Speculation flies over who will get Kiwi management contract

By Campbell McIlroy

Friday 8th February 2002

Everybody is keeping their cards close to their chest over who is and isn't in the running for the Kiwi Income Property Trust management contract.

Kiwi joint-managing director Richard Didsbury would only offer up a very emphatic "there is no certainty about the outcome."

What is certain is that the rumour mill has been working overtime, as many in the market think Lend Lease's option to take out the 50% of the management company it does not own expires on March 31.

But sources within Kiwi confirmed Lend Lease's option did not expire until March 31 2003.

In the meantime, the speculation offers an interesting potpourri of possibilities worth mulling over.

Lend Lease could buy the company outright; Mr Didsbury, along with Ross Green and Friedberg Group, could buy Lend Lease's 50%; or the whole shooting match could be put on the block.

Any sale, however, is just for the management company, not the assets.

It seems almost certain Colonial First State Property Trust, Macquarie, Armstrong Jones, Westfield and AMP have had a peek in the door.

However, AMP's head of property, Ant Beverley, said his company was not looking at it.

"We've been aware of the situation since its inception. We've looked at it in the past though and we'll be interested in what the outcome is."

Sources have suggested AMP would have had problems with charging the management fees required to justify the asking price.

Analysts said Kiwi had the highest base management fee of 0.85% last year, compared with 0.75% for AMP NZ Office Trust (ANZO), 0.6% for Capital Properties, 0.7% for Colonial First State Property Trust, 0.7% for Property For Industry and 0.75% for Calan Healthcare Property Trust.

As a comparison the base fees offer only a basic picture as some have performance bonuses and some charge expenses back to the company.

Capturing Kiwi's portfolio could have provided AMP with the opportunity to create a specialist retail vehicle combining the Botany Town Centre and Lynn Mall from AMP's unlisted property fund with Kiwi's retail portfolio, which includes Sylvia Park, Northland's Shopping Centre in Christchurch, North City Shopping Centre in Porirua, Centre Place in Hamilton and two Warehouse stores in Christchurch, among others.

The office components of Kiwi's portfolio, including its flagship Royal & SunAlliance Centre in Auckland and the Majestic Centre in Wellington, could then have been rolled into the ANZO portfolio.

This structure would probably have raised a few issues for the Commerce Commission over market dominance.

It also raises the possibility of Westfield as a buyer as it would no doubt have had an interest in stopping AMP getting hold of Sylvia Park.

But as one commentator pointed out, Westfield would then have to do something with the office component of the portfolio, which is not its core competency.

But this does not count Westfield out of the running, according to some sources, as control of Sylvia Park would be a coup for the company.

Armstrong Jones is also understood to have had a cursory look but to be not that hot on the idea. Again confirmation was hard to come by, with AJ's general manager property, Andrew Evans, saying, "We do not comment on market rumour or speculation."

Exactly the same response came from Colonial First State Property Trust's Sydney-based chief of property, Geoff McWilliam. Any decision or move from Colonial would be driven from Australia.

Since the Commonwealth Bank of Australia took over Colonial last year there have been hints of change in the wind, including a possible merger between CFST and Newmarket Property Trust.

And despite signing last year's biggest commercial deal, the $42 million purchase of the Millennium Centre, the company still has a desire for further expansion.

The market also seems to be placing a fair amount of weight on rumours surrounding Colonial's involvement.

Macquarie is another Australian-domiciled entity which has started to expand its direct property investment into New Zealand. It has a countrywide property fund and last year launched an assault on the local industrial market with a $13 million investment in The Gate at Mt Wellington through its Macquarie Goodman Industrial Trust. But it is unclear how much of a contender Macquarie is at this stage.

There has also been suggestions that an Australian-based company, possibly Stockland or Deutsche, could use it as an opportunity to launch itself into the New Zealand market. With the sale process understood to be being handled through ABN Amro's Sydney office, it would not be surprising to find a number of Aussies in the hunt.

But all this presupposes that neither Lend Lease nor the Didsbury/Green/Friedberg Group partnership are interested.

There is a suggestion Lend Lease is still looking hard at the possibility, although many in the industry thought if Lend Lease was interested it would have exercised its option by now.

But one factor that may have changed Lend Lease's outlook is the Environment Court decision giving the green light to Sylvia Park at the end of last year.

Most of the market speculation about a sale stems from the fact that Kiwi would need to raise a considerable amount of money to fund any development at Sylvia Park. Its debt level is capped at 35% and the company is already running at about 29.1%, according to last year's annual report.

An outright sale is also just one of the possibilities, according to Mr Didsbury.

"There is a matrix of issues that need to be dealt with and there have been no commitments whatsoever but all these things are being reviewed."

Other possible scenarios include joint ventures for development, a partial sale of the management company and a rights issues.

Mr Didsbury also conceded that people, including ones from the companies mentioned above, had volunteered interest in all the different areas - retail, commercial and the Sylvia Park development - but he said it was not a comprehensive list.

With assets of $886 million on offer, it is hardly surprising that everybody is keeping their cards close to their chests - and that the speculation will continue.

Shoeshine

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