Commonwealth Bank of Australia is seeking to exit its property management business by proposing that its three property funds, with a combined market value of $8.5 billion, set up their own management teams.
CFS Retail Property Trust (CFX), Commonwealth Property Office Fund and Kiwi Income Property Trust (KIP), now managed by CBA’s funds-management division, have received a conditional proposal from the bank to internalize their management, the trusts said in separate regulatory filings. The bank is also proposing that CFS Retail acquire CBA’s wholesale property funds management and retail property and development business, the trust said.
An exit by CBA would see the last major Australian bank with a property arm distance itself from its real estate business, after Macquarie Group Ltd. in 2010 sold the management rights of its property trusts to Charter Hall Group. (CHC) Absorbing the management could cost the funds about A$650 million ($602 million), according to an estimate by JPMorgan Chase & Co.
“In the absence of anyone else coming in with a proposal, it looks like it’s a good way to go, but they’re likely to have some competition,” saidWinston Sammut, Sydney-based managing director of Maxim Asset Management. “There may be different groups that may have their eyes on those operations though, so it’s not a fait accompli.”
In the six months ended Dec. 31, 2012, CFS Retail and Commonwealth Property Office Fund paid management fees to Commonwealth Management Investments totaling A$27.7 million plus performance fees of A$1.3 million. Kiwi Income Property Fund paid management and performance fees of NZ$13.4 million for the 12 months to March 31.
Commonwealth Management Investments Ltd., the manager of the two Australian trusts, has established a sub-committee of independent directors to consider the proposal, it said. It has appointed UBS AG as financial adviser and Ashurst LLP as legal council, it said. The board of Kiwi Income Properties Ltd. will consider the proposal for New Zealand fund, the trust said.
CFS Retail had total assets worth A$8.5 billion as of Dec. 31, and Commonwealth Property Office Fund had A$3.8 billion, according to regulatory filings. Kiwi Income Property Fund reported assets of NZ$2.08 billion in the year ended March 31.
“For Commonwealth Office in particular, a move to internalize would leave it a relatively small listed, pure office vehicle,” Louise Mylott, executive director for specialist sales at Morgan Stanley, wrote in an e-mailed note.
She added that management rights or even the entire asset base would be of keen interest to other listed players.
CFS Retail, Australia’s third-biggest retail property trust by market capitalization at A$5.6 billion, was 2.9 percent higher at A$1.98 as of the close of trading in Sydney. Commonwealth Property Office Fund, valued at A$2.7 billion, jumped 4.2 percent to A$1.13, the highest in two months. Kiwi Income Property rose 0.4 percent to NZ$1.13 and CBA climbed 0.7 percent to A$72.90.
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