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Commonwealth Bank wants $70.6 mln to cede management of Kiwi Income

Monday 11th November 2013

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Commonwealth Bank of Australia has agreed to cede management control of Kiwi Income Property Trust 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.

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