Capital & Regional (LSE: CAL), the UK focused REIT with a portfolio of in-town community shopping centres, is pleased to announce that it has entered into an agreement to acquire The Gyle Shopping Centre (“The Gyle” or the “Property”) in Edinburgh for a total acquisition consideration of £40 million, excluding acquisition costs.

The consideration for the acquisition is to be financed through existing funds held by the Company, a new debt facility of £16 million and the approximately £25 million of gross proceeds to be received pursuant to a fully underwritten Open Offer, for which further detail is included below.

The acquisition is in line with the Group’s ambition of seeking selective opportunities to grow the Company and further utilise its leading management expertise in delivering its tried and tested community centre strategy.

Lawrence Hutchings, Chief Executive Officer, comments

“The strong operational results and continued valuation stabilisation we are reporting today give us considerable confidence in our own portfolio, platform and UK Community centres strategy, as well as the physical retail market where many of the structural changes are maturing.

“This confidence is also reflected in our announcement this morning of the acquisition of The Gyle Shopping Centre in Edinburgh, which marks the first step towards rescaling our business and fully leveraging our proven skills and management expertise. This acquisition allows us to capitalise on an opportunity to add an established dual supermarket anchored community centre in Scotland’s capital city to our portfolio, in a transaction that will be part-funded by a £25 million equity raise available to all existing shareholders and fully underwritten by our majority shareholder, Growthpoint.

“The centre will be accretive to income from day one, with the agreed price representing a significant discount to the replacement cost and providing us with a highly attractive entry point from which we can create value. In addition, we have arranged terms with Morgan Stanley to staple debt to the acquisition at a 40% LTV capped at a cost of 6.5% fixed for 5 years.

“We have also identified a number of asset management opportunities to create value including refining the tenant mix, a renewed focus on leasing to improve occupancy and income, whilst enhancing the centre’s appeal to the growing and affluent catchment in south western Edinburgh.”

Key Highlights:

A well-established community shopping centre with opportunities for short and medium-term value creation:

  • £40 million acquisition of The Gyle, a 415,000 square feet well-established and designed community shopping centre on a 50-acre site in Edinburgh.
  • The Gyle is complementary to the Company’s existing portfolio and provides an opportunity for Capital & Regional to apply its management capability and experience to improve the centre’s retail and services offering, consistent with the Company’s community shopping centre strategy which was launched in December 2017.
  • The Property will require minimal immediate capital expenditure but the Company anticipates that there is a clear medium-term opportunity for significant value add initiatives from the Company’s existing resources and from utilising the Group’s expertise.
  • The Gyle comprises 88 retail units and is anchored by a Marks & Spencer store and Morrisons supermarket as well.
  • The Property’s retail space is let at approximately £6.8 million and approximately £5.77 million of annual gross rent and net rental income, respectively, with strong rent collection and headline occupancy of 94 per cent. as well as a weighted average unexpired lease term of 2.1 years.
  • The asset is being acquired at a net initial yield of 13.51% that is expected to rebase to around 12%.
  • With a 2022 footfall of 8.6 million, the Property has 2,800 free car parking spaces and directly serves two large affluent residential areas, as well as the commercial areas of South Gyle and Edinburgh Park. It is also served by the tram system which links the nearby airport to Edinburgh City centre, further improving access and footfall.

First step in rescaling the Company following a period of restructuring and sectorial challenges:

·       TheBoard believes that the Company has now largely completed the balance sheet and corporate elements of its Refocus, Restructure and Recapitalise strategy and is now in a much stronger position, having delivered a good financial and operational performance over 2022 and for the first half of 2023.

·       As such the Board believes the Company is well placed to deliver increased shareholder value through the ongoing remerchandising programmes across the existing portfolio, as well as through selective investment in attractive opportunities and the utilisation of its scalable management platform.

Summary of Transaction and Capital Raising:

·       Acquisition of The Gyle for a consideration of £40 million in cash on completion to be financed through existing funds held by the Company, a £16 million debt facility and the proceeds from a fully underwritten Open Offer.

·       The Company is proposing to raise proceeds of approximately £23.4 million (net of fees, costs and expenses) by way of an open offer of 46,278,681 Open Offer Shares, with the Issue Price representing a 5.43 per cent. discount to the Closing Price of 57.1 pence per Ordinary Share as at the Latest Practicable Date.

·       Qualifying Shareholders are being given an opportunity to apply for Open Offer Shares at the Issue Price on the following pro rata basis: 4 Open Offer Shares at 54 pence each for every 15 Existing Ordinary Shares held and registered in their name at the Record Date or the SA Record Date (as applicable).

Description of the Property and Summary of Terms of the Acquisition

The Company has entered into the Acquisition Agreement with Gyle Shopping Centre Trustee Limited (the “Seller”) to acquire The Gyle Shopping Centre in Edinburgh for a total acquisition consideration of £40 million, excluding acquisition costs.

The Acquisition will be funded by existing funds held by the Company, a £16 million debt facility, an Open Offer proposing to raise proceeds of approximately £23.4 million (net of fees, costs and expenses), and the Group’s existing cash resources.

The Gyle Shopping Centre is a well-established and designed community shopping centre anchored by a Marks & Spencer store incorporating a new 15,000 square foot food hall and Morrisons supermarket. The centre is located six miles west of Edinburgh city centre in a mixed-use area. The centre directly serves two large affluent residential areas which lie to the north and east of the Property as well as the commercial areas of South Gyle and Edinburgh Park which are to the south and west.

On 10 August 2023, the Company’s subsidiary, C&R Retail 1 Limited exchanged contracts with the Seller, for the acquisition of the Property in consideration for the payment of £40 million on completion (conditional upon completion of the Capital Raising). A non-refundable deposit of approximately £1 million (the “Deposit”) was paid on 10 August 2023. Failure to complete the Acquisition will result in forfeiture of the Deposit, unless the Seller does not fulfil its obligations under the Acquisition Agreement, in which case the Deposit will be returned in full to C&R Retail 1 Limited by the Seller.

The final payment due to the Seller on completion of the Acquisition will be the purchase price less the Deposit, being approximately £39 million.

The acquisition of The Gyle Shopping Centre is expected to deliver significant earnings enhancement in the first full year of ownership.

Under the FCA Listing Rules, the Acquisition constitutes a Class 2 transaction and, as such, this announcement is made in accordance with the Company’s disclosure obligations pursuant to Chapter 10 of the FCA Listing Rules.

Capital Raising/Open Offer

The Capital Raising is being implemented by way of an open offer. The Company is proposing to raise proceeds of approximately £23.4 million (net of fees, costs and expenses) by way of an open offer of 46,278,681 Open Offer Shares.

Qualifying Shareholders are being given an opportunity to apply for Open Offer Shares at the Issue Price on the following pro rata basis: 4 Open Offer Shares at 54 pence (converted to Rand at the Sterling exchange rate for SA Shareholders) each for every 15 Existing Ordinary Shares held and registered in their name at the Record Date.

The Sterling/Rand Exchange Rate to be applied is 24.13180 ZAR to 1 GBP as at 9 August 2023. Accordingly, the Issue Price per Open Offer Share in Rand is R13.03117. The SA Shareholder Ratio of Entitlement will be: 4 Open Offer Shares at R13.03117 per share for every 15 Existing Ordinary Shares held and registered in their name on the SA register and at the Record Date.

The Issue Price represents a 5.43 per cent. discount to the Closing Price of 57.1 pence per Ordinary Share as at the Latest Practicable Date.

Subject to the terms and conditions of the Underwriting Agreement, Growthpoint has agreed to subscribe in cash for 28,865,018 Open Offer Shares at the Issue Price, being Growthpoint’s full Open Offer Entitlements. Growthpoint has also agreed to underwrite the Capital Raising by subscribing at the Issue Price for such number of Open Offer Shares as are not taken up by Qualifying Shareholders under the Open Offer.

Posting of Prospectus

The Company also confirms that a prospectus, which contains further details regarding the Open Offer (the “Prospectus”), will be posted to Shareholders later today upon receipt of the relevant regulatory approvals, along with the Application Form (where applicable). A further announcement will be made once the prospectus has been approved.

The terms and conditions of the Open Offer for the Company’s shares held on the SA Register is set out in the Supplementary Information Memorandum which will be distributed with the Prospectus.

The person responsible for arranging for the release of this announcement on behalf of Capital & Regional is Stuart Wetherly, Company Secretary.