Investor backs Kiwi Income deal

Property Editor·NZ Herald·

11 Nov, 2013 04:30 PM2 mins to read

Sylvia Park Mall in Mt Wellington, Auckland. The shopping mall is part of the Kiwi Income Property Trust's portfolio. Photo / NZ Herald

An institutional investor welcomed Commonwealth Bank of Australia's $70.6 million offer to internalise the management of Kiwi Income Property Trust.

Shane Solly of Mint Asset Management, which holds units on behalf of investors, said the deal looked broadly positive.

"There is a lot of detail to work through but the price being proposed for the management contract appears reasonable. Internalisation may allow Kiwi to become more nimble in the real estate market. There are some additional costs to be borne by Kiwi unit holders in the form of costs around the internalisation, increased board member costs and increased management staffing costs that need to be reviewed," Solly said.

Expectations from the investment community was that the management would be offered for $50 million to $100 million.

Jeremy Simpson, Forsyth Barr's senior equity analyst, said the price looked okay.

"It will certainly be positive for one of the largest listed property vehicles to have an internalised structure," he said.

The Kiwi deal is subject to unit holder approval at a special meeting on December 12, the trust said.

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.

The manager was paid a base fee of $5.7 million in the six months ended September 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 per cent of total assets, up from 32 per cent a year earlier. Net asset backing improved to $1.16 a unit from $1.14. Kiwi Income's units were last at $1.10.