| Wed 8 Dec 2010, 9:00 | | GEN - Simon Property Group Inc. - Capital Shopping Centres Group Plc |
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GEN - Simon Property Group, Inc. - Capital Shopping Centres Group Plc
8 December 2010
SIMON PROPERTY GROUP, INC. ("SIMON")
CAPITAL SHOPPING CENTRES GROUP PLC ("CSC")
Simon announces that it has today sent a letter, the text of which is set out
below, to the Board of CSC. The text of a presentation attached to the letter
to the Board of CSC is included in Appendix I to this announcement.
Separately Simon notes the publication of an article in the Wall Street
Journal Online at 00.03GMT today in which it was stated that Simon "is likely
to abandon (its) pursuit" of CSC. This article may have originated from
contact made by a Wall Street journalist with a Simon representative but, as
will be apparent from the letter reproduced below, does not accurately reflect
its position.
Simon remains willing to consider making acquisition proposals that would
afford CSC and its shareholders with a superior alternative to the Trafford
Centre acquisition and has urged the CSC Board to allow it the opportunity to
review very limited and specific due diligence information with respect to CSC
which would assist in that regard. If, however, the CSC Board were to state
that it will not provide any due diligence materials to Simon, Simon would
have no alternative but to terminate its approach: Simon will not waive this
requirement.
LETTER TO THE BOARD OF CSC:
8 December 2010
The Board of Directors
Capital Shopping Centres Group PLC
40 Broadway
London SW1H 0BT
Dear Sirs / Madam
We are writing to urge you to reconsider your proposed acquisition of the
Trafford Centre Group. We firmly oppose the proposed transaction and, as the
owner of more than 5% of Capital Shopping Centres Group PLC`s share capital,
will vote against it at the forthcoming EGM. We strongly encourage all other
CSC shareholders to do the same.
When you first contacted us, just before you announced this proposal, we asked
you to pause before proceeding headlong into ceding significant control to
Peel without obtaining any premium to CSC`s latest stated NAV. We have now
spent considerable time analyzing the additional information that you have
published about the proposed Trafford Centre transaction, and are even more
disturbed and disappointed by the profound value destruction proposed to be
inflicted on CSC and its shareholders. We believe that CSC is substantially
overpaying for the Trafford Centre Group. As the attached presentation
demonstrates, the proposed acquisition would diminish CSC shareholder value:
- CSC is transferring significant control to Peel, while failing to extract
a premium for it, and is issuing equity to Peel at a discount to CSC`s
latest stated NAV;
- the GBP1.6 billion Trafford Centre transaction is cash negative to CSC by
GBP29.6 million on an annual pro forma basis, taking the entire
transaction into account;
- moreover, the debt service coverage ratio at Trafford Centre is currently
below covenant threshold; future operating cash flows are likely to be
unavailable for distribution; and
- the Trafford Centre transaction will reduce CSC`s dividend coverage
ratios - with consequent pressure on CSC`s ability to pay dividends - in
light of the high 6.1% cost of Trafford Centre Group`s assumed debt, as
compared to CSC`s 5% nominal acquisition yield.
We previously urged you to allow us the opportunity to review very limited and
specific due diligence information with respect to CSC, which would assist us
to formulate an acquisition proposal that would afford CSC and its
shareholders with a superior alternative to the Trafford Centre acquisition.
By declining to provide us with the requested limited due diligence
information, you have constrained the exploration of an opportunity to benefit
your shareholders.
If the proposed Trafford Centre acquisition is approved, we would need to
consider liquidating our position in CSC.
Yours faithfully,
David Simon
Chairman of the Board and
Chief Executive Officer
Enquiries
Simon
Shelly Doran (Investors) Telephone: +001 317 685 7330
Les Morris (Media) Telephone: +001 317 263 7711
Citi Telephone: +44 (0) 20 7986 4000
(Sole financial adviser to Simon)
Philip Robert-Tissot
Grant Kernaghan
Charles Lytle (Corporate Broking)
Citigate Dewe Rogerson Telephone: +44 (0) 20 7638 9571
(UK media adviser to Simon)
Grant Ringshaw
Patrick Donovan
Tom Baldock
Sard Verbinnen & Co Telephone: +001 212 687 8080
(US media adviser to Simon)
Hugh Burns
Brooke Gordon
Nathaniel Garnick
Citi, which is authorised and regulated in the United Kingdom by the Financial
Services Authority, is acting for Simon and no one else, in relation to the
matters referred to in this announcement, and will not be responsible to
anyone other than Simon for providing the protections afforded to customers of
Citi or for providing advice in relation to the contents of this announcement.
APPENDIX I
The Trafford Transaction Has a Negative Cash Flow Yield of 3.6% and Causes CSC
Cash Flow to Decrease by GBP29.6mm
(GBP in millions, except per share data)
NET CASH FLOW YIELD FROM THE TRAFFORD TRANSACTION
Trafford Centre Net Rental Income (1) GBP82.9
Less: Administrative Expenses (1) (4.7)
Trafford Centre EBITDA GBP78.2
Less: Trafford Mortgage Net Interest Expense (1) (53.2)
Less: Trafford Principal Amortization (2) (21.1)
Less: Dividends on Common Shares Issued to and Purchased
by Peel Group as part of The Trafford Transaction (3) (25.2)
Less: Cash Interest Expense on Convertible Notes Issued to
and Purchased
by Peel Group as part of The Trafford Transaction (4) (8.5)
Plus: Interest on Cash (5) 0.3
Estimated Net Cash Flow from the Trafford Transaction (GBP29.6)
Equity Consideration to Peel Group
Trafford Centre Purchase Price GBP1,599.6
Less: Assumed Trafford Centre CMBS Debt (798.0)
Less: Other Net Liabilities (54.0)
Plus: Peel Group Investment in CSC (6) 75.5
Total Equity Consideration GBP823.1
Net Cash Flow Yield from the Trafford Transaction (3.6%)
Source: CSC Circular and Notice of Extraordinary General Meeting
(1) For year ended March 31, 2010
(2) Debt falling due within year ending March 31, 2011
(3) Based on GBP0.1508 per share 2010E dividend on 167.3mm shares issued for
the Trafford transaction; 2010E dividend estimate per Bloomberg
(4) Based on 4.08% GBP209.0mm convertible bonds issued for the Trafford
transaction
(5) Based on 0.7% 3-month UK LIBOR on GBP41.4mm excess cash from Peel Group
investment in CSC (GBP74.4mm net cash investment from Peel Group less
GBP33.0mm REIT Entry Charge on Trafford Centre)
(6) Peel Group made a cash contribution of GBP74.4mm for its GBP75.5mm
investment in CSC, given GBP31.8mm of convertible bonds were issued at a
discount of 3.5% to par value
DSCR Covenant Restrictions are Likely to Restrict Future Operating Cash Flow
The Trafford transaction is not only cash flow negative today, but Trafford
Centre`s cash flow will be restricted because of DSCR covenant restrictions in
its existing securitized debt
Trafford Centre DSCR as of 06/30/10 1.13x
Trafford Centre CMBS DSCR Covenant > 1.40x
"The secured loan notes described in paragraph 19.2.1 of Part XIII of this
document ``The Trafford Centre Group securitisation``, include a debt service
coverage ratio (DSCR) test, calculated as rental income to debt service
(recurring interest expense plus debt amortisation), with a restriction on
surplus cash usage except for development when the DSCR is below 1.4:1, and
with limitations on the use of surrenders premiums when the DSCR is under
1.3:1. At 30 June 2010, Trafford Centre`s DSCR ratio was 1.13:1."
- CSC Circular, Page 44
Source: CSC Circular and Notice of Extraordinary General Meeting
CSC Equity was Issued to Peel Group at a 2.6% Discount to the Current CSC NAV
(GBP in millions, except per share data)
EQUITY CONSIDERATION TO PEEL GROUP
Trafford Centre Equity Purchase Price
Consideration Shares to Peel 155.0
Price per Share GBP3.68
Total Common Stock GBP570.4
Convertible Bonds Par Value 177.2
Total Equity Purchase Price GBP747.6
Peel Group Investment in CSC (1)
Consideration Shares to Peel 12.3
Price per Share GBP3.55
Total Common Stock GBP43.7
Convertible Bonds Par Value 31.8
Total Peel Group Investment in CSC GBP75.5
Total Equity Consideration to Peel Group GBP823.1
Total Shares Issued
Common Stock 167.3
Convertible Notes (2) 56.8
Total Shares Issued to Peel Group 224.1
Implied Share Price to Peel Group GBP3.67
CSC NAV (as of 11/01/10) (3) GBP3.77
Implied Discount to CSC NAV (2.6%)
Source: CSC Circular and Notice of Extraordinary General Meeting
(1) Peel Group made a cash contribution of GBP74.4mm for its GBP75.5mm
investment in CSC, given GBP31.8mm of convertible bonds were issued at a
discount of 3.5% to par value
(2) Based on GBP3.68 per conversion price
(3) 9p per share increase from CSC NAV of GBP3.68 as of 06/30/10
Is CSC Overpaying for the Trafford Centre?
The acquisitions of 2 high quality UK malls were announced within 2 days of
each other
- CSC transaction for 100% of Trafford Centre
- Pension funds APG and CPP buying 50% of Westfield Stratford
- 100 bps difference between 2 transactions of similar size announced 2
days apart
CSC Acquisition of APG and CPP Acquisition of
Trafford Westfield Stratford
Announced Date: November 24, 2010 November 22, 2010
Shopping Centre Gross GBP1,600mm GBP1,743mm
Value:
Acquisition Cap Rate: 5.0% (1) 6.0% (2)
(1) Source: CSC Circular and Notice of Extraordinary General Meeting
(2) Source: Green Street Advisors Research Report on 11/30/10
The Trafford Transaction Delivers an Effective Control Position in CSC Without
a Premium for CSC Shareholders
With a 24.7% ownership position, Peel would have significant control over CSC
Current Ownership Ownership Post Trafford
Pre Trafford Transaction Post
Transaction (1) (2) Convertible (3) (4)
Peel Group 0.3% 24.7%
Donald Gordon 13.3% 10.1%
Other South African 28.8% 21.7%
Investors
Simon Property Group 5.1% 3.9%
Other Public Float 52.4% 39.6%
Total 100.0% 100.0%
Source: CSC Circular, Notice of Extraordinary General Meeting, Rule 8
Announcements and Citywatch
(1) Pro forma for equity placement of 62.3mm shares in November 2010
(2) Other South African investors include the following: Coronation Fund
Managers, Public Investment Corporation, Investec Asset Management,
Sanlam Investment Management, Old Mutual Asset Managers and Foord Asset
Management
(3) Assumes the issue of new shares (167.3mm) to Peel Group
(4) Assumes convertible bonds issued to Peel Group are converted into new
equity (resulting in 56.8mm of additional shares)
This presentation is available for download by navigating to the "Investors"
section on Simon`s website (http://www.simon.com).
Date: 08/12/2010 09:00:01 Produced by the JSE SENS Department.
