CBA backs real estate trust shake-up
It would be the first major takeover activity in the REIT sector since GPT launched a failed tilt for Australand in December.
The three REITs - CFS Retail Fund, Commonwealth Property Office Fund (CPA) and the Kiwi Income Property Trust - are managed by Colonial First State Global Asset Management (CFSGAM), which itself is under the Commonwealth Bank banner. Each of the trusts have their own direct management, with Charles Moore at CPA, Michael Gorman at CFS Retail and Chris Gudgeon at Kiwi Income, who report to Angus McNaughton, head of CFSGAM.
In a statement, the bank said: "The proposal in relation to CFS Retail also incorporates CFS Retail acquiring the wholesale property funds management business and the integrated retail property management and development business owned by CBA." Analysts said the bank's action was a signal it wanted out of the direct holdings and had therefore opened up the floodgates for other buyers. These could include DEXUS Property, GPT, Mirvac, Investa Office Fund and Lend Lease for the CPA office assets, and Charter Hall would be interested in the CFS Retail assets.
The bank's property division has been estimated at about $20 billion, but the management rights would be worth a fraction of that amount.
CPA has a market capitalisation of $2.6 billion, CFS Retail about $5.6 billion and Kiwi Income's is $NZ1.1 billion.
Pricing for a funds management business is generally about 2-3 per cent of the total assets under management, which varies depending on debt levels and asset quality.
Charter Hall paid about $315 million in 2010 for the management rights to the then listed Macquarie Bank office and retail REITs.
Commonwealth Bank owns 7.8 per cent of CFS Retail (worth about $430 million) and 6.2 per cent of CPA (worth about $150 million).
The real estate analyst at CLSA, John Kim, estimated that the cost of internalising CPA management would range from $73 million to $97 million, and would be between 1.9 per cent and 2.5 per cent dilutive to CPA's 2014 earnings, assuming it was all debt funded. "GPT has the capacity to make a bid with its GPT Wholesale Office Fund (GWOF) following its sales of Erina Fair and Homemaker Centre Fortitude Valley, and with low gearing of 21.7 per cent," Mr Kim said.
"DEXUS would also be able to extract more synergies from a transaction, due to its superior office platform and leasing team, and could also help fund the acquisition with its managed vehicle, the Dexus Wholesale Property Fund (DWPF)."
For CFS Retail it has a buffer in that its largest direct shareholder is the billionaire John Gandel, who owns 15.5 per cent of the retail landlord.
Frequently Asked Questions about this Article…
CBA revealed it was reviewing its property investments and is looking at internalising the management of three listed real estate trusts it currently owns or manages. The move effectively put the trusts into play and could lead to management being brought in-house or assets being sold to other buyers.
The three REITs are CFS Retail Fund, Commonwealth Property Office Fund (CPA) and the Kiwi Income Property Trust. They are managed by Colonial First State Global Asset Management (CFSGAM). Each trust also has a named direct manager — Charles Moore at CPA, Michael Gorman at CFS Retail and Chris Gudgeon at Kiwi Income — who report to Angus McNaughton, head of CFSGAM.
Internalising management means the REIT would take its funds-management and property management functions in-house rather than outsourcing them to a third-party manager. For investors this can change costs, fees and control of assets, and it may be dilutive to earnings in the short term depending on how the move is funded.
Market capitalisations reported in the article are roughly: CPA about $2.6 billion, CFS Retail about $5.6 billion and Kiwi Income about NZ$1.1 billion. Commonwealth Bank owns about 7.8% of CFS Retail (worth around $430 million) and about 6.2% of CPA (worth around $150 million).
Pricing for a funds-management business is generally around 2–3% of total assets under management, with variation depending on debt levels and asset quality. The article notes Charter Hall paid about $315 million in 2010 for management rights to Macquarie Bank’s listed office and retail REITs as an example of past deal pricing.
CLSA’s real estate analyst John Kim estimated the cost to internalise CPA’s management would range from $73 million to $97 million. If that cost were fully debt funded, it would be approximately 1.9% to 2.5% dilutive to CPA’s 2014 earnings, according to the estimate cited.
Analysts suggested potential buyers could include DEXUS Property, GPT, Mirvac, Investa Office Fund and Lend Lease for CPA office assets, while Charter Hall was named as a likely interested buyer for CFS Retail assets. These names were mentioned as logical strategic suitors in the article.
The bank’s property division has been estimated at about $20 billion in total assets, but the article makes clear that the management rights themselves would be worth only a fraction of that overall amount — typically reflected by the 2–3% pricing rule for funds-management businesses.
Call 1300 880 160
Start a chat
Schedule a call
