UK listed Capital Shopping Centres Group (CSC) has confirmed that it is in advanced talks to acquire the Trafford Centre in Manchester in a £1.6 bn (EUR 1.9 bn) transaction. The asset is owned by the Peel Group, a UK-based investment company that has about £6 bn of assets under management in the infrastructure, transport and real estate sectors.

UK listed Capital Shopping Centres Group (CSC) has confirmed that it is in advanced talks to acquire the Trafford Centre in Manchester in a £1.6 bn (EUR 1.9 bn) transaction. The asset is owned by the Peel Group, a UK-based investment company that has about £6 bn of assets under management in the infrastructure, transport and real estate sectors.

The Trafford Centre is one of the UK's most successful retail and leisure destinations attracting 35 million customer visits annually. The centre comprises 176,000 m2 of retail, catering and leisure space, including 18,000 m2 at Barton Square, a major homeware and leisure extension.

CSC, the regional shopping centre specialist formerly known as Liberty International, issued a statement on Wednesday following media speculation about the potential acquisition. CSC said that the acquisition - if agreed - would involve an equity purchase price of approximately £750 mln and a further £75 mln in respect of a cash contribution by Peel, in return for the issue of new ordinary shares and convertible bonds by CSC to Peel.

On the basis of CSC's end-June 2010 net asset value per share of 368 pence, the acquisition would imply a price for the Trafford Centre of about £1.6 bn. This takes into account associated net debt of £800 mln, which mostly comprises long-dated amortising CMBS notes, and other net liabilities of £50 mln.

The Trafford Centre's property assets are being externally valued as at 1 November 2010 and are expected to show a valuation of £1.65 bn, which would represent (excluding Barton Square) a net initial yield of 5.01%. and a nominal equivalent yield of 5.58%. The implied acquisition price would represent a 3% discount to this external valuation.

CSC said that it is contemplating an equity placing of up to 9.9% of the company's existing issued share capital. The aim is to increase CSC's overall financial flexibility, to reduce the company's loan to value ratio to within the board's stated desired range of 40-50%. The placing would also help costs arising as a result of the acquisition including the repayment of short-term debt of the Trafford Centre. The acquisition would be conditional on the placing.

It is anticipated that upon completion of the acquisition, Peel would hold 19.9% of the enlarged company and 24.9% assuming conversion of the convertible bonds. John Whittaker, chairman of Peel, would also join the CSC board as a non-executive director and deputy chairman.