Shareholders in Capital & Regional have ratified the purchase of 351.1m new ordinary shares in the specialist retail property company this afternoon raising £165m in gross proceeds to fund the purchase of 62.54% of units in the Mall Fund for £213m.
Capital & Regional, which already owns 29.26% of units in the fund which owns and manages six regional UK shopping centres, has agreed to purchase Aviva Investors’ 52.04% stake for £177.2m and the 10.52% stake owned by Karoo, a Luxembourg investment fund, for £35.8m.
Shareholder approval averaged 99.9% across the six seperate proposals.
The combined £213m purchase price for both stakes will be funded through net proceeds from the share placing of £158m – after £7.2m in fees, half of which goes to joint sponsors and bookrunners JP Morgan Cazenove and Numis Securities – and a combination of around £20m in cash resources.
The balance of around £35m will be financed by a bridge revolving credit facility (RCF) from Lloyds Banking Group, which has an upper limit of £50m. Lloyds was also an underbidder on the preceding £350m refinancing won by Morgan Stanley in March, as revealed by CoStar News.
The £50m Lloyds RCF is comprised of two equally sized tranches, with the 18-month £25m tranche B extended for the purpose of the Mall Fund transaction.
Tranche B carries a margin of 420 basis points over LIBOR, while tranche A is priced at 320 basis points. An arrangement fee of £625,000 is payable upon drawdown of tranche B.
Lloyds’ high margin reflects the facts that the six shopping centres are primarily the collateral security of Morgan Stanley, under the terms of the £350m refinancing of the legacy Mall Funding CMBS loan, and premium applied to bridging facilities.
The six shopping centres are located in Luton, Walthamstow, Maidstone, Camberley, Blackburn and Wood Green.
Capital & Regional’s purchase of the Aviva and Karoo Mall Fund stakes reflects a gross price of £220m, inclusive of £7m capital raising fees, taking the company’s overall stake in the Mall Fund to 91.82%, with the balance owned by undisclosed investors.
Following the closure of the transaction, Capital & Regional will make an offer to acquire the remaining 8.18% units in the Mall Fund.
Based on the proportional price paid to Aviva and Karoo, this would imply an offer of approximately £27.7m for the remaining units which Capital & Regional does not own, CoStar News has calculated.
The share placing – structured with an 80:20 split in an open offering and firm placing at 47 pence per new ordinary share raising £132m and £33m, respectively – concluded with a 60.4% take-up of the 280.8m open offer shares.
The offer price at 47 pence per new ordinary share represents a 2.1% discount to the 19 June closing price and a 0.7% premium to the one month volume weighted average price as at the same date.
Karoo has divested its 10.52% stake in the Mall Fund and recycled the entire proceeds as a cornerstone investor in the open offer share placing, reflecting 73.6m of new ordinary shares or 26.2% of the open share offering.
Parkdev Group, the South African shopping centre developer and manager and subsidiary of PDI Investment Holdings, owns a 40% stake in Karoo and was also the anchor investor in Capital & Regional’s £69m rights issue in 2009.
The balance of the unsubscribed open offer shares will be purchased by existing shareholders in Capital & Regional – at the same 47 pence offer price – who effectively acted as underwriters for the gross £165m capital raising.
Indirectly purchasing properties through units in a fund side-steps stamp duty costs which, as well as legal and agent fees, could have cost Capital & Regional up to £20m in respect of the Mall Fund transaction, it is estimated.
Capital & Regional, which intends to convert to REIT status before the end of the year, has a business plan for the six shopping centres which includes the implementation of a £60m capex programme over five years.
The £60m capex programme is inclusive of the £25m facility secured from Morgan Stanley as part of the £350m debt refinancing. Capital & Regional has already identified £24m worth of capex initiatives, with a further £36m of initiatives, primarily in the Luton and Walthamstow shopping centres,
Capital & Regional said the “acquisition marks a significant step towards completing the group’s strategic objective of focusing on its core UK shopping centre business and positioning itself as the leading dominant community shopping centre owner in the UK”.
Yesterday, Capital & Regional reported a 3% increase in the valuation of the six assets to £705.2m, dated to the end of June, and expects to be able to deliver further capital appreciation through a combination of its capex programme, driving rental growth and capturing yield compression as appetite for assets in secondary locations improves.
Hugh Scott-Barrett, chief executive of Capital & Regional, said: “I am delighted that shareholders have demonstrated such strong support for this transformational transaction for the company.”