CBA move puts real estate trusts in play
It would be the first major takeover activity in the real estate investment trust sector since GPT launched a failed bid 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, which is under the Commonwealth Bank banner.
Each trust has its own direct management, with Michael Gorman at CFS Retail, Charles Moore at CPA, and Chris Gudgeon at Kiwi Income. They report to Colonial head Angus McNaughton.
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 it was a signal the bank wanted out of the direct holdings and had therefore opened the floodgates to other buyers.
These could include DEXUS Property , GPT, Mirvac, Investa Office Fund and Lend Lease for CPA's office assets, and Charter Hall for CFS Retail's assets.
The bank's property division has been estimated at $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 $NZ1.1 billion ($948 million).
Pricing for a funds management business is generally between 2 per cent and 3 per cent of total assets under management, depending on debt levels and asset quality.
Commonwealth Bank owns 7.8 per cent of CFS Retail (worth about $430 million) and 6.2 per cent of CPA (about $150 million).
CLSA real estate analyst John Kim estimated the cost of internalising CPA's management would range between $73 million and $97 million, and would be 1.9 per cent to 2.5 per cent dilutive to next year's earnings, assuming it was all funded by debt.
CFS Retail has a buffer in that its largest direct shareholder is billionaire John Gandel, who owns 15.5 per cent of the retail landlord and has a first right of refusal over the bank's stake.
Analysts at Bank of America Merrill Lynch have issued a buy rating on CFS, despite a weaker retail environment and its 25 per cent exposure to "B-grade" malls.
Frequently Asked Questions about this Article…
Commonwealth Bank is reviewing its property holdings and is looking to bring the management of its listed trusts in‑house. Analysts say that review signals the bank wants out of direct holdings, which has opened the door to potential takeover interest from other buyers.
The three listed real estate investment trusts are CFS Retail Fund, Commonwealth Property Office Fund (CPA), and Kiwi Income Property Trust — all managed by Colonial First State Global Asset Management under the Commonwealth Bank umbrella.
CFS Retail is run by Michael Gorman, CPA by Charles Moore, and Kiwi Income by Chris Gudgeon. All three report to Colonial First State head Angus McNaughton.
Analysts suggested potential bidders could include DEXUS Property, GPT, Mirvac, Investa Office Fund and Lend Lease for CPA’s office assets, and Charter Hall as a potential buyer for CFS Retail’s assets.
The article cites CPA with a market capitalisation of about $2.6 billion, CFS Retail around $5.6 billion, and Kiwi Income at NZ$1.1 billion (about $948 million).
Pricing for a funds management business is generally between 2% and 3% of total assets under management, depending on debt levels and asset quality. The bank’s overall property division has been estimated at about $20 billion, though management rights would be only a fraction of that.
CLSA real estate analyst John Kim estimated the cost to internalise CPA’s management would be between $73 million and $97 million. If that were funded entirely with debt, it would be roughly 1.9% to 2.5% dilutive to next year’s earnings, according to the estimate.
Yes — billionaire John Gandel is CFS Retail’s largest direct shareholder with a 15.5% stake and he holds a first right of refusal over the bank’s stake. Despite a weaker retail environment and CFS’s 25% exposure to 'B‑grade' malls, Bank of America Merrill Lynch has issued a buy rating on CFS.
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