CBA seeks common management for listed trusts The Commonwealth Bank has revealed it is looking at internalising the management of its three listed real estate investment trusts as part of a strategic review of its property investments. The three REITs, CFS Retail Fund, Commonwealth Property Office Fund and the Kiwi Income Property Trust, are managed externally by Colonial First State Wealth Asset Management, but have been under pressure with from the volatile sharemarket and flat property sector. The bank's property division has been estimated at about $20 billion but the management rights would be worth a fraction of that amount. Charter Hall Group paid about $315 million in early 2010 for the management rights to the then listed Macquarie Bank office and retail REITs. The CBA owns a 7.8 per cent investment in CFS Retail (worth about $430 million) and 6.2 per cent in CPA (about $150 million). CFS Retail has a buffer in that its largest direct shareholder is the private billionaire John Gandel, who owns 15.5 per cent of the retail group and has a first right of refusal over the bank's stake. The Gandel group also owns half of the Chadstone shopping centre in Melbourne with CFS Retail and in July 2011 sold a 50 per cent stake in Northland shopping centre, held with CFS Retail, to the Canadian Pension Plan Investment Board for $455 million. In a short statement, the CBA said its had submitted indicative, non-binding proposals to Colonial Management in relation to separate potential internalisations of the Commonwealth Property Office Fund and CFS Retail Property Trust Group. "The proposal in relation to CFS Retail also incorporates CFS Retail acquiring the wholesale property funds management business and the integrated retail property management and development business owned by CBA," the statement says. CFS Retail has just sold four smaller centres in Victoria to the proposed Pacific Retail REIT, being advised by Moelis & Co. In a recent note to clients, JP Morgan analyst Richard Jones said that the trigger for the latest round of speculation stemmed from the changes under Basel III, where bank capital requirements from holding-listed equity investments have doubled. Mr Jones said that could trigger asset sales such as CPA's half share in 5 Martin Place in Sydney. The analysts at Bank of America Merrill Lynch have issued a buy rating on CFS, despite a generally weaker retail environment and CFS's 25 per cent exposure to what they viewed as "B-grade" shopping centres. "With the recent price correction, CFS offers a 7.1 per cent yield and 5 per cent discount to net tangible assets, which we believe will support outperformance," the analysts said.