CBA backs real estate trust shake-up
The three listed real estate trusts owned by Commonwealth Bank have been put into play as the bank revealed it was looking at internalising the management as part of a review of its property investments.
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.