The independent chairman of Kiwi Income Property Trust's manager says a plan to internalise its management contract at a cost of about $NZ70.6 million ($A62.75 million) won't strain the property investor's balance sheet.
The trust’s gearing may rise to 38 per cent on settlement from 34 per cent in the first half, though it will reduce again on receipt of the first $NZ47.5 million payment in the sale of its 205 Queen Street, Auckland building.
That sale, to Brisbane-based Bloomberg Inc, was announced last month.
The trust announced on Monday 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 $NZ8m.
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,” the trust manager’s chairman Mark Ford told BusinessDesk.
The transaction is subject to approval by unit holders at a special meeting on December 12.
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 $NZ2.1 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 $NZ5.7m in the six months ended September 30, up from $NZ5.3m a year earlier. It wasn’t paid a performance fee in the latest half, compared to $NZ1.4m in the previous year.
Mr 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.
Distributable income rose about 12 per cent to $NZ33.7m in the first half, on a five per cent gain in net rental income to $NZ71.4m, the trust said on Monday.
Net profit jumped to $NZ61.9m from $NZ26.6m, mainly reflecting fair value adjustments to interest rate derivatives and property revaluations.