further adjustment of £102.5 million.  This increase combined with the £21.9 million adjustment for the period to 1 November 2010 results in a total adjustment of £124.4 million in respect of the Enlarged Group investment and development property.

 

        The 1 November 2010 valuations were included in Part X and Part XI of the Original Prospectus. The 31 December 2010 valuations of the Group's properties are included in Appendix 3 ("Valuation reports as at 31 December 2010") of the Circular.

 

(c)   On acquisition, as part of the Enlarged Group, The Trafford Centre Group automatically enters the REIT regime. As such a REIT entry charge liability of £33.0 million, based on the market value of the acquired property at 1 November 2010, is recognised in trade and other payables and the deferred tax position is revised to reflect the changed tax position resulting in a reduction in the deferred tax liability of £343.8 million.

 

(d)   As part of the Revised Acquisition the shareholders of The Trafford Centre Group will subscribe £67.4 million for Consideration Shares and Convertible Bonds which is reflected as an increase in cash.

 

(e)   Acquisition and advisory costs of £19.0 million are reflected as a movement in cash.

 

(f)    Reclassification of £5.0 million of investments held by Group to eliminate against borrowings of The Trafford Centre Group.

 

(g)   Acquisition accounting adjustments would be required when reflecting the acquisition in the Group financial statements under IFRS. No estimation has been made of the fair value adjustments that would be required at the date of acquisition as these are dependent upon values at that date. Consideration consists in effect of 155.0 million Consideration Shares and £127.6 million Convertible Bonds. The fair value of the shares issued as consideration will be calculated for acquisition accounting purposes based on the share price at the date the acquisition completes. An estimation of the fair value of the shares issued as consideration has been made using  400 pence per share based on the Revised Acquisition terms as detailed in Appendix 1. The difference between the consideration and the net assets of The Trafford Centre Group results in goodwill of £10.8 million that would be recognised on the balance sheet and is calculated as follows:

 

 

Consideration Shares

£m

620.0

Perpetual convertible bond

127.6


747.6

Adjusted net assets:


At 31 March 2010

449.2

Pre-acquisition adjustment (4a)

12.8

Investment and development property adjustment (4b)

(36.0)

Taxation/REIT adjustments (4c)

310.8


736.8

Goodwill

10.8

 

 

(5)   Net assets (diluted, adjusted) has been calculated as equity shareholders' funds, diluted for the effects of unexercised share options and convertible bonds, adjusted for the unrecognised surplus on trading properties, fair value of derivative financial instruments, deferred tax on investment and development property, the non-controlling interest on these adjustments and non-controlling interest recoverable balances not recognised.

 

(6)   Net external debt represents total borrowings less the £134.4 million compound financial instrument relating to the 40 per cent, third party interest in Metrocentre less cash and cash equivalents, as detailed in the table below:

 

 



Adjustments



CSC
30 June 2010

Placing

Trafford Centre Group 31 March 2010

Other adjustments

Pro forma

Borrowings

2,884.5

-

847.5

(5.0)

3,727.0

Metrocentre compound financial instrument

(134.4)

-

-

-

(134.4)

Gross external debt

2,750.1

-

847.5

(5.0)

3,592.6

Cash and cash equivalents

(127.7)

(216.2)

(44.2)

(48.4)

(436.5)

Net external debt

2,622.4

(216.2)

803.3

(53.4)

3,156.1

 

 

(7)   The loan to value ratio has been calculated as the ratio of net external debt to the total value of investment, development and trading properties. The pro forma loan to value ratio has been updated for the 31 December 2010 property valuations.

 

(8)   The unadjusted diluted number of shares represents the Group's issued share capital at 30 June 2010 adjusted for treasury shares and those held in the ESOP, diluted for the effects of unexercised share options and convertible bonds. This number of shares is further adjusted for the effects of the transaction, including the issue of Consideration Shares, the dilution impact of the Convertible Bonds issued as consideration, and the issue of the Placing Shares.

 

(9)   Net assets per share (diluted, adjusted) is calculated by dividing the net assets (diluted, adjusted) by the diluted number of shares.

 

(10) No account has been taken of the results and financial performance of the Group since 30 June 2010, nor of The Trafford Centre Group since 31 March 2010, other than the updated investment and development property valuations of the Group as at 31 December 2010 and The Trafford Centre as at 1 November 2010.

 

(11) The pro forma statement of net assets presented in the Original Prospectus has been updated to reflect:

 

(a)   the Revised Acquisition terms which have resulted in the nominal value of the Convertible Bonds being issued reducing from £177.2 million to £127.6 million and the cash from the subscription from Consideration Shares and Convertible Bonds reducing by £7.0 million.

 

(b)   investment and development property valuations as at 31 December 2010 for the Group and updated estimated acquisition and advisory costs.  Group investment and development property has increased by £102.5 million since the 1 November valuations while estimated acquisition and advisory costs have increased by £14.0  million.

 

 

 

APPENDIX 4

THE REVISED ACQUISITION TERMS

CSC and Peel have entered into an amendment agreement relating to the acquisition of The Trafford Centre Group (the "Amendment Agreement"). The key terms of the Revised Acquisition as amended by the Amendment Agreement are set out below.

Consideration

CSC will acquire The Trafford Centre Group in exchange for a total of 167.3 million Consideration Shares of 50 pence each and convertible bonds with an aggregate nominal amount of £154.3 million (previously £209.0 million) and also receive £67.4 million (previously £74.4 million) in cash. The number of Ordinary Shares and the aggregate nominal amount of Convertible Bonds to be issued has been determined such that in effect:

·      155.0 million Consideration Shares are being issued at a price per share of 400 pence (previously 368 pence), for a total of £620.0 million (previously £570.4 million) and £127.6 million (previously £177.2 million) Convertible Bonds are being issued at par in respect of the acquisition of The Trafford Centre itself, at an unchanged equity purchase price of £747.6 million; and

·      12.3 million Consideration Shares are being issued, as before, at the Placing Price, being 355 pence per share and £26.7 million (previously £31.8 million) Convertible Bonds are being issued, for £67.4 million (previously £74.4 million) in cash.

The Revised Acquisition will result in Peel holding 169.7 million Ordinary Shares (including Ordinary Shares owned prior to the Acquisition) and £154.3 million in aggregate nominal amount of Convertible Bonds, representing 19.8 per cent. of the Enlarged Issued Share Capital of CSC (unchanged from previously) and 23.2 per cent. (previously 24.7 per cent.) assuming conversion of the Convertible Bonds.

Terms of Convertible Bonds

The £154.3 million Convertible Bonds will be perpetual subordinated bonds, convertible into Ordinary Shares of the Company at the option of the bondholder any time after two years from the date of issue or earlier in certain limited circumstances (including on the making of a takeover offer for the Company). The initial conversion price will be 400 pence per Ordinary Share (previously 368 pence per Ordinary Share). The initial conversion price may be adjusted downwards from time to time in accordance with the terms and conditions of the Convertible Bonds, including in circumstances where the Company pays a dividend in respect of its Ordinary Shares in excess of 15.0 pence in respect of any fiscal year. Claims of bondholders will, on a winding up of the Company, be subordinated to claims of senior creditors of the Company, but will rank in priority to claims of holders of all classes of the Company's share capital. The Convertible Bonds will bear interest at the rate of 3.75 per cent. per annum payable semi-annually in arrear (previously 4.076 per cent. per annum). The Company shall at its sole discretion have the right to defer payments of interest on the Convertible Bonds. If the Company elects to defer payments of interest on the Convertible Bonds, the Company will not be permitted under the terms of the Convertible Bonds to pay a dividend in respect of the Ordinary Shares until such time as all arrears of interest have been paid.

Although the Convertible Bonds do not have a fixed redemption date, the Company may elect to redeem the Convertible Bonds at their principal amount on the third anniversary of the issue date or on any interest payment date thereafter, and in certain other limited circumstances.

The Company intends to make an application for the admission to listing of the Convertible Bonds on the official list of the FSA and to trading on the Professional Securities Market of the London Stock Exchange.

Relationship Agreement

CSC and Peel have agreed that the Wider Peel Group will be restricted under the Relationship Agreement from holding more than 24.9 per cent. of CSC's issued share capital on a fully diluted basis for the second and third year after completion (previously 29.9 per cent.). The 24.9 per cent. limit for the first year is unchanged. These limits exclude any shares acquired pursuant to any scrip dividend arrangement.

Conditionality

The Acquisition remains conditional upon, inter alia, the passing of the resolution to approve the Revised Acquisition by CSC Shareholders at the CSC Adjourned EGM, and the admission of the Consideration Shares to trading on the London Stock Exchange and to listing on the Official List. The long stop date for the satisfaction or waiver of each condition is 31 January 2011.

Fee Arrangements

CSC shall pay a fee of £7.5 million (the "First Fee") to Peel if CSC's shareholders do not pass the shareholder resolution to approve the Revised Acquisition at the CSC Adjourned EGM, or the CSC Adjourned EGM is further adjourned until after the long-stop date in the Acquisition Agreement so that CSC shareholder approval of the Revised Acquisition cannot be obtained before such long-stop date.

If, and only if, the First Fee becomes payable, CSC will pay a second fee of £9 million (the "Second Fee") to Peel if Simon or any person acting in concert with it makes a firm offer (including an offer to be implemented by way of a scheme of arrangement, and whether or not subject to pre-conditions) to purchase more than 50 per cent of the issued share capital of CSC (other than any shares already held by such an offeror) for the purposes of Rule 2.5 of the Code either (i) prior to the CSC Adjourned EGM or (ii) with the consent of board of the directors of CSC, within 6 months of an announcement being made by Simon pursuant to Rule 2.8 of the Code, and in any such case such offer (as subsequently amended) is declared unconditional in all respects or is otherwise completed.

CSC will also be liable to pay the Second Fee if any other person makes a firm offer (including an offer to be implemented by way of a scheme of arrangement, and whether or not subject to pre-conditions) to purchase more than 50 per cent of the issued share capital of CSC (other than any shares already held by such an offeror) for the purposes of Rule 2.5 of the Code prior to the lapse or completion of any offer made by Simon as referred to in the paragraph above and such offer (as subsequently amended) is declared unconditional in all respects, becomes effective or is otherwise completed.

CSC shall not be obliged to pay any amount which the Panel determines would not be permitted under the Code.

A copy of the Amendment Agreement may be inspected during usual business hours on any Business Day, up to and including the date on which admission of the Consideration Shares occurs, at the registered office of the Company, at the offices of Linklaters LLP, One Silk Street, London EC2Y 8HQ, United Kingdom, and at the offices of Merrill Lynch 251 South Africa (Pty) Ltd, 138 West Street, Sandown, Sandton 2196, South Africa and will also be available for inspection at the CSC Adjourned EGM on 26 January 2011 for at least 15 minutes prior to and during the meeting.


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
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