The Commonwealth Bank of Australia is forging ahead with plans to spin-off the $6 billion CFS Retail Property Trust, with the new vehicle likely to be called Centre Retail Management.
The move caps a week of upheaval in the retail property market during which Westfield announced it would consolidate its Australian and New Zealand operations in one company and carve off the bulk of its international holdings into another group, and the Commonwealth Bank overcame last-minute wobbles about its resolve to spin off Centre Retail.
Doubts about the deal had arisen over questions about the value of the trust's management rights. There were reports that the bank's hopes for a price of about $400 million for the rights would not be met. But a series of corporate moves ahead of the bank's December board meeting due today point to an agreement being reached and the rights could be bought by the new entity for between $400 and $500 million.
The pricing is in line with funds under management and earnings multiples across the property funds industry. Buying the management rights may necessitate an equity raising by Centre Retail but it would likely be earnings accretive as fees that would have previously been paid to the bank would be kept in the new vehicle.
The independent directors of CFS Retail, Nancy Milne, James Kropp and Richard Haddock, last week joined the board of the new Centre Retail Management and more appointments are expected.
Current CFS Retail fund manager Michael Gorman and the head of Colonial First State Global Asset Management's property unit, Angus McNaughton, are also tipped to join, as they lead a cohort of specialist retail property management staff from the bank across to the new group.
Major CFS shareholder John Gandel is now believed to be backing the spin off as it will give him a greater say in the running of the fund. His Gandel Group co-owns Melbourne's $3.2 billion Chadstone Shopping Centre with the trust and he wants a greater influence over its development pipeline and strategies. This is likely to be achieved by him being granted board representation. UBS is advising the independent directors of CFS Retail, the Commonwealth Bank is advised by Goldman Sachs, and Macquarie Capital is assisting the Gandel Group.
Centre Retail would be the second largest retail property trust behind Westfield's new group, to be known as Scentre, that will own $28.5bn worth of Australasian retail complexes now owned by Westfield Group and Westfield Retail Trust. Westfield Group properties in the US, Britain and its first European development, in Milan, will form the basis of the $US18.4 billion ($20.36 billion) international business, to be known as Westfield Corporation.
The similar names between the new local Westfield fund and the ex-Commonwealth Bank may mean some changes in future.