By Jacqueline Mackenzie

The opportunity to acquire a shopping centre of the calibre of the Trafford Centre is very rare, CEO of UK-based Capital Shopping Centres (CSC, CSO), David Fischel, said on Monday.

CSC announced its plans to acquire The Trafford Centre on November 25 after it reached agreement with Tokenhouse Holdings, one of the holding companies of the Peel Group, under which it will acquire The Trafford Centre Group together with approximately GBP77 million in cash from Peel.

In exchange CSC will issue to Peel up to 167.3 million new ordinary shares in CSC and an aggregate nominal amount of up to GBP209 million 4.076% convertible bonds to be issued by CSC.

CSC also last week raised GBP221.2 million before commissions and expenses from the placing of 62.33 million new ordinary shares at 355 pence per share. The placing represented 9.9% of the company's existing shares immediately prior to the placing, the group said.

The Trafford Centre, located near Manchester, is one of the UK's most successful retail and leisure destinations attracting 35 million customer visits annually. It has 1.9 million square feet of retail, catering and leisure space. With more than 230 units, it has strong anchor clients including Selfridges, Debenhams, John Lewis and Marks & Spencer.

Fischel said on Monday that there is a scarcity of opportunities in the shopping centre space in the UK and that to acquire 100% of a Trafford-quality centre is a very rare opportunity. He describes Trafford as the best retail destinations outside of London and the South East.

The proposed acquisition of the Trafford Centre Group for GBP 747.6 million values the Trafford Centre at GBP1.6 billion. The acquisition involves an equity purchase price of GBP747.6 million for The Trafford Centre and a further amount of approximately GBP77 million in respect of a cash contribution by Peel, in return for the issue of consideration shares and convertible bonds by CSC to Peel.

Post the acquisition, Peel will hold around 19.9% of CSC's enlarged issued share capital and John Whittaker, Chairman of Peel, will join CSC's board as a Non-executive Deputy Chairman.

Fischel says the acquisition conforms with CSC's strategy of focusing on the UK's largest and most successful retail destinations and strengthens its position as the leading operator of pre-eminent UK centres.

After the acquisition, CSC will own 14 UK shopping centres, including ten of the top 25 and four of the top six out-of-town shopping centres.

It also significantly increases CSC's in the key North-West regional retail market, alongside Manchester Arndale.

Fischel says the economy in the North-West is extremely vibrant and Trafford serves both office workers from central Manchester, but importantly also the 8.9 million people that live in the large catchment area and who live within a 70 minute drive of the area. He noted that the acquisition will be complimentary to Arndale.

It also has a loyal customer base, with 22% of visitors visiting at least once a week and 61% visit at least monthly.

Fischel points out that since its opening in 1998, Trafford has recorded consistent footfall growth to more than 35 million per annum, over 69% of which fall within the ABC1 group, member of households whose chief earner's occupation is professional, higher or intermediate management or supervisory.

CSC has already identified scope for asset management initiatives at Trafford Centre, including that the regional structure has been built to accommodate additional floors enabling cost effective expansion and the conversion of dormant space to additional retail, subject to planning permission.

In addition there is the opportunity to strengthen the Barton Square offering, including scope for the expansion of tourist destination and retail mix. Barton Square, with a 240,000 square foot homeware and leisure extension opened in 2008.

Fischel says the UK economy as a whole is growing and the likelihood of a double dip is quite low. He said although it has been a long hard slog out of the recession, the UK economy is still growing and he is looking at a modest growth scenario.

He said in terms of lettings, the market is looking "pretty good" at the moment. Trafford Centre has a current occupancy rate of around 98% by rent. Since the end of March, 10 new lettings have been agreed.

He says the UK has been through the worst property crash in its history and a good quality shopping centre at these prices is very attractive. Shopping centre values had dropped sharply in 2008 and 2009 and are now starting to come back. Other than the years of recession, he noted, historically shopping centres have shown strong value and CSC has been in the business since 1980 and has a strong track record.

The acquisition is subject to the approval of CSC's shareholders at an Extraordinary General Meeting which is expected to be held on 20 December. Fischel said the Gordon Family, who currently has a CSC shareholding of 14.6% is supportive of the transaction.

Last week the Financial Times reported that the Simon Property Group, which owns 5.6% of CSC, has called for the deal to be delayed while it prepares a cash bid for the company. The paper quoted CSC Chairman Patrick Burgess saying any offer would be discussed at the EGM. US mall operator Simon Property Group is the largest real estate company in the US.

Fischel said they will wait and see if the offer is a serious one and if there are any changes, CSC will come back to its shareholders.

Fischel is currently in South Africa, he says, to remind local shareholders to get their proxy votes in before they go on holiday. He adds that the reaction from UK investors has been "great" "they are saying this is the kind of deal we should be doing," he said.

If approved, the acquisition is expected to be completed by 22 December.

Source: I-Net Bridge