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UPDATED: Commonwealth Bank wants $70.6M to cede management of Kiwi Income

Mark Ford, independent chairman of Kiwi Income Property Trust's manager, says a plan to internalise the management contract at a cost of about $70.6 million won't put the property investor's balance sheet under pressure.

The trust's gearing may rise to 38 percent on settlement from 34 percent in the first half, though it will reduce again on receipt of the first $47.5 million payment in the sale of its 205 Queen Street building. That sale, to Brisbane-based Bloomberg Inc, was announced last month.

The trust announced today that Commonwealth Bank of Australia has agreed to cede management control in a deal the manager's independent directors say will lift earnings and result in annual savings of about $8 million. CBA decided this year to dispose of its real estate management businesses including Kiwi Income.

"We're comfortable that gearing will be within our target range," Ford told BusinessDesk.

The transaction is subject to approval by unit holders at a special meeting on Dec. 12. CBA first flagged the proposal in July and the independent directors of management company Kiwi Income Properties hired First NZ Capital, Russell McVeagh and KPMG as advisers and commissioned an independent appraisal from Deloitte.

The transaction amounts to about 6.6 times earnings before interest and tax, based on March 31 year results, which is in line with comparable New Zealand transactions, said the Trust, which has $2.1 billion of shopping mall and office tower assets, including Sylvia Park Shopping Centre, the Vero Centre and ASB North Wharf.

The manager was paid a base fee of $5.7 million in the six months ended Sept. 30, up from $5.3 million a year earlier. It wasn't paid a performance fee in the latest half, compared to $1.4 million in the previous year.

Ford said all existing employees of the management company will be offered jobs within the company, as they have been "a first-class management team."

Internalising the management would see Kiwi Income join an ongoing trend by property investors looking to shed external costs and align the interests of the manager with those of unitholders.

Kiwi Income's units rose 0.9 percent to $1.11.

Distributable income rose about 12 percent to $33.7 million in the first half, on a 5 percent gain in net rental income to $71.4 million, the trust said today. Net profit jumped to $61.9 million from $26.6 million, mainly reflecting fair value adjustments to interest rate derivatives and property revaluations.

The trust will pay a first-half distribution to unitholders of 3.2 cents a unit, in line with guidance and down from 3.3 cents a year earlier. With the management contract internalisation looming, no imputation credits will be available for the latest payment, it said.

The trust's retail portfolio increased in value to $1.39 billion from $1.35 billion at March 31, with an occupancy rate of 99.8 percent and a weighted average lease term of 4.1 years, up from 4 years a year earlier.

The office portfolio recorded a jump in value to $697 million from $525 million though occupancy fell back to 88.6 percent from 92.6 percent, reflecting expiry of ANZ Bank's lease at 205 Queen Street and the expiry of Crown Law's least at Unisys House, it said.

The trust has agreed to sell 205 Queen, subject to Overseas Investment Office approval.

The trust's office portfolio WALT improved to 7 years from 4.8 years.

 


EARLIER: Commonwealth Bank of Australia has agreed to cede management control of Kiwi Income Property Trust [NZX: KIP] for about $70.6 million in a deal the manager's independent directors say will lift earnings and result in annual savings of about $8 million.

The transaction is subject to approval by unit holders at a special meeting on Dec. 12, the trust said in a statement. CBA first flagged the proposal in July and the independent directors of management company Kiwi Income Properties hired First NZ Capital, Russell McVeagh and KPMG as advisers and commissioned an independent appraisal from Deloitte.

The transaction amounts to about 6.6 times earnings before interest and tax, based on March 31 year results, which is in line with comparable New Zealand transactions, said the trust, which has $2.1 billion of shopping mall and office tower assets, including Sylvia Park Shopping Centre, the Vero Centre and ASB North Wharf.

The manager was paid a base fee of $5.7 million in the six months ended Sept. 30, up from $5.3 million a year earlier. It wasn't paid a performance fee in the latest half, compared to $1.4 million in the previous year.

Internalising the management would see Kiwi Income join an ongoing trend by property investors looking to shed external costs and align the interests of the manager with those of unitholders. In August, analysts at Craigs Investment Partners said Kiwi Income may have to sell assets to buy out the contract, which could drive up its gearing ratio.

In the first half, bank debt amounted to 34 percent of total assets, up from 32 percent a year earlier. Net asset backing improved to $1.16 a unit from $1.14. Kiwi Income's units were last at $1.10.

Distributable income rose about 12 percent to $33.7 million in the first half, on a 5 percent gain in net rental income to $71.4 million, the trust said today. Net profit jumped to $61.9 million from $26.6 million, mainly reflecting fair value adjustments to interest rate derivatives and property revaluations.

The trust will pay a first-half distribution to unitholders of 3.2 cents a unit, in line with guidance and down from 3.3 cents a year earlier. With the management contract internalisation looming, no imputation credits will be available for the latest payment, it said.

The trust's retail portfolio increased in value to $1.39 billion from $1.35 billion at March 31, with an occupancy rate of 99.8 percent and a weighted average lease term of 4.1 years, up from 4 years a year earlier.

The office portfolio recorded a jump in value to $697 million from $525 million though occupancy fell back to 88.6 percent from 92.6 percent, reflecting expiry of ANZ Bank's lease at 205 Queen Street and the expiry of Crown Law's least at Unisys House, it said.

The trust has agreed to sell 205 Queen, subject to Overseas Investment Office approval.

The trust's office portfolio WALT improved to 7 years from 4.8 years.

(BusinessDesk)

Comments and questions
2

A good starting point but lets ramp up the pressure from the instos and the Shareholders Association and get the costs down...

What is the property guy at ACC going to do this time? Make a big song and dance and then sell his fellow shareholders down the road for a few more cents per share like he did with Vital Healthcare?

The little boy who cried wolf may suffer from his short term-ism last time around...