Commonwealth Bank of Australia’s managed retail property trust agreed to pay A$460 million ($410 million) to take over its operations from the lender.
The agreement will give CFS Retail Property Trust control of A$13.9 billion of properties, including A$8.6 billion in the fund and assets in the lender’s unlisted property funds, according to a regulatory filing today. CFS Retail will partly fund the purchase through a A$280 million fully underwritten share placement to institutional investors today, it said.
The deal advances a plan to exit property by Australia’s last major bank with a real estate business. Kiwi Income Property Trust, one of CBA’s three managed property trusts, internalized its management last month. Commonwealth Bank’s third real estate trust, the Commonwealth Property Office Fund, is the target of a takeover battle between bigger rivals Dexus Property Group and GPT Group.
The price “seems reasonable, although where you’ve only had one bidder at an auction, do you necessarily get the right price?” said Stuart Cartledge, managing director at Melbourne-based Phoenix Portfolios, who owns CFS Retail shares. “The capital raising makes sense. They’ve always been conservative on gearing, so to make a A$460 million acquisition entirely debt funded would be out of character.”
CFS Retail shares, which are halted from trading today, have fallen 4 percent since July 24, when CBA said it planned to exit its property business. CBA shares fell 0.3 percent to A$73.68 at the close of trading in Sydney, compared with a 0.1 percent decline in the benchmark S&P/ASX 200 Index.
Today’s institutional placement of CFS Retail, managed and underwritten by UBS AG, will be priced at A$1.85, compared with yesterday’s closing price of A$1.90, said Commonwealth Managed Investments Ltd., the trust’s manager. The deal will also be funded by debt and another share offering in January capped at A$15 million to eligible shareholders, the company said.
Commonwealth Bank in July said it would exit its three property funds with a combined market value of about $8.6 billion. The Sydney-based bank plans to sell down its 8.6 percent stake in its New Zealand trust, the Kiwi property fund said this week.
The bank, which owns 10 percent of CFS Retail, won’t sell more than half of its shares before Jan. 1, 2015, in the absence of any other corporate activity in the trust, it said today.
Billionaire John Gandel’s closely held Gandel group, which owns almost 17 percent of CFS Retail, and has the first right on the bank’s stake, has said it plans to vote in favor of the deal, the manager said.
Commonwealth Managed Investments’s independent directors unanimously recommend the plan, in the absence of a superior proposal and subject to an independent expert’s report, according to the statement. CFS Retail shareholders will vote in March on the plan, which is expected to boost distributable income by 2.2 percent in the year ending June 30, it said.
“The proposed internalization better aligns management with security-holder interests and is expected to be value enhancing for security-holders,” Commonwealth Managed Investment Chairman Richard Haddock said in the statement. “CFS Retail will benefit from lower costs, additional revenue streams and access to new growth opportunities.”
In the battle for Commonwealth Bank’s managed listed office trust, investors can accept GPT’s off-market takeover offer, valued at A$1.235 a share on Nov. 19, starting today and sell their shares to GPT. The fund’s shareholders are deciding between that Nov. 19 proposal, and a A$1.268-a-share joint bid from Dexus and the Canada Pension Plan Investment Board made on Dec. 11.
CBA today said it will accept the offer from Dexus and CPPIB and sell its 7.8 percent interest in the office trust to them if it will allow them to reach the 50.1 percent needed for Dexus to take over the fund’s management. If that happens, Dexus will pay the bank A$41 million for the trust’s management.