The acquisition will largely be financed through the issue of up to 22.65 million shares, but MEPC will also be taking on dollars 176m (pounds 119m) of debt and intends to spend between dollars 5m and dollars 10m improving the properties.
American Property Trust, which is owned by British pension funds, owns the Northridge Fashion Centre in San Fernando Valley, California, and the Cumberland Mall in Atlanta, Georgia, both of which have more than a million square feet of selling space and include tenants such as the department stores Macy's, Sears and JC Penney. APT also owns an office and industrial building, although these account for just 3 per cent of its net assets.
Income from the properties in the year to June was pounds 4.4m before tax and it had net assets of pounds 145.6m, including property worth dollars 329.2m. MEPC said the deal would enhance its earnings per share and net asset value in the first year of ownership and increase the group's cash flow.
James Tuckey, MEPC's managing director, said the group had been keen to expand the proportion of retail property in its portfolio and was also looking to add to its US retail interests. It already owns two malls - in Las Vegas, Nevada, and Rochester, Minnesota - and the deal will double the proportion of its portfolio in the US to about 14 per cent. Overall, its retail exposure will rise from 26 to 31 per cent.
Mr Tuckey added that he expected to boost the value of the properties by cutting the vacancy rate - 5 per cent in California and 7 per cent in Georgia - to about the 1 per cent at its two existing centres. He also expected cost savings as management of the centres, which APT subcontracted to a broker, was taken over by its own team.
The property market in the US, as in Britain, has been suffering falls in value and MEPC estimates that APT's shopping centres are worth up to a quarter less than their peak. Rents are based on turnover at the stores and have been flat in Georgia, falling slightly in California. MEPC believes that the market in California will start to pick up towards the end of next year.
Three-quarters of APT's shareholders have irrevocably accepted MEPC's offer. They have the option of taking up to 20 per cent of their consideration in cash.
David Tunstall, property analyst with Smith New Court, pointed out that the group was getting a yield of 8 per cent on the purchase but, based on a dividend maintained at 20p - as promised at the time of the rights issue - was paying a 4.7 per cent yield on its shares. He added that the group was getting the assets at a discount.
But other analysts questioned why MEPC was investing in the US when other property companies were anxious to buy in Britain and said that the group needed an earnings-enhancing acquisition because its dividend was unlikely to be covered by underlying earnings for the year to September.Reuse content