Capital Shopping Centres’ proposed purchase of an option of a Spanish development site from shareholder Peel Holdings has provoked criticism from investors.
Following the announcement yesterday that CSC had paid 20% shareholder Peel Holdings €2.5m and a refundable deposit of €7.5m for a three-year option to buy two sites near Malaga, investors questioned the rationale of the deal.
According to analysts at JP Morgan Cazenove, investors called the deal “a sweetener” to the original £1.6bn Trafford Centre deal between CSC and Peel, which gave Peel almost 25% in the shopping centre company.
They also questioned the true market value of the option on the Spanish land.
Other investors went further, raising questions about whether founder and Peel Group chairman John Whittaker was “deliberately depressing the share price so he can take over the company at a lower price, once the clause expires”.
JP Morgan analysts agreed that “investors are right to be skeptical, as history is not supportive of these types of transactions, and time will tell how the numbers stack up”, adding that “a Spanish development is a different animal in the portfolio”.
“The point we are trying to make, and still believe in: John Whittaker’s involvement will be a positive for CSC. From that point of view, we give the company the benefit of the doubt. But we do agree that we do not like transactions between shareholders or management teams and the company, and the equity market does not tend to reward these. Therefore, if the Spanish acquisition passes the shareholders vote (50% hurdle rate), we believe it should be the last one.”
CSC’s deal in Spain comes on top of its agreement yesterday to pay Peel Group subsidiary, Clydeport Properties, £4.7m for a 31-acre King George V Docks (West) site adjacent to the REIT’s Braehead shopping centre for future development potential.
Robert Duncan, an equity analyst at Jefferies, added: “Two deals totalling £13m at first seem immaterial, but they are not. The Scottish port is a sensible land acquisition for the extension of CSC’s Braehead centre, Glasgow. The Spanish land option is confusing, and we are concerned that CSC risks diluting its core UK franchise investing in a market in which it has no track record through a transaction with its major shareholder.”
The Spanish deal comprises two plots of land: a 60-acre site which has planning consent for an 860,000 sq ft shopping centre alongside a residential scheme, petrol station and a 250-bed hotel; and an adjacent 14-acre site called Galvez Land which has also been earmarked for possible future development.
It is thought that, if CSC does exercise the option, it will pay a further €30m for the main site and €8.1m for Galvez Land.
The Braehead development site in Glasgow would add a further opportunity to extend the shopping centre after the £150m extension, announced in February last year.
According to JP Morgan, most investors seem to think this deal was “okay, albeit not ideal”.
The deals will be voted on at a general meeting on Friday 17 February.
bridget.oconnell@estatesgazette.com
