NOTICES OF MEETING AND EXPLANATORY MEMORANDUM

Transcription

1 CFX CFS Retail Property Trust Group Meeting Booklet NOTICES OF MEETING AND EXPLANATORY MEMORANDUM Commonwealth Managed Investments Limited as Responsible Entity of CFS Retail Property Trust 1 (ARSN ) and CFS Retail Property Trust 2 (ARSN ), together CFS Retail Property Trust Group (CFX) Meeting date: Time: Place: Friday 7 March am Hilton Sydney 488 George Street SYDNEY NSW 2000 PROSPECTUS CFX Co Limited ACN This is an important document and requires your immediate attention. You should read the whole document. If you are in doubt as to what you should do, you should consult an independent and appropriately licenced and authorised professional adviser. The Independent Expert has concluded that the Internalisation Proposal is fair and reasonable to, and in the best interests of, Non-Associated CFX Securityholders. The Independent Board Committee unanimously recommends that CFX Securityholders vote in favour of the Internalisation Proposal, in the absence of a superior proposal.

2 ii Guide to the content of this Meeting Booklet This Meeting Booklet includes the following documents: NOTICES OF MEETING AND EXPLANATORY memorandum (pages 1 to 237), in relation to the Internalisation Proposal and De stapling Proposal, divided into the following sections: 1. Letter from the Chairman of the Independent Board Committee 2. Key dates and Meeting location 3. Answers to key questions 4. Explanatory Memorandum 5. Additional information 6. Glossary Annexure A: Independent Expert s Report Annexure B: Independent Limited Assurance Report Annexure C: Taxation Report Annexure D: Notices of Meeting Annexure E: Summary of material contracts The table of contents for the Explanatory Memorandum is on page 10 PROSPECTUS (pages 238 to 279), in relation to issue of CFX Co Shares to CFX Securityholders, divided into the following Sections: 1. Investment overview 2. Background to the Prospectus 3. Key rights attaching to CFX Co Shares 4. Overview of CFX Co and CFX 5. Financial information 6. Key people 7. Additional information 8. Glossary The table of contents for the Prospectus is on page 240 CORPORATE directory A Proxy Form accompanies this Meeting Booklet CFS Retail Property Trust Group

3 CFX Notices of Meeting and Explanatory Memorandum 01 Letter from the Chairman of the Independent Board Committee 7 February 2014 Dear Securityholder INTERNALISATION PROPOSAL YOUR VOTE IS IMPORTANT Background On 24 July 2013, the Board of Commonwealth Managed Investments Limited (CMIL), as Responsible Entity of CFX, announced it had received an indicative proposal from Commonwealth Bank of Australia (CBA) to internalise the management of CFX. This also proposed CFX acquiring CBA s Property Asset Management Business and CFX commencing to manage a number of Wholesale Property Funds and Property Mandates (Internalisation Proposal 1 ). Following the approach from CBA, the CMIL Board established an Independent Board Committee with strict corporate governance protocols to consider the Internalisation Proposal and any alternative proposals. To avoid conflicts of interest, the Independent Board Committee comprises only directors who are not employed by, and are independent of CBA. Agreement with CBA After careful consideration of the Internalisation Proposal, which included undertaking detailed due diligence with the assistance of external financial, legal, accounting and taxation advisers, the Independent Board Committee determined that the Internalisation Proposal presented an important opportunity for, and was in the best interests of, CFX Securityholders. On 18 December 2013, the Independent Board Committee announced that CMIL had entered into an Implementation Deed (Implementation Deed) with CBA to progress the Internalisation Proposal. The agreement reached was the result of a detailed, lengthy and robust negotiation with CBA. Consideration and funding CFX will pay $460 million 2 to CBA as consideration for the implementation of the Internalisation Proposal, which represents: 9.5x pro forma forecast incremental earnings before interest and tax, or EBIT, of $48.5 million for the year ending 30 June , and 3.3% of assets under management of $13.9 billion 4. Funding for the Internalisation Proposal has been secured via a combination of both equity and debt, comprising: the $280 million fully underwritten institutional placement, as was announced on 18 December 2013 and successfully completed on 19 December 2013 the $15 million raised through the Security Purchase Plan, announced on 18 December 2013 and closed on 23 January 2014, and external debt funding of approximately $216 million. 1) All figures relating to the Internalisation Proposal assume the continued management of QV Retail. CMIL has agreed with CBA that the property management agreement relating to QV Retail may be terminated, assigned or novated before or within 12 months of the date of completion for consideration to CMIL of $7.7 million. The impact this may have on various metrics relating to the Internalisation Proposal is set out in Section 6.5(b) of the Explanatory Memorandum. 2) CFX will also acquire net assets of the existing business, including cash, receivables, payables and property, plant and equipment, for an additional consideration of $15 million. Approximately $36 million of transaction costs which includes stamp duty, one-off internalisation costs (rebranding and separation costs), advisory costs and equity raising fees are expected to be incurred by CFX in connection with the Internalisation Proposal. 3) Includes costs of approximately $8 million that are saved as part of internalisation which are not fully captured in distributable income on consolidation but will be reflected in property valuations. 4) Based on 30 June 2013 figures, and adjusted for post balance date items including asset sales, estimated asset revaluations and capital expenditure. Excludes funds in wind down and cross investments. Meeting Booklet

4 02 Strategy and rationale In January 2004, there were six externally managed A-REITs within the top 10 by equity market capitalisation. From mid-2004 onwards there was consolidation within the A-REIT sector, including a number of mergers, which resulted in the internalisation of management of some of the largest listed A-REITs. Many institutional investors prefer real estate investment trusts to be internally managed to reduce opportunity for conflicts of interest as well as other benefits similar to those identified for the Internalisation Proposal in this Explanatory Memorandum. Internalised management is also the most common form for real estate investment trusts in offshore markets such as the United States. In January 2014, there were only three externally managed A-REITs within the top 10 by equity market capitalisation: Westfield Retail Trust, CFX and Commonwealth Property Office Fund (referred to as CPA). Westfield Retail Trust is currently the subject of an announced restructure, that if implemented, will result in the management of that entity being internalised. CPA is currently the subject of an unconditional off market takeover bid by DEXUS. All other major A-REITs are internally managed. CFX was established in 1994 as an externally managed A-REIT through the initial public offering of Gandel Retail Trust which had a portfolio of six properties valued at approximately $700 million. CFX has evolved considerably since inception, growing its portfolio to include 28 directly owned retail properties now valued at $8.6 billion. Arguably one of the main drivers of CFX s enduring success has been its ability to respond to opportunities in a dynamic market environment. If the Internalisation Proposal is implemented, CFX will become one of the largest fully integrated and independently managed retail property groups in Australia, with $13.9 billion 5 in assets under management, approximately 850 property professionals, and proven capabilities in investment management, asset management and corporate services. Post internalisation, CFX will continue to own and manage its existing portfolio of retail assets and the majority of CFX s revenue and growth will continue to be derived from net rental income from these assets. CFX s current strategy in relation to these assets, which will be continued after internalisation, is to adopt a disciplined investment management and intensive asset management approach. Importantly, CFX will continue to maintain its focus on Australian retail assets, maintain its intense focus on asset management to drive income and growth, and maintain a target gearing range of 25%-35%. It is also the current intention to maintain the existing distribution policy of paying out 100% of distributable income. CFX also remains committed to achieving best practice standards in responsible investment by proactively managing environmental, social and governance risks. As a consequence of the Internalisation Proposal, CFX will also own a leading, high quality, integrated retail property funds management and asset management platform, including direct control over key systems and processes. A key focus for CFX post internalisation will be to ensure that a culture of excellence with respect to its people, systems and processes that has been developed under its existing ownership is maintained and further developed. This will be achieved by attracting, developing and retaining the best people, efficient and effective systems and processes, and a sustained focus on continuous improvement and efficiency. This culture of excellence is focused on delivering superior and sustainable risk adjusted returns for investors and strategic partners. Strategic partnerships will be a component of CFX s strategy post internalisation and are one of the benefits of the Internalisation Proposal. Strategic partnerships provide CFX with the potential to derive income diversification and incremental growth by leveraging its leading retail expertise to provide funds management and asset management services to strategic partners. CFX will focus on maintaining and establishing retail sector funds and mandates by targeting like-minded domestic and offshore partners. 5) Based on 30 June 2013 figures, and adjusted for post balance date items including asset sales, estimated asset revaluations and capital expenditure. Excludes funds in wind down and cross investments. CFS Retail Property Trust Group

5 CFX Notices of Meeting and Explanatory Memorandum 03 Internalisation Proposal Advantages of the Internalisation Proposal The Internalisation Proposal is expected to provide a number of financial and governance benefits to CFX Securityholders. Financial benefits include: the strengthening of CFX s market position by creating one of Australia s largest fully integrated and independently managed retail property groups with $13.9 billion 6 in assets under management an expected 2.1% accretion to forecast distributable income and 4.2% value accretion 7, on a per security pro forma basis for the year ending 30 June 2014 the creation of a platform for incremental growth, with increased scale and access to diversified capital sources and enhanced access to investment opportunities additional diversified income streams from funds management and asset management, and the elimination of payments to CBA relating to funds management and asset management fees and replacing them with directly incurred operating costs over which CFX has control. Governance benefits include: the creation of an independently managed group, enhancing alignment of interests with CFX Securityholders the adoption of the internalised management model will bring CFX into line with what is regarded as the industry standard for A-REITs the removal of perceived investor concerns regarding an externalised management model, with management to be employed and incentivised by CFX, and also directly accountable to CFX Securityholders expected continuity of management, with the management team having managed CFX, the Property Asset Management Business, Property Investment Management Business, the Wholesale Property Funds and Property Mandates for a number of years no change to the Responsible Entity of CFX1, ensuring a stable platform for CFX to continue to provide responsible management to CFX Securityholders, and enhanced board accountability, with CFX Securityholders able to periodically elect CFX Co directors, as well as vote in an advisory manner on the remuneration report. Disadvantages and risks of the Internalisation Proposal There are a number of disadvantages and risks associated with the Internalisation Proposal that are set out in Sections 2.3 and 2.5, which you should take into account in deciding how to vote. However the key disadvantages and risks include: you may disagree with the conclusions of the Independent Board Committee that the internalisation secures the best outcome available for CFX Securityholders, or the Independent Expert that the Internalisation Proposal is fair and reasonable to, and in the best interests of, Non-Associated CFX Securityholders the NTA of New CFX Stapled Securities is expected to reduce by 8.1%, from $2.04 to $ This reduction is largely due to the $460 million which CFX will pay to CBA in connection with the Internalisation Proposal. The majority of the assets acquired by CFX in return for this payment will be recognised as intangible assets and therefore excluded from NTA. In addition, there is a small reduction in NTA resulting from the transaction costs associated with the internalisation. However, the net asset value (NAV) of New CFX Stapled Securities is not expected to be materially impacted CFX will no longer have access to CBA s resources (other than certain transitional arrangements) 6) Based on 30 June 2013 figures, and adjusted for post balance date items including asset sales, estimated asset revaluations and capital expenditure. Excludes funds in wind down and cross investments. 7) Value accretion captures the benefit of costs of approximately $8 million that are saved as part of the internalisation which are not fully captured in distributable income on consolidation but will be reflected in property valuations. 8) As at 30 June 2013, on a pro forma basis. Meeting Booklet

6 04 part of CFX s earnings will be fee income and this may increase CFX s risk profile. However, this fee income represents approximately 8% of the total pro forma forecast income of CFX for the year ending 30 June 2014, and approximately half of such fee income derives from the management of assets co owned with CFX1 you may believe that the impact on your personal taxation position outweighs the benefits of the Internalisation Proposal, particularly if the amount of the Capital Distribution exceeds the existing cost base of your CFX1 Units giving rise to a capital gain, and as part of the transition process, there are risks to certain parts of an internalised CFX s business in establishing a new operating environment, including the establishment and migration of information, processes, systems and equipment. Alternatives to the Internalisation Proposal The Independent Board Committee considered maintaining the CBA Group as an external manager of CFX. However, that would not have changed CFX s management structure to be consistent with the movement, in recent years, away from externally managed to internally managed structures for entities that are comparable to CFX. It may also create uncertainty for CFX Securityholders if CBA were to seek an alternative exit, for example by way of a sale of the management rights to a third party. Receipt of the indicative proposal from CBA to internalise the management of CFX was announced to ASX on 24 July 2013 and since that time (over six months) the Independent Board Committee has not received any alternative proposal. The Independent Board Committee considers that a change of control or other competing proposal would be difficult to implement without the support of CBA, given the limited circumstances in which the property management and development services agreements, between CFX and CBA, may be terminated. Implementation of the Internalisation Proposal does not preclude any subsequent corporate activity in relation to CFX. Conditions of Internalisation Proposal The Implementation Deed sets out the following conditions precedent to the Internalisation Proposal: ASIC and ASX granting all waivers, approvals or modifications that each party reasonably requires, or ASX or ASIC has confirmed that a requested approval, waiver or modification is not required the Internalisation Resolutions being approved at the Meeting by CFX Securityholders the Independent Expert s Report stating that, in the Independent Expert s opinion, the internalisation is fair and reasonable for, and in the best interests of, Non-Associated CFX Securityholders no permanent injunction or similar order being issued by any court of competent jurisdiction or Government Agency, or other material legal restraint, preventing the internalisation is in effect at 9.00am on the Completion Date ASX approving the listing of CFX Co, and the official quotation of New CFX Stapled Securities on the ASX, and the Judicial Advice being obtained. Continuity of Board and management The CMIL Board and management will remain focused on providing sustainable, long-term returns for CFX Securityholders and CFX s strategic partners, with CFX to remain supported by strong governance processes. To ensure a smooth transition, the existing directors of the Independent Board Committee, being myself, Mr James Kropp and Ms Nancy Milne OAM will remain on the CFX Co and CMIL Boards. Upon implementation of the Internalisation Proposal, Mr Angus McNaughton currently Managing Director, Property, Colonial First State Global Asset Management, will be appointed as the Managing Director and CEO of the internalised CFX and will be invited to join both the CFX Co and CMIL Boards. Two non-executive directors nominated by The Gandel Group, CFX s largest securityholder, will be invited to join the CFX Co Board, and a further two new independent non-executive directors will be appointed in due course. CFS Retail Property Trust Group

7 CFX Notices of Meeting and Explanatory Memorandum 05 Following a transitional period, it is proposed that the directors of CFX Co will be appointed to the CMIL Board, with each board comprising eight directors, a majority of which will be independent, non executive directors. In addition to Mr McNaughton s appointment as Managing Director and CEO, Mr Michael Gorman, the current CFX Fund Manager, will be appointed Deputy CEO and Chief Investment Officer of the internalised CFX. Independent Board Committee s recommendation The Independent Board Committee unanimously recommends that CFX Securityholders vote in favour of the Internalisation Proposal, in the absence of a superior proposal, and vote in favour of the De stapling Proposal. Independent Expert s opinion The Explanatory Memorandum contains a copy of the Independent Expert s Report at Annexure A, prepared by Grant Samuel & Associates Pty Limited (Independent Expert). The Independent Expert has concluded that the Internalisation Proposal is fair and reasonable to, and in the best interests of, Non Associated CFX Securityholders. CFX Securityholders should read the Independent Expert s Report in full before making their own determination on the merits of the Internalisation Proposal. De stapling Proposal In addition, there is a proposal to de-staple CFX2 from CFX1 subject to the Internalisation Proposal being approved (De stapling Proposal). The De stapling Proposal is intended to improve operational efficiency and simplify the corporate structure of CFX. Advantages of the De stapling Proposal The De stapling Proposal is expected to: result in operational and compliance cost savings, including reduced accounting and tax compliance requirements for CFX2 and reduced complexity when reporting annual taxation information to CFX Securityholders, and simplify CFX s corporate structure, bringing CFX into line with many other internally-managed A-REITs. Disadvantages and risks of the De stapling Proposal The net assets of CFX2 are valued at approximately $5 million and have not materially varied since CFX2 was established. Therefore, it is not expected that there are material disadvantages or risks associated with the De stapling Proposal. Implementation of the De stapling Proposal will involve the transfer of CFX2 Units held by CFX Securityholders to CFX Co. To the extent that the consideration for the transfer of the CFX2 Units is greater than the CFX Securityholder s cost base of those units, the CFX Securityholder will realise a capital gain equal to the excess of the consideration over the cost base. As CFX Securityholders are not receiving any proceeds from the transfer of CFX2 Units (as this forms part of the consideration for the issue of CFX Co Shares), this is likely to give rise to an unfunded tax liability for those CFX Securityholders with this capital gain. Conditions The De stapling Proposal is conditional on all resolutions relating to both the Internalisation Proposal and De stapling Proposal being passed. Your vote is important Please read the Explanatory Memorandum and accompanying Prospectus in full before making any decision as to how to vote (whether in person, by corporate representative or by proxy) at the Meeting to be held at 10.30am (Sydney time) on Friday 7 March 2014 at Hilton Sydney, 488 George Street, Sydney NSW. For your proxy vote to be considered, it must be lodged with Link Market Services Limited by 10.30am (Sydney time) on Wednesday 5 March Meeting Booklet

8 06 Further information If you have any questions in relation to the Internalisation Proposal, please contact either the CFX Securityholder Information Line on (callers in Australia) or (callers outside Australia), or consult an independent and appropriately licensed and authorised professional adviser. Conclusion On behalf of the Independent Board Committee, I am pleased to present the Internalisation Proposal to you. We look forward to your participation at the Meeting and encourage you to vote in favour of all of the resolutions. Yours sincerely Richard Haddock AM Chairman CFS Retail Property Trust Group

9 CFX Notices of Meeting and Explanatory Memorandum 07 Key dates, location of meeting and what to do next KEY DATES Event Date and time (A) Date of this Explanatory Memorandum Friday 7 February 2014 Time and date by which Proxy Forms must be received 10.30am Wednesday 5 March 2014 Voting Record Date time and date for determining eligibility to vote at the Meeting 7.00pm Wednesday 5 March 2014 Meeting date and time 10.30am Friday 7 March 2014 If the Internalisation Proposal is approved by CFX Securityholders and all other Conditions Precedent in connection with the Internalisation Proposal are fulfilled or waived the following key dates apply Second court date (to confirm that CMIL is justified in implementing the Internalisation Proposal) Monday 10 March 2014 Last day of trading in Existing CFX Stapled Securities Tuesday 11 March 2014 New CFX Stapled Securities commence trading on the ASX on a deferred settlement basis Record Date the time and date which determines the entitlements of CFX Securityholders and whether you are a Foreign Holder Implementation and issue of New CFX Stapled Securities Wednesday 12 March pm Tuesday 18 March 2014 Monday 24 March 2014 New CFX Stapled Securities end trading on the ASX on a deferred settlement basis Completion of despatch of holding statements for New CFX Stapled Securities and distribution statements New CFX Stapled Securities commence trading on the ASX on a normal T+3 settlement basis Tuesday 25 March 2014 (A) Dates and times are indicative only and are subject to change. Unless otherwise specified, all times and dates refer to Sydney time. Any changes to the timetable will be notified to ASX and posted on the CFX website at cfsgam.com.au/cfx. If you have any questions in relation to the Explanatory Memorandum, please contact the CFX Securityholder Information Line on (callers in Australia) or (callers outside Australia). Meeting Booklet

10 08 LOCATION OF MEETING Hilton Sydney 488 George Street Sydney NSW 2000 Time and date 10.30am (Sydney time), Friday 7 March 2014 WHAT DO you need TO DO NEXT? Step 1: Carefully read this Explanatory Memorandum and accompanying Prospectus in full You should read this Explanatory Memorandum and accompanying Prospectus in full. It contains important information to assist you in deciding how to vote. It is important that you consider the information disclosed in light of your own particular circumstances. The Answers to key questions beginning on page 14 may help answer some of your questions. If you have any doubts about what action to take, you should consult an independent and appropriately licensed and authorised professional adviser before deciding how to vote at the Meeting. If you have any questions about your Existing CFX Stapled Securities or any matter contained in these documents, contact the CFX Securityholder Information Line on (callers in Australia) or (callers outside Australia). Step 2: Vote on the Resolutions YOUR VOTE IS IMPORTANT If you are a CFX Securityholder on the Voting Record Date you are entitled to vote on the Resolutions at the Meeting (unless you are an Excluded Securityholder in which case you may be precluded from voting or your vote may be disregarded). Resolution 1 seeks the ratification by CFX Securityholders of the issue of 151,351,352 new Existing CFX Stapled Securities pursuant to the Placement announced on 18 December 2013 and completed on 19 December Resolution 1 is independent of all other resolutions on which you will be asked to vote and will not be impacted by the outcome of any other resolution. Resolutions 2, 3 and 4 (the Internalisation Resolutions) must be passed by CFX Securityholders (with Excluded Securityholders being ineligible to vote or whose votes are to be disregarded) in order for the Internalisation Proposal to proceed. Resolutions 5 and 6 seek the approval of CFX Securityholders to permit CMIL to enter into the Intra-Group Transactions Deed (see Section 8.4 for further details). Resolutions 7, 8, 9 and 10 relate to the De stapling Proposal. If the De stapling Resolutions are passed it will have the consequences for New CFX Stapled Securities described in Section 1.2(b) of the Explanatory Memorandum. It is not necessary for the De stapling Resolutions or the Intra-Group Transactions Deed Resolutions to be passed in order for the Internalisation Proposal to be implemented, which only requires the Internalisation Resolutions to be passed. If the Internalisation Resolutions are not passed, then the De stapling Resolutions will not be considered at the Meeting. The Intra-Group Transactions Deed Resolutions will be considered by CFX Securityholders even if the Internalisation Resolutions are not passed. CFS Retail Property Trust Group

11 CFX Notices of Meeting and Explanatory Memorandum 09 If you are unable to attend the Meeting at 10.30am (Sydney time) on Friday 7 March 2014 at Hilton Sydney, 488 George Street, Sydney NSW, you may appoint a proxy to vote your securities on your behalf. If you wish to appoint a proxy, you need to complete the Proxy Form enclosed with this Explanatory Memorandum and it needs to be received at the address indicated on the form by no later than 10.30am (Sydney time) on Wednesday 5 March Instructions for completing and returning your Proxy Form are set out in Annexure D (Notices of Meeting) of this Explanatory Memorandum. Please refer to the voting instructions in Annexure D of this Explanatory Memorandum where these options for voting on the Resolutions are set out in full. The Independent Expert has concluded that the Internalisation Proposal is fair and reasonable to, and in the best interests of, Non-Associated CFX Securityholders. The Independent Board Committee unanimously recommends that CFX Securityholders vote in favour of the Internalisation Proposal, in the absence of a superior proposal. Meeting Booklet

12 10 Table of contents Letter from the Chairman of the Independent Board Committee 1 Key dates / Meeting location / What to do next 7 Disclaimer and important notices 12 Answers to key questions 14 Section 1 Overview of the Internalisation Proposal and De stapling Proposal Summary of the Internalisation Proposal and De stapling Proposal Overview of CFX and impact of the Internalisation Proposal and De stapling Proposal Implications if the Internalisation Proposal is not approved 32 2 Advantages, disadvantages and risks of the Internalisation Proposal and De stapling Proposal Reasons you may choose to vote in favour of the Internalisation Proposal Reasons you may choose to vote in favour of the De stapling Proposal Reasons you may vote against the Internalisation Proposal Risks of and reasons you may choose to vote against the De stapling Proposal Risks 38 3 Overview of the Property Investment Management Business and Property Asset 44 Management Business 3.1 Introduction Overview of the Property Investment Management Business Overview of the Property Asset Management Business 48 4 Details of the Internalisation Proposal and De stapling Proposal Establishment of the Independent Board Committee Background to the Internalisation Proposal and Independent Board Committee 52 recommendation 4.3 What are the steps to implement the Internalisation Proposal and De stapling Proposal? How the Internalisation Proposal works if the De stapling Resolutions are not passed 55 by CFX Securityholders 4.5 Key dates Consideration of the Internalisation Proposal Conditions Precedent to the Internalisation Proposal Transitional arrangements Impact of the Internalisation Proposal on material agreements Taxation Report and stamp duty Foreign Holders 58 5 Description of an internalised CFX Overview of an internalised CFX Strategy post internalisation CFX directly owned assets Corporate governance CMIL and CFX Co Boards post internalisation Key management team Remuneration of Managing Director and CEO, and Deputy CEO and Chief Investment Officer Continuity of senior management Employees 72 CFS Retail Property Trust Group

13 CFX Notices of Meeting and Explanatory Memorandum 11 6 Financial information Overview Pro Forma Consolidated Statement of Financial Position Pro Forma Consolidated Forecast Distributable Income Distribution guidance for year ending 30 June Sensitivities Key accounting policies New accounting policies Funding for the Internalisation Proposal 82 7 CBA s interests in the Internalisation Proposal Overview of current arrangements with CBA Consideration payable to CBA in connection with the Internalisation Proposal 85 8 Meeting and voting information Summary of required CFX Securityholder approvals Placement Resolution (Resolution 1) Internalisation Resolutions (Resolutions 2, 3 and 4) Intra-Group Transactions Deed Resolutions (Resolutions 5 and 6) De stapling Resolutions (Resolutions 7, 8, 9 and 10) Voting exclusions and restrictions 99 9 Additional information Introduction Interests of CMIL directors Summary of material contracts Costs associated with the Internalisation Proposal CFX Securityholders participating in the Internalisation Proposal Foreign Holders and Sale Facility Foreign selling restrictions Acquisition of New CFX Stapled Securities by foreign persons Regulatory consents Consents Supplementary information Continuous disclosure statement Directors statements No other information Definitions and interpretation Definitions Interpretation 118 Annexure A Independent Expert s Report 119 B Independent Limited Assurance Report 200 C Taxation Report 209 D Notices of Meeting 218 E Summary of material contracts 227 Corporate directory 237 Meeting Booklet

14 12 Disclaimer and important notices General You should read this Explanatory Memorandum and accompanying Prospectus in full before making any decision as to how to vote on the Resolutions. Purpose of this Explanatory Memorandum This Explanatory Memorandum includes: an Explanatory Memorandum relating to the Internalisation Proposal, De stapling Proposal, Placement Resolution and Intra Group Transactions Deed Resolutions to be considered at the Meeting of CFX Securityholders Notices of Meeting for CFX Securityholders to be held at 10.30am (Sydney time) on Friday 7 March 2014 at Hilton Sydney, 488 George Street, Sydney NSW. The Notices of Meeting can be found in Annexure D in this Explanatory Memorandum, and the Independent Expert s Report set out in Annexure A of this Explanatory Memorandum. This Explanatory Memorandum provides CFX Securityholders with information about the Internalisation Proposal, De stapling Proposal and the other Resolutions and how to vote on the Resolutions. To properly understand the Internalisation Proposal, De stapling Proposal, Placement Resolution and Intra Group Transactions Deed Resolutions, this Explanatory Memorandum must be read in conjunction with the Prospectus for CFX Co Shares to be issued to CFX Securityholders (other than Foreign Holders), which accompanies this Explanatory Memorandum. This Explanatory Memorandum does not constitute or contain an offer to CFX Securityholders, or a solicitation of an offer from CFX Securityholders, in any jurisdiction. A copy of this Explanatory Memorandum along with the Prospectus has been lodged with ASIC and ASX on 7 February Neither ASIC, ASX nor any of their officers takes any responsibility for the contents of this Explanatory Memorandum or the Prospectus. The fact that ASX may admit CFX Co to the official list of ASX does not mean that ASX makes any statement regarding, and shall not be taken in any way as an indication of, the merits of an investment in CFX and hence in New CFX Stapled Securities. CFX Co will apply for admission to the official list of ASX Limited and for quotation of New CFX Stapled Securities on or before 14 February Important notice associated with Judicial Advice from the Court The fact that the Court has given Judicial Advice that CMIL (as Responsible Entity of CFX) would be justified in convening the Meeting does not mean that the Court: has formed any view as to merits of the Internalisation Proposal or as to how CFX Securityholders should vote (on this matter CFX Securityholders must reach their own conclusion), or has prepared, or is responsible for the content of, this Explanatory Memorandum or the Prospectus. Any CFX Securityholder who wishes to oppose the Judicial Advice at the second court hearing may do so by filing with the Court and serving on CMIL a notice of appearance in the prescribed form together with any affidavit that the CFX Securityholder proposes to rely on. Responsible Entity CMIL is the Responsible Entity of both CFX1 and CFX2. Each of CFX1 and CFX2 is a managed investment scheme registered under Chapter 5C of the Corporations Act. Unless the context otherwise requires in this Explanatory Memorandum, a reference to CMIL is a reference to it in its capacities as Responsible Entity of both CFX1 and CFX2. Defined terms Capitalised terms used in this Explanatory Memorandum are defined in Section 10 of this Explanatory Memorandum. Section 10 also sets out some rules of interpretation which apply to this Explanatory Memorandum. No investment advice This Explanatory Memorandum has been prepared without reference to the investment objectives, financial and taxation situation or particular needs of any CFX Securityholder or any other person. The information and recommendations contained in this Explanatory Memorandum or the Taxation Report in Annexure C do not constitute, and should not be taken as, financial product advice. The CMIL Board encourages you to seek independent financial and taxation advice before making any investment decision and any decision as to whether or not to vote in favour of the Resolutions as relevant to you. This Explanatory Memorandum is important and requires your immediate attention. It should be read in its entirety before making a decision on how to vote on the Resolutions. In particular, it is important that you consider the disadvantages and potential risks of the Internalisation Proposal and De stapling Proposal as set out in Sections 2.3 to 2.5 of this Explanatory Memorandum and the views of the Independent Expert set out in the Independent Expert s Report contained in Annexure A of this Explanatory Memorandum. If you are in doubt as to the course you should follow, you should consult an independent and appropriately licensed and authorised professional adviser. Forward looking statements Some of the statements appearing in this Explanatory Memorandum may be in the nature of forward looking statements. Forward looking statements or statements of intent in relation to future events in this Explanatory Memorandum (including in the Independent Expert s Report) should not be taken to be a forecast or prediction that those events will occur. Forward looking statements generally may be identified by the use of forward looking words such as believe, aim, expect, anticipate, intending, foreseeing, likely, should, planned, may, estimate, potential, or other similar words. Similarly, statements that describe the objectives, plans, goals or expectations of CMIL or CFX are or may be forward looking statements. You should be aware that such statements are only predictions and are subject to inherent risks and uncertainties. Those risks and uncertainties include factors and risks specific to the industry in which CFX operates, as well as general economic conditions, prevailing exchange rates and interest rates and conditions in the financial markets. Actual events or results may differ materially from the events or results expressed or implied in any forward looking statement and deviations are both normal and to be expected. None of CMIL, its officers, or any person named in this Explanatory Memorandum or involved in the preparation of this Explanatory Memorandum makes any representation or warranty (either express or implied) as to the accuracy or likelihood of fulfilment of any forward looking statement, or any events or results expressed or implied in any forward looking statement. Accordingly, you are cautioned not to place undue reliance on those statements. This Explanatory Memorandum also contains forward looking statements based on the current expectations of CMIL about future events, including pro forma forecast statements of financial performance for the year ending 30 June The prospective information is, however, subject to risks, uncertainties and assumptions that could cause actual results to differ materially from the expectations described in such prospective information. Factors which may affect future financial performance include those risks identified in Section 2.5, the assumptions not proving correct and other matters not currently known to, or considered by, CMIL. CFX Securityholders should note that the historical CFS Retail Property Trust Group

15 CFX Notices of Meeting and Explanatory Memorandum 13 financial performance of CFX is no assurance or indicator of future financial performance of CFX (whether or not the Internalisation Proposal and De stapling Proposal proceeds). CMIL (as Responsible Entity of CFX) does not guarantee any particular rate of return or the performance of CFX, nor does it guarantee the repayment of capital or any particular tax treatment in respect of any investment in CFX. The forward looking statements in this Explanatory Memorandum reflect views held only at the date of this Explanatory Memorandum. Subject to any continuing obligations under the ASX Listing Rules or the Corporations Act, CMIL and its officers disclaim any obligation or undertaking to distribute after the date of this Explanatory Memorandum any updates or revisions to any forward-looking statements to reflect any change in expectations in relation to them or any change in events, conditions or circumstances on which any such statement is based. Responsibility statement Except as outlined below, the information contained in this Explanatory Memorandum has been provided by CMIL and is its responsibility alone. Except as outlined below, neither CBA nor any of its subsidiaries (other than CMIL), directors, officers, employees or advisers assumes any responsibility for the accuracy or completeness of such information. No consenting party has withdrawn their consent before the date of this Explanatory Memorandum. CBA has provided and is responsible for the CBA Information. None of CMIL, nor its directors, officers or advisers assume any responsibility for the accuracy or completeness of the CBA Information. Grant Samuel & Associates Pty Limited has prepared the Independent Expert s Report (as set out in Annexure A of this Explanatory Memorandum) and takes responsibility for that report. None of CMIL, CBA nor any of their respective subsidiaries, directors, officers, employees or advisers assumes any responsibility for the accuracy or completeness of the information contained in the Independent Expert s Report, except, in the case of CMIL, in relation to the information which it has provided to the Independent Expert. Ernst & Young Transaction Advisory Services Limited has prepared the Independent Limited Assurance Report on the total pro forma forecast transaction impact financial information, represented by column D in Section 6.3(a), set out in Annexure B of this Explanatory Memorandum and takes responsibility for that report. None of CMIL, CBA nor any of their respective subsidiaries, directors, officers, employees or advisers (other than Ernst & Young Transaction Advisory Services Limited) assumes any responsibility for the accuracy or completeness of the information contained in the Independent Limited Assurance Report. Greenwoods & Freehills Pty Limited has prepared the Taxation Report (as set out in Annexure C of this Explanatory Memorandum) and takes responsibility for that report. None of CMIL, CBA nor any of their respective subsidiaries, directors, officers, employees or advisers (other than Greenwoods & Freehills Pty Limited) assumes any responsibility for the accuracy or completeness of the information contained in the Taxation Report. Foreign jurisdictions The release, publication or distribution of this Explanatory Memorandum in jurisdictions other than Australia may be restricted by law or regulation in such other jurisdictions and persons outside Australia who come into possession of this Explanatory Memorandum should seek advice on and observe any such restrictions. Any failure to comply with such restrictions may constitute a violation of applicable laws or regulations. This Explanatory Memorandum has been prepared in accordance with laws of the Commonwealth of Australia and the information contained in this Explanatory Memorandum may not be the same as that which would have been disclosed if this Explanatory Memorandum had been prepared in accordance with the laws and regulations outside Australia. For details of the selling restrictions that apply in connection with the Internalisation Proposal, refer to Section 9.7 of this Explanatory Memorandum. Financial amounts All financial amounts in this Explanatory Memorandum are expressed in Australian currency unless otherwise stated. Any discrepancies between totals in tables or financial statements, or in calculations, graphs or charts are due to rounding. All financial and operational information set out in this Explanatory Memorandum is current as at the date of this Explanatory Memorandum, unless otherwise stated. Charts, maps and diagrams Any diagrams, charts, maps, graphs and tables appearing in this Explanatory Memorandum are illustrative only and may not be drawn to scale. Unless stated otherwise, all data contained in diagrams, charts, maps, graphs and tables is based on information available as at 30 June Timetable and dates All times and dates referred to in this Explanatory Memorandum are times and dates in Australian Eastern Daylight Time, being the time in Sydney, Australia, unless otherwise indicated. All times and dates relating to the implementation of the Internalisation Proposal and De stapling Proposal referred to in this Explanatory Memorandum may change and, among other things, are subject to all necessary approvals from regulatory authorities. Privacy CMIL may collect personal information in the process of implementing the Internalisation Proposal and De stapling Proposal. The type of information that it may collect about you includes your name, contact details and information on your securityholding in CFX and the names of persons appointed by you to act as a proxy, attorney or corporate representative at the Meeting as relevant to you. The collection of some of this information is required or authorised by the Corporations Act. The primary purpose of the collection of personal information is to assist CMIL to conduct the Meeting and implement the Internalisation Proposal and De stapling Proposal. Without this information, CMIL may be hindered in its ability to issue this Explanatory Memorandum and implement the Internalisation Proposal and De stapling Proposal. Personal information of the type described above may be disclosed to Link Market Services Limited, third party service providers (including print and mail service providers and parties otherwise involved in the conduct of the Meeting), authorised securities brokers, professional advisers, related bodies corporate of CMIL, regulatory authorities, and also where disclosure is otherwise required or allowed by law. CFX Securityholders who are individuals and the other individuals in respect of whom personal information is collected as outlined above have certain rights to access the personal information collected in relation to them. If you would like to obtain details of information about you held by CMIL, please contact the CFX Securityholder Information Line on (callers in Australia) or (callers outside Australia). CFX Securityholders who appoint an individual as their proxy, corporate representative or attorney to vote at the Meeting should ensure that they inform such an individual of the matters outlined above. Date This Explanatory Memorandum is dated 7 February Meeting Booklet

16 14 ANSWERS TO KEY QUESTIONS The following set of questions and answers is intended to assist in your understanding of the Internalisation Proposal and De stapling Proposal. These are qualified by, and should be read together with, all other parts of the Explanatory Memorandum and the accompanying Prospectus. Question Answer Where to find more information Details of the Internalisation Proposal and De stapling Proposal What is the Internalisation Proposal? What is CBA being paid in connection with the Internalisation Proposal? The Internalisation Proposal is to internalise the management of CFX, which also involves CFX acquiring CBA s Property Asset Management Business and, in respect of CBA s Property Investment Management Business, CFX commencing to manage a number of Wholesale Property Funds and Property Mandates. If the Internalisation Proposal is implemented, CFX will become one of Australia s largest fully integrated and independently managed retail property groups. In addition, there is a proposal to de staple CFX2 from CFX1 for administrative efficiency subject to the Internalisation Proposal being approved. CFX will pay $460 million 1 to CBA as consideration for the implementation of the Internalisation Proposal, which represents: 9.5x pro forma forecast incremental EBIT of $48.5 million for the year ending 30 June , and 3.3% of assets under management of $13.9 billion 3. The consideration incorporates payments: in respect of the Property Investment Management Business, to allow and enable an internalised CFX to commence management of CFX and a number of Wholesale Property Funds and Property Mandates, and to acquire the Property Asset Management Business that provides property management, development management and leasing services for CFX-owned and co-owned properties, Wholesale Property Funds, Property Mandates and other third parties. Sections 1 and 4 Sections 1.1 and 6.8(b) 1) CFX will also acquire net assets of the existing business, including cash, receivables, payables and property, plant and equipment, for an additional consideration of $15 million. 2) Includes costs of approximately $8 million that are saved as part of internalisation which are not fully captured in distributable income on consolidation but will be reflected in property valuations. 3) Based on 30 June 2013 figures, and adjusted for post balance date items including asset sales, estimated asset revaluations and capital expenditure. Excludes funds in wind down and cross investments. CFS Retail Property Trust Group

17 CFX Notices of Meeting and Explanatory Memorandum 15 Question What are the alternatives to the Internalisation Proposal? Who is CFX Co? What happens if the Internalisation Resolutions and the De stapling Resolutions are passed by CFX Securityholders? What happens if the Internalisation Resolutions are passed but the De stapling Resolutions are not passed by CFX Securityholders? Answer The Independent Board Committee considered maintaining the CBA Group as an external manager of CFX. However, that would not have changed CFX s management structure to be consistent with the movement, in recent years, away from externally managed to internally managed structures for entities that are comparable to CFX. It may also create uncertainty for CFX Securityholders if CBA were to seek an alternative exit, for example by way of a sale of the management rights to a third party. Receipt of the indicative proposal from CBA to internalise the management of CFX was announced to ASX on 24 July 2013 and since that time (over six months) the Independent Board Committee has not received any alternative proposal. The Independent Board Committee considers that a change of control or other competing proposal would be difficult to implement without the support of CBA given the limited circumstances in which the property management and development services agreements, between CFX and CBA, may be terminated. Implementation of the Internalisation Proposal does not preclude any subsequent corporate activity in relation to CFX. CFX Co is a new company that has been incorporated specifically for the purposes of implementing the Internalisation Proposal. CFX Co will be the holding company of the internalised CFX and will own the Target Entities. Upon implementation of the Internalisation Proposal, CFX Securityholders will be issued CFX Co Shares which will form part of New CFX Stapled Securities. CFX Securityholders will hold New CFX Stapled Securities, comprising one CFX Co Share stapled to one CFX1 Unit, which will be quoted and traded on the ASX. CFX Co Shares or CFX1 Units may not be separately traded on the ASX. The Internalisation Proposal will still proceed; however, CFX2 Units will not be de stapled from CFX1 Units. CFX Securityholders will hold a stapled security which trades on the ASX, comprising one CFX1 Unit, one CFX2 Unit and one CFX Co Share. Where to find more information N/A Sections 1.1 and 4.3 Sections 1.2(b) and 4.3 Sections 1.2(c) and 4.4 Meeting Booklet

18 16 Question What happens if the Internalisation Proposal is not approved? Answer If the Internalisation Proposal is not approved: CFX2 will continue to be stapled to CFX1 and CFX Securityholders will continue to own a stapled security comprising a CFX1 Unit stapled to a CFX2 Unit which will continue to trade on the ASX as a single stapled security CMIL will remain a CBA Group entity and CFX will continue to pay management fees to members of the CBA Group in future periods CFX will not make a cash payment of $460 million 4 to CBA as consideration for the Internalisation Proposal CFX will still incur fees relating to the Internalisation Proposal and equity raising fees of approximately $11.5 million CFX Securityholders will not receive the anticipated benefits from implementation of the Internalisation Proposal, and proceeds from the Placement and SPP will be applied to the refurbishment and re-development of existing directly owned shopping centres, and the potential acquisition of shopping centres in line with CFX s strategy. Also, the new debt facilities entered into for the Internalisation Proposal will be used to replace upcoming expiring debt facilities. In certain limited circumstances where the Internalisation Proposal is not implemented, a compensation and/or a reimbursement fee may be payable to CBA. For details on when such fees may be payable to CBA, see Section 2.5(a)(ii) of this Explanatory Memorandum. Where to find more information Section 1.3 4) CFX will also not acquire net assets of the existing business, including cash, receivables, payables and property, plant and equipment, for an additional consideration of $15 million. CFS Retail Property Trust Group

19 CFX Notices of Meeting and Explanatory Memorandum 17 Question Do I need to pay any cash consideration under the Internalisation Proposal and De stapling Proposal? Who will be the management team of CFX if the Internalisation Proposal is implemented? What are the key conditions to the Internalisation Proposal proceeding? Can the Internalisation Proposal be terminated? Answer No. CFX Securityholders are not required to pay any cash consideration in connection with the Internalisation Proposal and de stapling Proposal. However, CFX Securityholders will not be paid the Capital Distribution. Rather it will be applied by CMIL, on behalf of CFX Securityholders who are entitled to the Capital Distribution, in payment of the issue price for the CFX Co Shares that are to be issued to CFX Securityholders at the Record Date or, in relation to Foreign Holders, to the Sale Nominee. If the De stapling Proposal is approved, CFX2 Units will be de stapled from CFX1 Units and they will be transferred to CFX Co. The transfer of CFX2 Units to CFX Co will be regarded as a capital contribution that is made by holders of Existing CFX Stapled Securities for the issue of CFX Co Shares to them, or in the case of Foreign Holders to the Sale Nominee, in accordance with the Internalisation Proposal. CFX2 will become wholly owned by CFX Co. CMIL as Responsible Entity of CFX2, and as agent and attorney for each holder of CFX2 Units, will authorise the transfer of all CFX2 Units to CFX Co on behalf of the holders of CFX2 Units. It is expected that the key members of CBA s management team who currently manage CFX will continue to manage CFX but be employed by CFX (rather than CBA). CFX will no longer rely on CBA as an external provider of management services and will no longer pay management fees to members of the CBA Group. Continuity of the executive management team is expected with: current CFSGAM Property Managing Director, Mr Angus McNaughton, to be appointed Managing Director and CEO, and current CFX Fund Manager, Mr Michael Gorman, to be appointed Deputy CEO and Chief Investment Officer. A new Chief Financial Officer will be appointed and an executive search organisation has commenced the recruitment process. Refer to Section 5.8 of this Explanatory Memorandum for details of continuing senior management. The Internalisation Proposal will not proceed unless certain Conditions Precedent are satisfied. Refer to Section 4.7 and Annexure E for further information. The Internalisation Proposal may be terminated by either CBA or CMIL in certain limited circumstances as set out in the Implementation Deed. Refer to Annexure E for further information. Where to find more information Section 4.3 Sections 1.2 and 5.6 to 5.8 Section 4.7 and Annexure E Annexure E Meeting Booklet

20 18 Question What will the relationship be with CBA following implementation of the Internalisation Proposal? Will CFX continue to have the same name following implementation of the Internalisation Proposal? Who is on the Independent Board Committee and why was it formed? What does the Independent Board Committee recommend CFX Securityholders do? Who are the remaining directors of CMIL and are they making recommendations in relation to the Internalisation Proposal and De stapling Proposal? Answer Appropriate separation and transition arrangements in relation to key systems, resources and processes have been agreed with CBA to ensure an orderly and efficient management of the internalisation process. Limited transition arrangements are required for the Melbourne-based retail asset management business because the majority of its key systems and processes currently operate independently. If the Internalisation Proposal is implemented, a transitional arrangement will be entered into in relation to CFX continuing to conduct the Property Investment Management Business and Property Asset Management Business under the brands used in conducting those businesses prior to the Internalisation Proposal for a period of up to 12 months. During this time, a new corporate name and brand will be developed. The brands of the directly owned or managed assets are not involved in this transitional arrangement, and no changes are expected to their individual branding arrangements. Following receipt of the initial proposal from CBA, the CMIL Board established the Independent Board Committee with strict governance protocols to consider the Internalisation Proposal and any alternative proposals. The composition of the Independent Board Committee of CMIL is Mr Richard Haddock (Chairman), Mr James Kropp and Ms Nancy Milne, each of whom is independent of CBA. The Independent Board Committee unanimously recommends that you vote in favour of each resolution. In respect of the Internalisation Resolutions, this recommendation is made in the absence of a superior proposal. The remaining directors of CMIL, Mr Ross Griffiths and Mr Michael Venter, are not part of the Independent Board Committee and stood aside for the consideration of the Internalisation Proposal. These directors do not consider it appropriate to make a recommendation to CFX Securityholders on the Resolutions given that they are both senior executives of CBA. Where to find more information Sections 1.1, 4.8 and Annexure E Sections 4.8 and Annexure E Sections 2.1(a) and 4.1 Sections 2.1(a), 4.2 and Annexure D Section 9.2 and Annexure D CFS Retail Property Trust Group

21 CFX Notices of Meeting and Explanatory Memorandum 19 Question How does The Gandel Group intend to vote in relation to the Internalisation Proposal? What benefits will The Gandel Group receive if the Internalisation Proposal is approved? What if an alternative proposal is received? What is the conclusion of the Independent Expert? What will happen if the Independent Expert changes its conclusion? Will my interest as a CFX Securityholder change on implementation of the Internalisation Proposal and De stapling Proposal? Answer The Gandel Group, which has a relevant interest in 807,161,068 Existing CFX Stapled Securities (representing approximately 26.8% of CFX and comprising a 17.3% direct stake and a further 9.5% non-voting interest in CFX pursuant to a right of first refusal arrangement with CBA), has indicated its intention to vote in favour of the Internalisation Proposal, in the absence of a superior proposal and subject to each of the conditions set out below also being satisfied: an Independent Expert s Report concluding (and the Independent Expert maintaining the conclusion) that the Internalisation Proposal is fair and reasonable for, and in the best interests of, Non-Associated CFX Securityholders the CFX Securityholder vote on the Internalisation Proposal occurring no later than 30 April 2014, and the Independent Board Committee continuing to unanimously recommend that CFX Securityholders approve the Internalisation Resolutions. The Gandel Group will be issued CFX Co Shares in satisfaction of the Capital Distribution in the same manner as other CFX Securityholders at the Record Date (other than Foreign Holders). In addition, The Gandel Group will be asked to nominate two non-executive directors to join the CFX Co Board. If an alternative proposal is received by CMIL prior to the Meeting, the Independent Board Committee will consider the alternative proposal and provide further advice to CFX Securityholders. The Independent Expert has concluded that the Internalisation Proposal is fair and reasonable to, and in the best interests of, Non-Associated CFX Securityholders. The Independent Expert s Report is set out in Annexure A of this Explanatory Memorandum. You will be advised if the Independent Expert changes its conclusion and whether the change has any impact on the recommendation of the Independent Board Committee. Unless you are a Foreign Holder, on implementation of the Internalisation Proposal, for every Existing CFX Stapled Security you hold, you will be issued a share in a recently incorporated entity, CFX Co, which will be stapled to a CFX1 Unit and, unless the De stapling Resolutions are passed, a CFX2 Unit. If the De stapling Proposal is approved, each CFX2 Unit will be de stapled from a CFX1 Unit, and will be transferred to CFX Co who will hold all CFX2 Units. The New CFX Stapled Securities will be quoted on the ASX as a single tradeable security. Where to find more information N/A N/A Section 4.6 Section 2.1(b) and Annexure A N/A Sections 1, 4.3 and 4.4 Meeting Booklet

22 20 Question What if I am a Foreign Holder? What are the taxation implications of the Internalisation Proposal and De stapling Proposal on CFX Securityholders? Why CFX Securityholders may choose to vote in favour of the Internalisation Proposal Answer CFX Co Shares will not be issued to any CFX Securityholder who is a Foreign Holder. Section 9.6 explains who are Foreign Holders, as a result of their registered address being in foreign countries other than certain specified foreign countries. If you are a Foreign Holder, your Existing CFX Stapled Securities (to which will be stapled a CFX Co Share that you would otherwise be entitled to under the Internalisation Proposal) will be sold under the Sale Facility and you will receive the net proceeds of such sale. Alternatively, you may wish to sell your holding on or before the last day of ASX trading in Existing CFX Stapled Securities, which is expected to be Tuesday, 11 March A general summary of the Australian taxation implications of the Internalisation Proposal for Australian resident and non-resident CFX Securityholders who hold their Existing Stapled Securities as capital assets for taxation purposes is set out in the Taxation Report in Annexure C of this Explanatory Memorandum. All investors should seek independent professional advice on the consequences of their participation in the transaction, based on their particular circumstances. CFX Securityholders who are not residents in Australia should obtain advice on the taxation implications from the proposed transaction arising in their local jurisdiction. The Independent Board Committee believes that the Internalisation Proposal provides a number of financial and governance benefits to CFX Securityholders. Financial benefits include: the strengthening of CFX s market position by creating one of Australia s largest fully integrated and independently managed retail property groups with $13.9 billion 5 in assets under management an expected 2.1% accretion to forecast distributable income and 4.2% value accretion 6, on a per security pro forma basis for the year ending 30 June 2014 the creation of a platform for incremental growth, with increased scale and access to diversified capital sources and access to investment opportunities additional diversified income streams from funds management and asset management, and the elimination of payments out of CFX relating to funds management and asset management fees and replacing them with directly incurred operating costs over which CFX has control. Where to find more information Section 4.11 and 9.6 to 9.8 Section 4.10 and Annexure C Section 2.1 5) Based on 30 June 2013 figures, and adjusted for post balance date items including asset sales, estimated asset revaluations and capital expenditure. Excludes funds in wind down and cross investments. 6) Value accretion captures the benefit of costs of approximately $8 million that are saved as part of internalisation which are not fully captured in distributable income on consolidation but will be reflected in property valuations. CFS Retail Property Trust Group

23 CFX Notices of Meeting and Explanatory Memorandum 21 Question Why CFX Securityholders may choose to vote in favour of the Internalisation Proposal (continued) Answer Governance benefits include: the creation of an independently managed group, enhancing alignment of interests with CFX Securityholders adoption of the internalised management model will bring CFX into line with what is regarded as the industry standard for A-REITs the removal of perceived investor concerns regarding an externalised management model, with management to be employed and incentivised directly by CFX and also, directly accountable to CFX Securityholders expected continuity of management of CFX, including current CFSGAM Property Managing Director, Mr Angus McNaughton, being appointed as Managing Director and CEO and current CFX Fund Manager, Mr Michael Gorman, being appointed as Deputy CEO and Chief Investment Officer and the core management team that has managed CFX, the Property Asset Management Business, Property Investment Management Business, the Wholesale Property Funds and Property Mandates for a number of years no change in the Responsible Entity of CFX1, ensuring a stable platform for CFX to continue to provide responsible management to CFX Securityholders, and enhanced board accountability, with CFX Securityholders able to periodically elect CFX Co directors, as well as vote in an advisory manner on the remuneration report. Where to find more information Meeting Booklet

24 22 Question Why CFX Securityholders may choose to vote against the Internalisation Proposal Answer You may disagree with the conclusion of the Independent Board Committee. You may disagree with the conclusion of the Independent Expert. The NTA of New CFX Stapled Securities is expected to reduce by 8.1%, from $2.04 to $ This reduction is largely due to the $460 million which CFX will pay to CBA in connection with the Internalisation Proposal. The majority of the assets acquired by CFX in return for this payment will be recognised as intangible assets and therefore excluded from NTA. In addition, there is a small reduction in NTA resulting from the transaction costs associated with the internalisation. However, the NAV of New CFX Stapled Securities is not expected to be materially impacted. CFX will no longer have access to CBA s support resources (other than certain transitional arrangements in limited circumstances). If the Internalisation Proposal is implemented, CFX will earn additional fee income that may increase CFX s risk profile. In general, income derived from funds management fees and asset management fees (including property management, development management and leasing) involves relatively more risk than rental income derived from property investment, because it is more volatile. The additional fee income is approximately 8% of the total pro forma forecast income of CFX for the year ending 30 June 2014, and approximately half of such fee income derives from the management of assets co owned with CFX1. You may believe that the impact on your personal taxation position outweighs the benefits of the Internalisation Proposal. Where to find more information Section 2.3 7) As at 30 June 2013, on a pro forma basis. CFS Retail Property Trust Group

25 CFX Notices of Meeting and Explanatory Memorandum 23 Question What are the key risks of the Internalisation Proposal? Answer There are a number of risks associated with the Internalisation Proposal which include the following: completion of the Internalisation Proposal not occurring, given the Internalisation Proposal is subject to a number of Conditions Precedent as set out in Section 4.7 of this Explanatory Memorandum CMIL being required to pay a compensation fee of $50 million to CBA. The compensation fee is payable if a competing proposal is announced by a third party during the Exclusivity Period and within one year of the Exclusivity Period ending that third party acquires at least 50% of CFX s assets or owns at least 50% of Existing CFX Stapled Securities. The compensation fee is reduced by any amount received by CBA for transfer or termination of the rights to manage CFX or its assets or to facilitate a change in control in CMIL in its personal capacity. Where, within 12 months of paying the compensation fee, CBA receives such a payment, the amount of the payment will be refunded to CMIL (up to a maximum of $50 million) CMIL being required to pay a reimbursement fee of $5 million to CBA. The reimbursement fee is payable if, during the Exclusivity Period, there is no longer majority support from the Independent Board Committee for the internalisation or a competing proposal is announced during the Exclusivity Period and within one year of the date of such announcement, the person making the proposal enters into an agreement or understanding requiring CMIL to abandon, cease to recommend or fail to proceed with the proposal. (See Annexure E of this Explanatory Memorandum for further information) transitioning CFX to an internalised management structure and the loss of the formal relationship with CBA (other than certain transitional arrangements) data or information provided to and relied upon by CMIL in its due diligence process and its preparation of this Explanatory Memorandum proving to be incomplete, incorrect, inaccurate or misleading Where to find more information Section 2.5 Meeting Booklet

26 24 Question What are the key risks of the Internalisation Proposal? (continued) Why CFX Securityholders may choose to vote in favour of the De stapling Proposal Why CFX Securityholders may choose to vote against the De stapling Proposal and what are the risks of the De stapling Proposal Answer if the Internalisation Proposal is implemented, part of CFX s earnings will be fee income. In general, fee income is considered relatively more risky than rental income earned from property investment. For instance, these fees may be at risk in the event that CFX is unable to retain its existing Wholesale Property Funds and Property Mandates, or raise new equity for future wholesale funds and/or investment mandates. However, this fee income represents approximately 8% of the total pro forma forecast income of CFX for the year ending 30 June 2014, and approximately half of such fee income derives from the management of assets co-owned with CFX1 one-off external transaction and implementation costs being higher than forecast and ongoing savings from the Internalisation Proposal being lower than forecast, and no certainty that internalisation of management will improve the market rating or security price of New CFX Stapled Securities. There are also general risks associated with an existing or new investment in CFX and other general risks as set out in Sections 2.5(b) and 2.5(c) of this Explanatory Memorandum. The Independent Board Committee believes that the De stapling Proposal will: result in operational and compliance cost savings, including reduced accounting and tax compliance requirements for CFX2 and reduced complexity when reporting annual taxation information to CFX Securityholders, and simplify CFX s corporate structure, bringing CFX into line with many other internally-managed A-REITs. Implementation of the De stapling Proposal will involve the transfer of CFX2 Units held by the holders of Existing CFX Stapled Securities to CFX Co. To the extent that the consideration for the transfer of the CFX2 Units is greater than the CFX Securityholder's cost base of those units, the CFX Securityholder will realise a capital gain equal to the excess of the consideration over the cost base. As CFX Securityholders are not receiving any proceeds from the transfer of CFX2 Units (as this forms part of the consideration for the issue of CFX Co Shares under the Internalisation Proposal), this is likely to give rise to an unfunded tax liability for those CFX Securityholders with this capital gain. The net assets of CFX2 are valued at approximately $5 million and have not materially varied since CFX2 was established. Therefore, it is not expected that there are material disadvantages or risks associated with the De stapling Proposal. Where to find more information Section 2.2 Section 2.4 CFS Retail Property Trust Group

27 CFX Notices of Meeting and Explanatory Memorandum 25 Question What costs are being incurred in connection with the Internalisation Proposal and De stapling Proposal? How is the transaction being funded? Meeting Can Securityholders vote differently on the Resolutions? Where and when is the Meeting? Answer CFX anticipates transaction costs of up to approximately $36 million if the Internalisation Proposal and De stapling Proposal proceed. Transaction costs include stamp duty, one-off internalisation costs (rebranding and separation costs), advisory costs and equity raising fees. Total fees are expected to be approximately $13.5 million. The payment to CBA is being funded through a combination of equity and debt funding sources. These are: the $280 million fully underwritten institutional placement of approximately 151 million Existing CFX Stapled Securities at $1.85 per security, as was announced on 18 December 2013 and successfully completed on 19 December 2013 the SPP which raised $15 million, as announced to the ASX on 18 December 2013 and which closed on 23 January 2014, and debt funding from external finance providers of approximately $216 million. Proceeds from the Placement and SPP have been used to reduce debt and will be drawn down to partly fund the Internalisation Proposal. In the event that the Internalisation Proposal is not implemented, this capital will be applied to the refurbishment and re-development of existing directly owned shopping centres and the potential acquisition of shopping centres in line with CFX s strategy. Also, if the Internalisation Proposal is not implemented, the new debt facilities entered into for the Internalisation Proposal will be used to replace upcoming expiring debt facilities. Yes. However, the Internalisation Resolutions are inter conditional (for example, if Resolution 2 is not passed then Resolutions 3 and 4 will not be considered at the Meeting as these Resolutions can only be passed if Resolution 2 is passed). The Internalisation Resolutions are not conditional on the De stapling Resolutions being passed by CFX Securityholders. Neither the Placement Resolution (Resolution 1) nor the Intra-Group Transactions Deed Resolutions (Resolutions 5 and 6) are conditional on the Internalisation Resolutions or the De stapling Resolutions being passed. The Meeting is scheduled for 10.30am (Sydney time) on Friday 7 March 2014 at Hilton Sydney, 488 George Street, Sydney NSW Where to find more information Section 9.4 Sections 4.3 and 6.8(a) Section 8.1 and Annexure D Annexure D Meeting Booklet

28 26 Question Am I entitled to vote? Where and when do I send my Proxy Form? Any other questions? Answer If you are a CFX Securityholder on the Register as at 7.00pm (Sydney time) on Wednesday 5 March 2014, you will be entitled to vote at the Meeting, unless you are otherwise excluded as set out in Section 8.6 and the Notices of Meeting in Annexure D of this Explanatory Memorandum. To vote by proxy, you need to complete and return the Proxy Form accompanying this Explanatory Memorandum. You must ensure that your Proxy Form (and a certified copy of the relevant authority under which it is signed) is received by the registry, Link Market Services Limited on behalf of CFX, by no later than 10.30am (Sydney time) on Wednesday 5 March 2014: by mail at CFS Retail Property Trust Group C/- Link Market Services Limited at Locked Bag A14, Sydney South NSW 1235 Australia by hand delivery at Link Market Services Limited s physical address at Link Market Services Limited, 1A Homebush Bay Drive, Rhodes NSW 2138 Australia by fax at Link Market Services Limited s fax number , or online via Link Market Services Limited s investor centre at (as detailed on the Proxy Form). If you have any further questions in relation to the Internalisation Proposal and De stapling Proposal or you would like additional copies of this Explanatory Memorandum, please contact the CFX Securityholder Information Line on (callers in Australia) and (callers outside Australia) or consult an independent and appropriately licensed and authorised professional adviser. The CFX Securityholder Information Line will be available Monday to Friday between the hours of 8.30am to 5.30pm (Sydney time). Where to find more information Section 8.6 and Annexure D Annexure D A Proxy Form accompanies this Explanatory Memorandum N/A CFS Retail Property Trust Group

29 CFS Retail Property Trust Group SECTION 1 Overview of the Internalisation Proposal and De-stapling Proposal

30 28 Section summary of the Internalisation Proposal and De stapling Proposal Under the Internalisation Proposal, it is proposed that CFX Securityholders acquire CFX Co, and CFX Co: (a) (b) acquires CBA s Property Asset Management Business, including by acquiring a number of the Target Entities, and commences to provide investment management services to CFX, the Wholesale Property Funds and Property Mandates. Separately and conditionally on each Internalisation Resolution being approved, under the De stapling Proposal it is proposed that CFX2 will be de stapled from CFX1 and be acquired by CFX Co. Key features of the Internalisation Proposal CFX will pay $460 million 1 to internalise the management of CFX, which also involves CFX acquiring CBA s Property Asset Management Business and, in respect of CBA s Property Investment Management Business, CFX commencing to manage a number of Wholesale Property Funds and Property Mandates. CBA will no longer manage CFX nor receive management fees from CFX. The key management team members who currently manage CFX and CBA s Property Investment Management Business and Property Asset Management Business will be employed by CFX. CFX will have new revenue streams through funds management of Wholesale Property Funds and Property Mandates and asset management of co-owned assets (being the nine assets in which CFX has a 50% interest as shown in Section 5.3), and assets owned by Wholesale Property Funds, Property Mandates and other third parties. CMIL will remain the Responsible Entity of CFX and will be effectively owned by CFX Securityholders. The Internalisation Proposal provides significant strategic benefits for CFX Securityholders with an expected 2.1% accretion to forecast distributable income and 4.2% value accretion, on a per security pro forma basis for the year ending 30 June If the Internalisation Proposal is implemented, CFX will become one of the largest fully integrated and independently managed retail property groups in Australia, with $13.9 billion 3 in assets under management, approximately 850 property professionals, and proven capabilities in investment management, asset management and corporate services. 1) CFX will also acquire net assets of the existing business, including cash, receivables, payables and property, plant and equipment, for an additional consideration of $15 million. 2) Value accretion captures the benefit of costs of approximately $8 million that are saved as part of internalisation which are not fully captured in distributable income on consolidation but will be reflected in property valuations. 3) Based on 30 June 2013 figures, and adjusted for post balance date items including asset sales, estimated asset revaluations and capital expenditure. Excludes funds in wind down and cross investments. CFS Retail Property Trust Group

31 CFX Notices of Meeting and Explanatory Memorandum 29 Key steps to implement the Internalisation Proposal and De stapling Proposal CFX1 will make the Capital Distribution to holders of CFX1 Units. CFX Securityholders will not be paid the Capital Distribution. Rather it will be applied by CMIL, on behalf of CFX Securityholders who are entitled to the Capital Distribution, in payment of the issue price for the CFX Co Shares that are to be issued to CFX Securityholders at the Record Date or, in relation to Foreign Holders, to the Sale Nominee. CFX2 Units will be de stapled from CFX1 Units and transferred to CFX Co (if the De stapling Proposal is approved). CMIL (which is a wholly owned subsidiary of CFX Co) will remain the Responsible Entity of CFX but will be effectively owned by CFX Securityholders (via CFX Co). CFX will acquire the Target Entities and as a result acquire the Property Asset Management Business. In respect of the Property Investment Management Business, CFX will commence management of CFX and a number of Wholesale Property Funds and Property Mandates. CFX Securityholders will hold a New CFX Stapled Security comprising one CFX Co Share stapled to one CFX1 Unit (and one CFX2 Unit if the De stapling Proposal is not approved) that will be quoted and traded on the ASX as a single security. Existing CFX Stapled Securities held by Foreign Holders (other than CFX2 Units if the De stapling Proposal is approved) will be transferred to the Sale Nominee. After CFX Co Shares are stapled to those securities, in accordance with the Internalisation Proposal, the Sale Nominee will pool and sell such securities on the ASX in accordance with the Sale Facility and the net proceeds of such sale will subsequently be paid to the Foreign Holders. Meeting Booklet

32 30 Section overview of CFX and impact of the Internalisation Proposal and De stapling Proposal (a) CFX before implementation of the Internalisation Proposal and De stapling Proposal CFX currently comprises two registered managed investment schemes: (i) CFX1 which holds the directly owned investment properties of CFX and has net assets of approximately $5.7 billion, and (ii) CFX2 which owns the in-mall digital screens which are located in the CFX1 investment properties and has net assets of approximately $5 million. CFX2 is effectively taxed as a company for tax purposes and CFX2 returns after tax profits to CFX Securityholders. This structure allows CFX s assets to generate additional non rental income from shopping centre assets without affecting the pass-through tax status of CFX1. Both CFX1 and CFX2 are admitted to the official list of the ASX, the units of which are stapled to form a stapled security that trade together as one security on the ASX. CFX is currently externally managed by CBA Group. The Responsible Entity of CFX is CMIL, which is indirectly wholly owned by CBA Group. The following diagram represents the structure of CFX before implementation of the Internalisation Proposal: Existing structure CBA CFX Securityholders Stapled group Asset management entities CFX Co Funds management entities CFX2 CFX1 CFX FM Co CMIL Responsible entity and funds management services Asset management mandates Wholesale Property Funds and Property Mandates Asset management services (b) CFX post implementation of the Internalisation Proposal and De stapling Proposal If the Internalisation Proposal is approved there are two possible outcomes depending on whether the De stapling Proposal is also approved. Assuming the De stapling Resolutions are passed, CFX Securityholders (or the Sale Nominee in the case of Foreign Holders) will, on the Completion Date, hold a New CFX Stapled Security comprising a CFX Co Share stapled to a CFX1 Unit. New CFX Stapled Securities will be quoted and traded on the ASX as a single stapled security. As part of the De stapling Proposal, CFX2 Units will be de stapled from CFX1 Units and they will be transferred to CFX Co. CFS Retail Property Trust Group

33 CFX Notices of Meeting and Explanatory Memorandum 31 CMIL will remain as Responsible Entity of CFX but will be effectively owned by CFX Securityholders (via CFX Co). CFX will no longer be managed by the CBA Group. The key CBA management team members who currently manage CBA s Property Investment Management Business and Property Asset Management Business will be employed by CFX. The following diagram represents the structure of CFX after the Internalisation Proposal and De stapling Proposal are implemented: Structure post internalisation CFX Securityholders Stapled group CFX1 Co* CFX1* Asset management entities CMIL, CFX FM Co &/or funds management entities CFX2 Asset management mandates Wholesale Property Funds and Property Mandates Responsible entity and funds management services Asset management services Note: * CFX Co will apply to be admitted to the official list on the ASX on which a CFX1 Unit and a CFX Co Share will be quoted for trading as a New CFX Stapled Security. (c) CFX post implementation of the Internalisation Proposal if the De stapling Proposal is not approved by CFX Securityholders If the De stapling Proposal is not approved by CFX Securityholders but the Internalisation Proposal is approved, the Internalisation Proposal will still proceed; however, CFX2 will remain stapled to CFX1, and CFX Co will not hold any units in CFX2. CFX Co will still hold all the shares in CMIL and commence providing funds management and asset management services. Each CFX Co Share will be stapled to a CFX1 Unit and a CFX2 Unit and will be quoted and trade on the ASX as a triple-stapled security. The following diagram represents the structure of CFX after implementation of the Internalisation Proposal in the event that the De stapling Proposal is not approved: Meeting Booklet

34 32 Section 1 Structure post internalisation if the De stapling Proposal is not approved CFX Securityholders Stapled group (triple-stapled security trading together as CFX on the ASX) CFX1 Co* CFX1* CFX2* Asset management entities CMIL, CFX FM Co &/or funds management entities Responsible entity and funds management services Asset management services Asset management mandates Wholesale Property Funds and Property Mandates Note: * CFX Co will apply to be admitted to the official list of the ASX on which a CFX1 Unit, a CFX2 Unit and a CFX Co Share will be quoted for trading as a New CFX Stapled Security. 1.3 implications if the Internalisation Proposal is not approved If the Internalisation Proposal is not approved: CFX2 will continue to be stapled to CFX1, and CFX Securityholders will continue to own a stapled security comprising a CFX1 Unit stapled to a CFX2 Unit which will continue to trade on the ASX as a single stapled security CMIL will remain a CBA Group entity and CFX will continue to pay management fees to members of the CBA Group in future periods CFX will not make a cash payment of $460 million 1 to CBA as consideration for the Internalisation Proposal CFX will still incur fees relating to the Internalisation Proposal and equity raising fees of approximately $11.5 million CFX Securityholders will not receive the anticipated benefits from implementation of the Internalisation Proposal, and proceeds from the Placement and SPP will be applied to the refurbishment and re-development of existing directly owned shopping centres, and the potential acquisition of shopping centres in line with CFX s strategy. Also, the new debt facilities entered into for the Internalisation Proposal will be used to replace upcoming expiring debt facilities. 1) CFX will also not acquire net assets of the existing business, including cash, receivables, payables and property, plant and equipment, for an additional consideration of $15 million. CFS Retail Property Trust Group

35 CFS Retail Property Trust Group SECTION 2 Advantages, disadvantages and risks of the Internalisation Proposal and De-stapling Proposal

36 34 Section reasons you may choose to vote in favour of the Internalisation Proposal (c) Financial benefits of the Internalisation Proposal (a) The Independent Board Committee considers that the Internalisation Proposal is in the best interests of CFX Securityholders, in the absence of a superior proposal. The Independent Board Committee has concluded that the Internalisation Proposal is in the best interests of CFX Securityholders and unanimously recommends the Internalisation Proposal to CFX Securityholders in the absence of a superior proposal. The recommendation is made after the Independent Board Committee has given careful consideration to the various advantages and disadvantages that have been identified and discussed below and having assessed the risks associated with the Internalisation Proposal as noted below. The Independent Board Committee also considers that the De stapling Proposal should be implemented if the Internalisation Proposal is approved. (b) The Independent Expert has concluded that the Internalisation Proposal is fair and reasonable to, and in the best interests of, Non-Associated CFX Securityholders. Grant Samuel & Associates Pty Limited was engaged by the Independent Board Committee to provide an assessment of the Internalisation Proposal for the benefit of CFX Securityholders. (i) (ii) Strengthens CFX s market position The Internalisation Proposal will strengthen CFX s market position by creating one of Australia s largest fully integrated and independently managed retail property groups. This will include CFX being an owner and now manager of interests in a portfolio of 28 quality, predominantly Regional Shopping Centres and large Sub Regional Shopping Centres, and DFO retail outlet centres in Australia. CFX will also be the manager of a number of Wholesale Property Funds and Property Mandates. CFX will have $13.9 billion 1 in assets under management, and employ approximately 850 property professionals, with proven capabilities in investment management, asset management and corporate services. Accretive to CFX Securityholder value The Internalisation Proposal is expected to generate pro forma forecast incremental EBIT of $48.5 million for the year ending 30 June The Internalisation Proposal provides an expected 2.1% accretion to forecast distributable income and 4.2% value accretion 3, on a per security pro forma basis for the year ending 30 June For further information on the financial impact of the Internalisation Proposal on CFX, see Section 6 of this Explanatory Memorandum. The Independent Expert has concluded that the Internalisation Proposal is fair and reasonable to, and in the best interests of, Non-Associated CFX Securityholders. A full copy of the Independent Expert s Report, which you are encouraged to read in full, can be found in Annexure A of this Explanatory Memorandum. (iii) Platform for incremental growth The Internalisation Proposal will create a platform with increased scale and access to diversified capital sources. There are expected to be various incremental growth opportunities to enhance returns for CFX Securityholders, including the potential to grow through acquisitions, additional developments and increased third party funds and asset management arrangements with strategic partners. If the Internalisation Proposal is implemented, CFX Securityholders will own a leading, high quality, integrated retail property funds management and asset management platform with significant scale and capabilities. 1) Based on 30 June 2013 figures, and adjusted for post balance date items including asset sales, estimated asset revaluations and capital expenditure. Excludes funds in wind down and cross investments. 2) Incremental EBIT captures the benefit of costs of approximately $8 million that are saved as part of internalisation which are not fully captured in distributable income on consolidation but will be reflected in property valuations. 3) Value accretion captures the benefit of costs of approximately $8 million that are saved as part of internalisation which are not fully captured in distributable income on consolidation but will be reflected in property valuations. CFS Retail Property Trust Group

37 CFX Notices of Meeting and Explanatory Memorandum 35 As outlined below, the Internalisation Proposal will also provide further strategic partnership opportunities with wholesale property funds, mandates and third party property owners. (iv) Additional diversified income streams (v) The Internalisation Proposal will provide additional income streams for CFX through the acquisition of the Property Asset Management Business, and from the funds management of a number of Wholesale Property Funds and Property Mandates undertaken by CFX. This will provide CFX Securityholders with an opportunity to benefit from returns generated by funds management and asset management activities, which may be higher than returns generated primarily by property investment activities. The Internalisation Proposal is expected to deliver asset management fee income (comprising property management and development management fees) from third parties of $39 million (net of alignment fees) and funds management fee income from third parties of $11 million, on a pro forma basis for the year ending 30 June If the Internalisation Proposal is implemented, the risk profile of CFX is not expected to increase materially as a result of this income contribution, as approximately 92% of total income will still comprise net rental income from property investment, on a pro forma basis for the year ending 30 June Replacement of management fees paid to CBA with directly incurred operating costs The Internalisation Proposal eliminates payments out of CFX relating to funds management and asset management fees. This includes the elimination of any future performance fees potentially payable by CFX to CBA for periods after 31 December Instead of paying these fees, CFX will directly incur operating expenses, thereby giving CFX greater certainty and control over operating costs. Overall, the Internalisation Proposal is expected to generate pro forma forecast incremental EBIT of $48.5 million for the year ending 30 June This incremental EBIT comprises the saving of management fees payable in respect of CFX assets 5, plus incremental revenue earned from third parties, less operating expenses directly incurred by CFX. The funds management base and performance fees payable by CFX to CBA Group under the current external management arrangements contribute to a Management Expense Ratio (MER) of approximately 60 basis points of total assets. Post implementation of the Internalisation Proposal, the MER of CFX on a like-for-like basis is expected to reduce by approximately 37 basis points to approximately 23 basis points, representing a saving of approximately $32 million, on a pro forma basis for the year ending 30 June (vi) Benefits for strategic partnerships The Internalisation Proposal will provide a larger platform and increased capacity to deliver enhanced returns and opportunities for CFX s strategic partners, such as wholesale property funds, mandates and third party property owners. It will also provide certainty of ownership and direction of platform for CFX s strategic partners in the future. The strategic partnerships opportunity is expected to provide several benefits for CFX Securityholders, including increased scale, opportunity to recycle capital and increase return on equity, diversified earnings, diversified capital sources and enhanced access to investment opportunities. (d) Governance benefits of the Internalisation Proposal (i) Creation of an independently managed group, enhancing alignment of interests Currently, the fund and asset managers of CFX are wholly owned subsidiaries of CBA. CBA Group is paid fees, based in large part on the value of assets under management, and makes a profit from managing CFX. The following chart illustrates the total fees paid to CBA by CFX for the five year period to 30 June In such circumstances, it is possible that the interests of the CBA-owned manager and those of CFX s investors may not be aligned. For example, the amount of fees to be paid for managing CFX is a potential source of conflict with a higher fee being more beneficial to CBA shareholders, but representing a higher cost to CFX Securityholders. Internalisation removes the potential for such conflicts by ensuring that CFX investors own the management of CFX as well as the assets of CFX. By being 4) Incremental EBIT captures the benefit of costs of approximately $8 million that are saved as part of internalisation which are not fully captured in distributable income on consolidation but will be reflected in property valuations. 5) The Internalisation Proposal is expected to eliminate funds management fees of $48 million (including performance fees) and asset management fees of $48 million (net of alignment fees), on a pro forma basis for the year ending 30 June Meeting Booklet

38 36 Section 2 directly employed by CFX, it also ensures that staff can be incentivised in a transparent and aligned fashion. Historical fees paid to CBA by CFX, prior to the payment of alignment fee ($m, year ending June) FY FY FY FY FY Asset management fees Investment management fees (ii) Adoption of the internalised management model will bring CFX into line with what is regarded as the industry standard for A-REITs In January 2004, there were six externally managed A-REITs within the top 10 by equity market capitalisation. From mid-2004 onwards there was consolidation within the A-REIT sector, including a number of mergers, which resulted in the internalisation of management of some of the largest listed A-REITs. Many institutional investors prefer real estate investment trusts to be internally managed to reduce opportunity for conflicts of interest as well as other benefits similar to those identified for the Internalisation Proposal in this Explanatory Memorandum. Internalised management is also the most common form for real estate investment trusts in offshore markets such as the United States. In January 2014, there were only three externally managed A-REITs within the top ten by equity market capitalisation: Westfield Retail Trust, CFX and Commonwealth Property Office Fund (referred to as CPA). Westfield Retail Trust is currently the subject of an announced restructure, that if implemented, will result in the management of that entity being internalised. CPA is currently the subject of an unconditional off market takeover bid by DEXUS. All other major A-REITs are internally managed. (iii) Removal of perceived investor concerns regarding an externalised management model The Internalisation Proposal will deliver an enhanced governance structure, with management employed by CFX and directly accountable to CFX Securityholders, strengthening the alignment of interests with CFX Securityholders. The Independent Board Committee believes that this has the potential to attract new investors to CFX that may previously have been unable or unwilling to invest in an externally managed A-REIT. (iv) Expected continuity of management (v) Current CFSGAM Property Managing Director, Mr Angus McNaughton, and current CFX Fund Manager, Mr Michael Gorman, will lead and manage CFX and have confirmed that they will transfer their employment from CBA to CFX. The expected continuity of senior management is aimed at ensuring that prudent intensive management of CFX s high quality diversified portfolio, as well as Wholesale Property Funds and Property Mandates, will continue in a seamless manner. In addition, it is expected that the majority of the management team members who currently work under the current Managing Director and Fund Manager in managing CFX, the Wholesale Property Funds and Property Mandates will be employed by CFX post implementation of the Internalisation Proposal. It is expected that CFX will continue to be serviced by one of the most experienced specialist property management teams in Australia, with a sustained history of delivering positive investment outcomes for investors. No change in Responsible Entity of CFX1 Importantly, CMIL, as Responsible Entity of CFX, will remain in this position, ensuring a stable platform for CFX to continue to provide responsible management for CFX Securityholders. The members of the Independent Board Committee have also confirmed their willingness to continue as directors of CMIL. Furthermore, as noted in Section 5.5, Mr Angus McNaughton will be invited to join the CMIL and CFX Co Boards. CFS Retail Property Trust Group

39 CFX Notices of Meeting and Explanatory Memorandum 37 (vi) Enhanced board accountability The requirement for periodic election of directors will ensure that the CFX Co Board is directly accountable to CFX Securityholders for the performance of CFX. Following implementation of the Internalisation Proposal, CFX Securityholders will be able to influence the composition of the CFX Co Board by voting on the election and re-election of CFX Co Board members (other than the Managing Director) through ongoing Annual General Meeting processes. Following a transitional period, it is proposed that any newly appointed directors of CFX Co will be appointed to the CMIL Board. Additionally, the Internalisation Proposal will provide CFX Securityholders with the ability to vote in an advisory manner on the remuneration report. 2.2 reasons you may choose to vote in favour of the De stapling Proposal (a) Operational and compliance cost savings Approval of the De stapling Proposal will result in operational and compliance cost savings, including reduced accounting and tax compliance requirements for CFX2 and reduced complexity when reporting annual taxation information to CFX Securityholders. (b) Move to a commonly accepted structure The De stapling Proposal will simplify CFX s corporate structure consistent with many other internally managed A-REITs, which are typically structured with one head company stapled to one head trust. 2.3 reasons you may vote against the Internalisation Proposal (a) You may disagree with the conclusion of the Independent Board Committee You may disagree with the conclusion of the Independent Board Committee that the Internalisation Proposal secures the best outcome available for CFX. (b) You may disagree with the conclusion of the Independent Expert You may disagree with the conclusion of the Independent Expert that the Internalisation Proposal is fair and reasonable to, and in the best interests of, Non-Associated CFX Securityholders. (c) Reduced NTA but net asset value (NAV) is not materially impacted If the Internalisation Proposal is implemented, the NTA of New CFX Stapled Securities is expected to reduce by 8.1%, from $2.04 to $1.88, on a pro forma basis as at 30 June However, the NAV of New CFX Stapled Securities is not expected to be materially impacted. The reduction in NTA is largely due to the $460 million which CFX will pay to CBA in connection with the Internalisation Proposal. The majority of the assets acquired by CFX in return for this payment will be recognised as intangible assets on CFX s Pro Forma Consolidated Statement of Financial Position. Intangible assets are excluded from NTA. To a lesser extent, the reduction in NTA is also due to the expected transaction costs of $36 million, as described in Section 9.4. Please see Section 6 of this Explanatory Memorandum for further details of the financial impact of the Internalisation Proposal on CFX. (d) CFX will no longer be part of the CBA Group If the Internalisation Proposal is implemented, CMIL, as Responsible Entity of CFX1, will no longer be owned by CBA which will end CBA s involvement in the management of CFX (except on a transitional basis in limited areas). Through CBA, CMIL has had access to a financially strong parent and access to scale benefits and resources. Given the expected continuity of management, the Independent Board Committee is of the view that the risks associated with CBA no longer owning the management of CFX can largely be mitigated. (e) Increased risk profile The income derived from funds management fees and asset management fees (including property management, development management and leasing) is expected to be approximately 8% of total income for an internalised CFX, on a pro forma basis for the year ending 30 June Approximately half of this income is derived from the asset management of shopping centres from the co-owners of assets Meeting Booklet

40 38 Section 2 that are jointly owned with CFX, under contracts with limited termination rights. While the income from these fees will not be a material part of CFX s total income, it does involve more risk than income derived from property investment. Despite this, a number of these fees are recurring and are not capital intensive, providing the potential for CFX to generate higher returns. In particular, funds management and property management fees are relatively stable and recurring in nature, as they are based on the value of assets under management and rental income, respectively. The fees therefore have a high correlation with the income derived from the assets. Development management and leasing fees are generally more volatile, as development management fees depend on the level of developments undertaken and leasing fees will vary in accordance with the timing of new leases. The experience of the management team and diversification of income streams arising from the Internalisation Proposal provide significant mitigating factors to the increased risk from the new business activities. Importantly, the majority of CFX s earnings will continue to comprise net rental income from property investment (approximately 92% of total income, on a pro forma basis for the year ending 30 June 2014). (f) You may believe that the impact on your personal taxation position outweighs the benefits of the Internalisation Proposal Implementation of the Internalisation Proposal will involve a Capital Distribution of approximately $219 million or approximately 7.25 cents per CFX1 Unit, which will reduce the cost base of your units in CFX1 by a corresponding amount. If the amount of the distribution exceeds your existing cost base, the distribution will give rise to a capital gain equal to the excess. If this is the case, you may consider that the taxation consequences to you outweigh the benefits of the Internalisation Proposal. A Taxation Report has been included at Annexure C of this Explanatory Memorandum. 2.4 risks of and reasons you may choose to vote against the De stapling Proposal You may believe that the impact on your personal taxation position outweighs the benefits of the De stapling Proposal. The net assets of CFX2 are valued at approximately $5 million and have not materially varied since CFX2 was established. Therefore, it is not expected that there are material disadvantages or risks associated with the De stapling Proposal. Implementation of the De stapling Proposal will involve the transfer of CFX2 Units held by the holders of Existing CFX Stapled Securities to CFX Co. To the extent that the consideration for the transfer of the CFX2 Units is greater than the CFX Securityholder s cost base of those units, the CFX Securityholder will realise a capital gain equal to the excess of the consideration over the cost base. As CFX Securityholders are not receiving any proceeds from the transfer of CFX2 Units (as this forms part of the consideration for the issue of CFX Co Shares), this is likely to give rise to an unfunded tax liability for those CFX Securityholders with this capital gain. 2.5 risks This Section summarises the key risks that may affect the future performance of an investment in CFX. This is not an exhaustive list of the relevant risks. If any of the following risks materialise, CFX s business, financial condition and operating results are likely to be adversely impacted. Additional risks not presently known to CMIL or, if known, that are not presently considered material, may also have an adverse impact. (a) Internalisation Proposal risks (i) (ii) Completion risk Completion of the Internalisation Proposal is subject to a number of Conditions Precedent as set out in Section 4.7 of this Explanatory Memorandum. It is possible that these conditions may not be satisfied and that the Internalisation Proposal may not proceed. If, for whatever reason, the Internalisation Proposal does not proceed, CFX will use the funds raised from the Placement and SPP to fund future capital expenditure and acquisition opportunities. Risk of being required to pay a compensation and/ or reimbursement fee Compensation fee A compensation fee of $50 million may be payable to CBA by CMIL. The compensation fee is payable if a competing proposal is announced by a third party during the Exclusivity Period and within one year of the Exclusivity Period ending that third party or an associate acquires at least 50% of CFX1 assets (by value) or becomes registered as the holder of at least 50% of Existing CFX Stapled Securities. CFS Retail Property Trust Group

41 CFX Notices of Meeting and Explanatory Memorandum 39 (iii) The compensation fee is reduced by any amount received by CBA for transfer or termination of the rights to manage CFX or its assets or to facilitate a change in control in CMIL in its personal capacity. CMIL will be reimbursed for any compensation fee paid to CBA where within 12 months of paying the compensation fee, CBA receives such a payment (up to a maximum of $50 million). The compensation fee is not payable if the Internalisation Proposal completes within 12 months of the date of the Implementation Deed and, if already paid by CMIL, will be reimbursed. Reimbursement fee CMIL may be liable to pay a reimbursement fee to CBA of $5 million in the circumstances described in the summary of the Implementation Deed in Annexure E of this Explanatory Memorandum. If the above fees become payable, this may adversely impact the financial performance of CFX. As at the date of this Explanatory Memorandum, CMIL is not aware of any circumstance that could give rise to a requirement to pay either the compensation fee or the reimbursement fee to CBA. Transition As described in this Explanatory Memorandum, if the Internalisation Proposal is implemented, CFX will no longer be managed by CBA. There are risks associated with the transition to an internalised management structure and the loss of the formal relationship with CBA (other than certain transitional arrangements). There are some functions (see summary of Transitional Services Agreement in Annexure E, Summary of material contracts) that are currently provided by the CBA Group that CFX will have to provide or procure itself following implementation of the Internalisation Proposal. There is a risk that CFX will be unable to obtain the services at the same cost or quality as was previously provided by CBA, or that the costs of transitioning existing services is greater than expected. As part of the transition process, there are risks to certain parts of an internalised CFX s business in establishing a new operating environment, including the establishment and migration of information, processes, systems and equipment. (iv) Information and due diligence (v) If any of the data or information provided to and relied upon by CMIL in its due diligence process and its preparation of this Explanatory Memorandum proves to be incomplete, incorrect, inaccurate or misleading, there is a risk that the actual financial position and performance of CFX post implementation of the Internalisation Proposal may be materially different to the financial position and performance expected by CMIL and reflected in this Explanatory Memorandum. Income from investment management and asset management and consent to commence management of the Property Mandates If the Internalisation Proposal is implemented, CFX will receive fees for asset management, funds management and mandates. These fees include funds management fees, property management fees, development management fees, leasing fees and other fees. In general, fee income is considered relatively more risky than rental income earned from property investment. For instance, these fees will be at risk in the event that CFX is unable to: retain the management of the Wholesale Property Funds and Property Mandates following implementation of the Internalisation Proposal raise new equity for future wholesale funds and/or investment mandates, or maintain or receive new third party asset management mandates. This risk is substantially mitigated for assets which are co-owned by CFX based on the existing management agreements. All of these factors would have a negative impact on fee income and hence distributions. In addition, consent is required from the Property Mandates counterparties in order for CFX to commence management of these mandates on and from implementation of the Internalisation Proposal. CMIL does not consider this consent requirement increases CFX s risk profile in any material respect given that the nature of such mandates is that they are terminable on short notice periods. Meeting Booklet

42 40 Section 2 (vi) One-off transaction and ongoing operating costs may be higher than forecast and ongoing savings and additional revenues from the Internalisation Proposal may be lower than forecast Forecasts by their nature are subject to uncertainties and contingencies, many of which are outside the control of CFX. As a consequence, there is a risk that the financial benefits from internalisation will not be realised to the extent forecast. (vii) No certainty that internalisation of management will improve the market rating or security price of New CFX Stapled Securities While the Independent Board Committee believes that an internalised management structure will broaden the investor appeal of CFX, there is no guarantee that the price of New CFX Stapled Securities will increase as a result. (viii) ISDA arrangements (ix) CFX has ISDA arrangements which may be impacted by the Internalisation Proposal. In the event that consents are not granted by parties to these arrangements, CFX may incur additional costs in establishing replacement ISDA arrangements. For further information, refer to Section 4.9(c) of this Explanatory Memorandum. Taxation consequences Implementation of the Internalisation Proposal will involve a Capital Distribution of approximately $219 million or approximately 7.25 cents per CFX1 Unit, which will reduce the cost base of your units in CFX1 by a corresponding amount. If the amount of the distribution exceeds your existing cost base, the distribution will give rise to a capital gain equal to the excess. As CFX Securityholders are not receiving any proceeds from the return of capital (as proceeds are compulsorily applied towards the acquisition of CFX Co Shares), this is likely to give rise to an unfunded tax liability for those CFX Securityholders with this capital gain. (b) General risks associated with an existing or new investment in CFX (i) Lease default, non-renewal and vacancy There is a possibility that tenants may default on their rental or other obligations under leases with CFX, leading to a reduction in income received by CFX. In addition, there is a risk that if CFX is not able to negotiate lease extensions with existing tenants at the end of the lease terms, or replace the leases on expiry with leases at equivalent rates, there may be a significant impact on the distributable income of CFX and (ii) (iii) (iv) the value of the particular property involved. The ability of CFX to secure lease renewals or to obtain replacement tenants may be influenced by any leasing incentives granted to prospective tenants and increased competition in the sector which in turn may increase the time required to let vacant space. Funding risk In order to fund future capital expenditure and acquisitions, CFX relies on equity, debt and hybrid funding along with the refinancing of existing debt facilities. An inability to obtain the necessary funding or refinancing of an existing arrangement, or a material increase in the cost of such funding, may have an adverse impact on CFX s performance and financial position. CFX s debt facilities presently include and will most likely in the future include various financial covenants which, if breached, may result in CFX paying a higher rate of interest or being required to repay such facilities immediately or on short notice. Key financial covenants include: loan to value ratio not to exceed 50% and interest cover ratio not to be less than 1.8x. Alternative financing may be on less favourable terms or may not be available at all. If no alternative financing is available, CFX may need to realise assets and the subsequent sale of CFX properties may result in significant financial loss to CFX. The Internalisation Proposal is not expected to result in any material changes to CFX s continued compliance with these key financial ratios. Capital expenditure CFX remains responsible for capital expenditure for its assets. CFX may incur unforeseen capital expenditure from time to time which may adversely impact CFX. Development risk CFX has a number of projects currently under construction. For these and for all future development activity undertaken by CFX, achieving target returns will depend on both achieving practical completion on program and achieving targets for leasing income. This may expose CFX to risks associated with development such as counterparty risk, contract risk, default risk, building risk, leasing risk and market risk. CFX may also be involved in the development of properties. Development risks include leasing risk and changes in development costs and development timetables. CFS Retail Property Trust Group

43 CFX Notices of Meeting and Explanatory Memorandum 41 (v) (vi) Insurance risk CMIL and CFX are exposed to insurance risk in terms of the adequacy of cover for events arising in respect of assets, contractors and service providers, including both failure to insure and underinsurance for events. In the event that there are insufficient insurance arrangements in place, CFX may be exposed to materially significant capital loss, or losses that may impact revenue generation and the overall financial performance of CFX. Environmental issues As a property owner, CFX is exposed to the risk that under various Federal, State and local environmental laws, it may be liable for the cost of removal or remediation of hazardous or toxic substances on, under, in or emanating from the properties in its portfolio. In common with all other owners of property, there remains a risk that environmental laws and regulations may become more stringent or that environmental conditions on or near the properties, presently known or unknown, may have a material adverse effect on the properties in the future. (vii) Retention of personnel If the Internalisation Proposal is implemented, CFX will directly employ its staff. CFX s success will depend in part on the ability of executive officers, senior management, and employees to operate effectively, both individually and as a group. Further, CFX s success will largely depend on its ability to attract and retain highly qualified management and personnel. Whilst CFX will have either contracts of service or employment with its key personnel, it cannot ultimately prevent any of these persons from terminating their respective contracts. The loss of the services of these individuals or any other key personnel could have an adverse effect on CFX. However, CBA entered into retention arrangements with a number of key management during 2013 which should reduce the risk of loss of key staff before at least 30 September In addition, as noted in Section 5.9, incentive plan arrangements will also remain in place post internalisation for a number of personnel. (viii) Acquisitions From time to time, CFX will be involved in the acquisition of properties to add to its property portfolio. While it is CFX s policy to conduct a thorough due diligence process in relation to any such acquisition, risks remain that are inherent in such acquisitions. (ix) (x) (xi) Investment risk While an investment in CFX is not a direct property investment, it remains indirectly exposed to risks associated with the retail property sector. On this basis it should be highlighted that CFX will be exposed to risks which may include vacancy risk, and the likelihood of default by its tenants under their leases, decreasing the rent payable in respect of properties owned by CFX in any new lease. The value of CFX s property assets may fluctuate depending on the property market conditions in which CFX operates and ultimately this may affect the performance of CFX, including distributions paid by CFX and the market price of Existing CFX Stapled Securities or New CFX Stapled Securities. Geographical concentration risk CFX s portfolio is 100% located in Australia. Estimated at 31 December 2013, CFX s portfolio had a 16% exposure (by value) to New South Wales, 55% exposure to Victoria, 17% exposure to Queensland, 6% exposure to South Australia, 3% exposure to Western Australia and 3% exposure to Tasmania. Any decline in shopping centre values or any event or occurrence which has an effect on the value of shopping centres in Australia, especially Victoria, may have a material adverse effect on the business, financial condition, results of operations and/or prospects of CFX. Brand risk Austexx has been licensed to use the DFO and Homemaker Hub brands (the brands ) in the Australian Capital Territory, Queensland and Tasmania. The improper use of the brands by Austexx may have an adverse impact on those brands used on assets owned by CFX. CFX has the right to enforce the proper use of the brands by Austexx. (xii) Risks associated with CMIL remaining the Responsible Entity of Commonwealth Property Office Fund (CPA), which is subject to a control transaction CPA, a listed A-REIT specialising in Australian office property investment, is currently the subject of an off-market takeover bid by DEXUS. As at 5 February 2014, DEXUS reported that it had voting power in CPA equivalent to 45.78%. DEXUS has stated in the DEXUS Bidder s Statement that it intends to appoint an entity that it controls as the new responsible entity of CPA. Meeting Booklet

44 42 Section 2 As at the date of this Explanatory Memorandum: CMIL is the Responsible Entity of CPA DEXUS has not taken steps to seek to have an entity controlled by it appointed as responsible entity of CPA until CMIL is removed or replaced as Responsible Entity of CPA, it will remain the Responsible Entity of CPA although it will not derive material fee income from undertaking that role. The funds management and asset management activities will continue to be delegated by CMIL to CBA and other third parties, and no assurance can be given that CMIL will be removed or replaced as Responsible Entity of CPA or the timing thereof. Although there will be no material fee income derived by CMIL remaining as Responsible Entity of CPA, it will retain all of the obligations and liabilities that are imposed on a responsible entity under CPA s constitution, the Corporations Act, the general law and the AFSL that has been issued to CMIL. CMIL may, in its personal capacity, incur liabilities or penalties in connection with its activities as Responsible Entity of CPA. While these will not have implications for the assets of either CFX1 and CFX2, there is a risk that CMIL may be unable to remain as Responsible Entity of CFX1 and CFX2 depending upon the effect of the liability or penalty on CMIL and its AFSL. Neither CMIL, in its personal capacity nor in its capacity as responsible entity of CPA, is aware of any action that it has taken or failed to take that has or may create such a liability or penalty. (c) Other general risks (i) Economic and market conditions CFX may be adversely impacted by many factors including changes in general economic conditions such as interest rates, inflation, retail spending levels, consumer confidence levels and general market conditions. A number of factors affect the performance of the stock markets, which could affect the price at which the Existing CFX Stapled Securities or New CFX Stapled Securities trade on the ASX. Among other things, movements on international and domestic stock markets and in interest rates, inflation and inflationary expectations and overall economic conditions, as well as government taxation and other policy changes may affect the demand for, and price of, Existing CFX Stapled Securities or New CFX Stapled Securities. Volatility in the (ii) Australian or international financial markets may influence the trading price of Existing CFX Stapled Securities or New CFX Stapled Securities on the ASX. Force majeure risk There are some events that are beyond the control of CFX, CMIL or any other party including acts of God, fires, floods, earthquakes, wars, strikes and acts of terrorism. Some force majeure risks are effectively uninsurable, and if such events occur they may have materially adverse effects on CFX. (iii) Interest rate risk Funding cost fluctuations in interest rates, to the extent that they are not hedged, may adversely impact on the cost of debt and result in decreased earnings available for distribution to holders of Existing CFX Stapled Securities or New CFX Stapled Securities. Increases in interest rates will adversely affect the performance of CFX once any hedge expires. (iv) Changes in applicable law (v) CMIL must comply with various legal requirements including requirements imposed by securities laws and company laws in Australia. Should any of those laws change over time, the legal requirements to which CMIL (as Responsible Entity of CFX) and CFX may be subject could differ materially from current requirements. Furthermore, changes in relevant taxation laws, accounting standards, other legal, legislative or other administrative regimes, and government policies (including government fiscal, monetary and regulatory policies), may have an adverse effect on assets, operations and, ultimately, financial performance. Climate change risk CFX may be exposed to a number of potential impacts of climate change over time which could lead to demographic changes, change in consumption patterns, physical risks to property and falling property values. (vi) Real estate property prices Downward market pressure on real estate prices could impact the ability to generate development and defer management fee revenue. Any reduction in the value of CFX s investment properties will have a negative impact on CFX s NTA and gearing. CFS Retail Property Trust Group

45 CFX Notices of Meeting and Explanatory Memorandum 43 (vii) Inflation Higher than expected inflation rates generally or specific to the property sector could increase operating costs and development costs. (x) Forecast risks Investors should note that the historical financial performance of CFX is no assurance or indicator of the future financial performance of CFX. (viii) Litigation and disputes Disputes or litigation may arise from time to time in the course of business activities including with respect to the Target Entities that will be acquired pursuant to the Internalisation Proposal. There is a risk that material or costly disputes or litigation could adversely affect financial performance or security value. The above risks are not an exhaustive list of the risks involved in an investment in CFX. (ix) Market risks The price that Existing CFX Stapled Securities and New CFX Stapled Securities trade on the ASX may be determined by a range of factors, including: changes to local and international stock markets changes in interest rates changes to the relevant indices in which CFX may participate, the weighting that CFX has in those indices and the implications of those changes for institutional investors and their holdings of Existing CFX Stapled Securities or New CFX Stapled Securities global geo-political events and hostilities investor perceptions changes in government, fiscal, monetary and regulatory policies, and demand and supply of listed property trust securities. In the future, one or more of these factors may cause Existing CFX Stapled Securities or New CFX Stapled Securities to trade below current prices and may affect the revenue and expenses of CFX. The stock market can experience price and volume fluctuations that may be unrelated or disproportionate to the operating performance of CFX. Meeting Booklet

46 CFS Retail Property Trust Group SECTION 3 Overview of the Property Investment Management Business and Property Asset Management Business

47 CFX Notices of Meeting and Explanatory Memorandum introduction The Property Investment Management Business and Property Asset Management Business are retail property focused funds and asset management businesses that are currently 100% owned by CBA and form part of the CFSGAM business. The Property Investment Management Business provides funds management services to both CFX and the Wholesale Property Funds and Property Mandates. The Property Asset Management Business provides a range of services in relation to properties owned (or partly owned) by CFX, the Wholesale Property Funds, the Property Mandates and other third parties with approximately $13.9 billion 1 in AUM. A summary of the Property Investment Management Business and Property Asset Management Business, including the infrastructure to be acquired as part of the Internalisation Proposal is outlined below. Property Investment Management Business $10.4 billion FUM CFX $8.6 billion FUM Wholesale Property Funds and Property Mandates $1.8 billion FUM Property Asset Management Business $13.9 billion AUM Property asset management Services properties owned by: CFX Wholesale Property Funds Property Mandates Other third parties Finance and tax Treasury Strategy Sustainability Corporate Legal, compliance and risk Human resources Research Investor relations and communications 3.2 overview of the Property Investment Management Business (a) Description The Property Investment Management Business is a retail property focused investment management business. The business provides investment management services to two key groups: CFX, and the Wholesale Property Funds. The business also provides investment management services to CBGS and The Colonial Mutual Life Assurance Society Limited (CMLA) under mandates. The CMLA mandate is in respect of indirect investments in Wholesale Property Funds only. As at 30 June , the Property Investment Management Business managed total FUM of $10.4 billion, which comprised $8.6 billion in relation to CFX and $1.8 billion in relation to the Wholesale Property Funds and Property Mandates. (b) CFX The Property Investment Management Business provides funds management services to CFX. CFX currently comprises 28 retail assets valued at $8.6 billion 3, including Regional Shopping Centres and Sub-Regional Shopping Centres and retail outlet centres across Australia. The Property Investment Management Business receives both base management fees and performance fees from CFX. The following table illustrates the total fees paid by CFX to the Property Investment Management Business since ) Based on 30 June 2013 figures, and adjusted for post balance date items including asset sales, estimated asset revaluations and capital expenditures. Excludes funds in wind down and cross investments. 2) Adjusted for post balance date items including asset sales, estimated asset revaluations and capital expenditures. Excludes funds in wind down and cross investments. 3) Based on 30 June 2013 figures, and adjusted for post balance date asset sales. Meeting Booklet

48 46 Section 3 Historical fees received by the Property Investment Management Business from CFX ($m, year ending 30 June) 4 FY FY FY FY FY Base management fees Performance fees Base management fees paid by CFX to the Property Investment Management Business are calculated as 0.45% per annum of the gross asset value of CFX. Growth in the CFX gross asset value has driven consistent growth in its base management fees over time. Performance fees paid by CFX are calculated based on CFX s total return (distributions and security price performance) relative to the Index. CFX receives performance fees calculated as: 5% of the first 1% of outperformance relative to the Index, and 15% of any outperformance of the Index in excess of 1%. The performance fee in any half-yearly period is capped at 0.15% of gross asset value up to $3.5 billion and 0.10% of gross asset value over $3.5 billion with outperformance beyond the cap carried forward to future periods. CFX has significantly outperformed the Index over time and as a result, the Property Investment Management Business has received performance fees in 16 consecutive half-yearly periods to 30 June The total amount of these payments over this period was $72 million. This level of outperformance can be seen in the chart below. CFX total return 5 performance relative to the Index (rebased to 100) Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 CFX UBS Retail 200 Property Accumulatiom (excluding CFX) Source: Standard & Poor s. 4) Discrepancies between totals in the graph are due to rounding. 5) Total return comprises security price performance and distribution income yield. 6) The Index, as provided by Standard & Poor s, is the UBS Retail 200 Property Accumulation Index, customised to remove the effect of CFX on the index. CFS Retail Property Trust Group

49 CFX Notices of Meeting and Explanatory Memorandum 47 CFX continued to outperform the Index for the half-yearly period ending 31 December 2013 and a performance fee of approximately $5.3 million is expected to be paid to CBA for that period. The payment will be made by CMIL within two months of the end of the next half-yearly period in which the accumulation index for CFX is greater than the value of that Index on 31 December (c) Wholesale Property Funds and Property Mandates 7 The Property Investment Management Business also provides funds management services to two unlisted wholesale property funds (excluding funds in wind down refer to Section 3.2(d) below) and two investment management mandates totalling $1.8 billion of FUM. The two funds are both retail sector specific property funds known as CFSGAM Property Retail Partnership (CRP) 8 and CFSGAM Property Enhanced Retail Fund (CERF). CRP is fully invested with $1.2 billion of FUM across seven assets. CERF has current FUM of $72 million with a further $535 million in committed capital from its investors to be invested (subject to the availability and pricing of appropriate assets). The investment management mandate with CBGS accounts for a further $0.5 billion of FUM. While it is a diversified property mandate, approximately 65% of the assets are retail property. The CMLA mandate is in respect of indirect investments in Wholesale Property Funds only, so is excluded from the FUM calculations (refer to cross investments below). A key focus of the Property Investment Management Business is to establish long-term relationships with domestic and offshore investors who have an interest in investing in unlisted funds and to develop new funds and investment management mandates that leverage existing funds management and asset management capabilities. Target investor groups include superannuation funds as well as sovereign wealth funds. The fee structure typically varies for each Wholesale Property Fund and Property Mandate, however it involves a management fee that is based on a percentage of gross asset value and in some cases a performance fee. Management fees vary from 0.25% to 0.60% per annum of gross asset value. (d) Funds in wind down and cross investments There are two funds in wind down that still have exposure to direct property assets: Private Property Syndicate, which is expected to wind down in FY15, and International Private Equity Real Estate Fund, which is expected to wind down in FY16. The following funds no longer have any exposure to direct property assets and in most cases are expected to distribute final proceeds to investors by December 2014: Direct Property Investment Fund (A & B) Office Sector Direct Property Investment Fund (A & B) Industrial Sector Diversified Property Pool Commonwealth Property Hotel Fund CPHF Investment Fund CPHF Investment Fund No. 2, and Commonwealth International Real Estate Trust. Process on winding down funds The winding down of a fund is undertaken in accordance with the fund constitution and relevant law. The typical process involves the realisation and distribution to unitholders of all of the fund s assets (net of liabilities) and the redemption of all units on issue. As part of the wind down process, all wind down costs will typically be prepaid prior to the final distribution to unitholders. Final accounts are then prepared and audited, final annual tax statements completed and the final income tax return lodged. Relevant forms are lodged with ASIC if required and final deregistration confirmed in due course. Cross investments Cross investments have been excluded from the FUM calculations for the Wholesale Property Funds to more closely reflect the amount invested in direct property assets. This removes the double counting of FUM which typically would not earn any management fees. Cross investments are comprised of the Australian Investments Trust and CMLA investments (including investments held through CLL Property Trust). 7) Based on 30 June 2013 figures, and adjusted for post balance date asset sales. Excludes funds in wind down and cross investments. 8) CRP is a sector in the combined Direct Property Investment Fund (DPIF) A and B managed investment schemes. Investors in CRP hold units in each of those schemes and those units are stapled and may not be dealt with separately. DPIF A and DPIF B hold the assets of CRP. Meeting Booklet

50 48 Section overview of the Property Asset Management Business The Property Asset Management Business is one of the largest retail property asset managers in Australia, providing a range of property management and development management services. It manages properties for CFX (and the co-owners for properties partly owned by CFX), the Wholesale Property Funds, CBGS and a number of other third parties. As at 30 June 2013, it had $13.9 billion in retail AUM 9. A summary of the portfolio managed by the Property Asset Management Business is provided in the diagram below. The Property Asset Management Business charges fees for property management services and development services. Property management fees include property management, leasing and tenancy administration fees. There are no fees for disposals or acquisitions. Development management fees relate to development management, leasing and tenancy administration fees. As illustrated in the chart below, in FY13, property management revenue accounted for 66% of revenue, development management revenue accounted for 25% of revenue, with other income accounting for 9% of revenue. FY13 Property Asset Management Business revenue by source Property footprint (30 June 2013) Portfolio size: 35 retail assets managed * Leasable area: 1.6+ million square metres Tenants: 5,000+ retailers 230m+ customers p.a. Note: * Interests in 28 assets are directly held on the CFX balance sheet. Wholesale Property Funds, CBGS and other third party mandates have interests in 16 retail assets, of which nine are co-owned by CFX. 7 Property management fee 53% Leasing fee 11% Tenancy fee 2% Total: $95.8 million Development service fee 13% Project leasing fee 7% Other development income 5% Other income 9% Development management is an important source of revenue and strategic value for the Property Asset Management Business. This includes new concepts and the revitalisation and expansion of existing centres. Over the past eight years, the Property Asset Management Business has completed projects with a total cost of $2.9 billion at an average year one yield of 7.2% and an average internal rate of return of 11.3%. A summary of major retail redevelopments completed over the past eight years or due for completion within the next year is provided below. New concepts Revitalise centres Expand centres QueensPlaza (2005) Chadstone luxury mall (2009) Emporium Melbourne (2014) Northland (2009) Forest Hill (2013) Brimbank (2013) DFO Homebush (2014) Rockingham (2009) Sub-Regional to Regional Roxburgh Park (2013) Neighbourhood to Sub-Regional The current development pipeline being managed by the Property Asset Management Business has an estimated cost of $2.7 billion and developments are at a range of stages including those currently underway, those perceived as likely to occur and others that remain in concept phase. The largest single development project at present is the Emporium Melbourne development (>$1 billion) which is scheduled for completion in ) Based on 30 June 2013 figures, and adjusted for post balance date asset sales. Excludes funds in wind down and cross investments. CFS Retail Property Trust Group

51 CFX Notices of Meeting and Explanatory Memorandum 49 The Emporium and DFO Homebush development projects are the only current major retail developments scheduled for completion in the first half of calendar year These development projects are classified as investment property and stated at fair value. In determining fair value, the following factors, amongst others, are considered: the stage of completion whether the project/property is standard (typical for the market) or non-standard the level of reliability of cash inflows after completion the development risk specific to the property past experience with similar developments status of development/construction permits, and the provisions of the construction contract. Property Asset Management Business composition, by ownership # of retail properties AUM 1 ($bn) CFX wholly owned assets CFX co-owned assets Wholesale Property Funds and CBGS Mandate assets Third party assets Wholesale Property Fund assets co-owned with CFX Third party assets co owned with CFX 1. Figures represent ownership share As illustrated in the charts below, approximately 89% of AUM is either wholly owned or co-owned by CFX (35% is wholly owned by CFX and 54% is co-owned by CFX). The FY13 revenue source composition is broadly in line with the composition of its asset management arrangement by ownership. Sources of property asset management arrangements, by AUM CFX wholly-owned assets 35% CFX co-owned assets 27% Third party assets co-owned with CFX 23% Wholesale Property Fund assets co-owned with CFX 4% Wholesale Property Funds and CBGS Mandate assets 7% Third party assets 4% FY13 Property Asset Management Business revenue, by ownership (total $90.0 million) CFX wholly-owned assets 39% CFX co-owned assets 23% Third party assets co-owned with CFX 20% Wholesale Property Fund assets co-owned with CFX 4% Wholesale Property Funds and CBGS Mandate assets 9% Third party assets 5% Property management fees are based on a fixed percentage of gross collectables from tenants. Development management fees are based on a fixed percentage of development costs and leasing fees are based on a percentage of gross collectables from tenants. In terms of revenues generated by the Property Asset Management Business from CFX, in FY13 total property management and development management fees of $56.9 million were paid. Meeting Booklet

52 50 Section 3 Historical fees paid by CFX to the Property Asset Management Business are shown in the chart below. Historical fees paid by CFX to the Property Asset Management Business, prior to payment of the alignment fee ($m, year ending 30 June) 10 FY FY FY FY FY Property management Development management 10) Discrepancies between totals in the graph are due to rounding. CFS Retail Property Trust Group

53 CFS Retail Property Trust Group SECTION 4 Details of the Internalisation Proposal and De-stapling Proposal

54 52 Section establishment of the Independent Board Committee Following the announcement on 24 July 2013 of the receipt of the initial Internalisation Proposal from CBA, the CMIL Board established the Independent Board Committee with strict corporate governance protocols to consider the Internalisation Proposal and any alternative proposals. The Independent Board Committee comprises only directors who are independent of CBA. The composition of the Independent Board Committee is Mr Richard Haddock (Chairman), Mr James Kropp and Ms Nancy Milne. The Independent Board Committee has appointed a financial adviser, UBS AG, Australia Branch and a legal adviser, Ashurst Australia. The Independent Board Committee has also appointed other external advisers to assist in the consideration of the Internalisation Proposal, including Ernst & Young Transaction Advisory Services Limited (Investigating Accountant), Ernst & Young (accounting advisers) and Greenwoods & Freehills Pty Limited (tax). 4.2 Background to the Internalisation Proposal and Independent Board Committee recommendation On 24 July 2013, the CMIL Board announced the receipt of a highly conditional, indicative and incomplete proposal from CBA to internalise the management of CFX and for CFX to acquire the Property Asset Management Business and Property Investment Management Business from CBA. Following careful consideration of the Internalisation Proposal, which included undertaking detailed due diligence with the assistance of external advisers, the Independent Board Committee determined that the internalisation of the management of CFX presented an important opportunity for CFX. The Independent Board Committee recognised that an appropriately structured and fairly priced internalisation could be strategically and financially compelling for CFX Securityholders. For details of the advantages of the Internalisation Proposal, see Section 2.1 of this Explanatory Memorandum. The Independent Board Committee has devoted a considerable amount of time to considering, negotiating and preparing the documents required in connection with the Internalisation Proposal and other transactions that are referred to in this Explanatory Memorandum. The Independent Board Committee has concluded that the Internalisation Proposal is in the best interests of CFX Securityholders and unanimously recommends the Internalisation Proposal to CFX Securityholders in the absence of a superior proposal. CFS Retail Property Trust Group

55 CFX Notices of Meeting and Explanatory Memorandum What are the steps to implement the Internalisation Proposal and De stapling Proposal? Step Step 1 Description of step Capital raising: The Internalisation Proposal is being funded by a mix of equity and debt funding sources. The capital raised was split between CFX1 and CFX2 in accordance with the relative values of CFX1 and CFX2, and the funds raised by CFX2 will be on-lent to CFX1. There are three components of the funding for the Internalisation Proposal: the $280 million fully underwritten institutional placement of approximately 151 million Existing CFX Stapled Securities at $1.85 per security, as was announced to ASX on 18 December and successfully completed on 19 December 2013 the SPP which raised $15 million, as announced to the ASX on 18 December 2013 and which closed on 23 January 2014, and debt funding from external financiers of approximately $216 million. Proceeds from the Placement and SPP have been used to reduce debt and will be drawn down to fund the Internalisation Proposal. In the event that the Internalisation Proposal is not implemented, this capital will be applied to the future refurbishment and re-development of existing directly owned shopping centres, and the potential acquisition of shopping centres in line with CFX s strategy. Also, if the Internalisation Proposal is not implemented, the new debt facilities entered into for the Internalisation Proposal will be used to replace upcoming expiring debt facilities. Step 2 Thursday 6 February 2014 Step 3 Friday 7 March 2014 First court hearing: The first court hearing to obtain Judicial Advice was held on Thursday 6 February The Judicial Advice confirmed that CMIL is justified in convening the Meeting which is the subject of the Notices of Meeting. Meeting held: Meeting of CFX Securityholders will be held to vote on the Placement Resolution, Internalisation Resolutions, Intra-Group Transactions Deed Resolutions and the De stapling Resolutions. Subject to the Internalisation Resolutions being passed Step 4 Monday 10 March 2014 Second court hearing: The second court hearing to obtain Judicial Advice will be held on Monday 10 March At this hearing, CMIL will seek confirmation that CMIL is justified in implementing the Internalisation Proposal as approved by CFX Securityholders. Any CFX Securityholder who wishes to oppose the Judicial Advice at the second court hearing may do so by filing with the Court and serving on CMIL a notice of appearance in the prescribed form together with any affidavit that the CFX Securityholder proposes to rely on. Step 5 Monday 24 March 2014 Capital Distribution: CMIL, as Responsible Entity of CFX1 will make the Capital Distribution of approximately $219 million (approximately 7.25 cents per CFX1 Unit) to holders of CFX1 Units on the Record Date. Holders of CFX1 Units will not physically receive the Capital Distribution. CMIL will hold the Capital Distribution amount as agent and attorney on behalf of holders of CFX1 Units to be applied in the manner referred to below. Meeting Booklet

56 54 Section 4 Step Step 6 Monday 24 March 2014 Description of step Acquisition of CFX Co and de stapling CFX2: CFX Co will continue to hold all the shares in CMIL and a recently incorporated entity, CFX FM Co (a wholly owned subsidiary of CFX Co) which will act as fund manager. If the De stapling Proposal is approved, CFX2 Units will be de stapled from CFX1 Units and they will be transferred to CFX Co. The transfer of CFX2 Units to CFX Co will be regarded as a capital contribution that is made by holders of Existing CFX Stapled Securities for the issue of CFX Co Shares to them, or in the case of Foreign Holders to the Sale Nominee, in accordance with the Internalisation Proposal. CFX2 will become wholly owned by CFX Co. CMIL as Responsible Entity of CFX2, and as agent and attorney for each holder of CFX2 Units, will authorise the transfer all CFX2 Units to CFX Co on behalf of the holders of CFX2 Units. CFX Securityholders will not be paid the Capital Distribution. Rather it will be applied by CMIL, on behalf of CFX Securityholders who are entitled to the Capital Distribution, in payment of the issue price for the CFX Co Shares that are to be issued to CFX Securityholders at the Record Date or, in relation to Foreign Holders, to the Sale Nominee. Step 7 Monday 24 March 2014 Under the CFX1 and CFX2 Supplemental Deeds, each Foreign Holder and, if the De stapling Resolutions are passed, each CFX Securityholder is deemed to have warranted that: each of their CFX2 Units will, at the time they are transferred to CFX Co as part of the De stapling Proposal if it is approved, be fully paid and free from all mortgages, charges, liens, encumbrances and interests of third parties of any kind, whether legal or otherwise, and restrictions on transfer of any kind in the case of the Foreign Holders, each of their Existing CFX Stapled Securities (or if the De stapling Proposal is approved, each of their CFX1 Units) that will be transferred to the Sale Nominee (in the manner referred to in Section 9.6) will, at the time of transfer, be fully paid and free from all mortgages, charges, liens, encumbrances and interests of third parties of any kind, whether legal or otherwise, and restrictions on transfer of any kind, and they have full power and capacity to sell and transfer their Existing CFX Stapled Securities (or as applicable any security that forms part thereof) pursuant to the Internalisation Proposal and De stapling Proposal. Loan from CFX1 to CFX Co: CFX1 will loan to CFX Co on arm s length terms an amount for the purpose of partially funding the Internalisation Proposal. The terms of the loan are as follows: the aggregate pricing (including interest and fees) will be the 90 day bank bill swap rate plus 3.80% per annum the loan will be an on-demand facility and will be immediately repayable by CFX Co at any time following written notice from CFX1, and the loan will be provided on an unsecured basis. The terms of the loan are more favourable to CFX1, as the lender, than the terms CFX1 has negotiated with its external financiers. Management have benchmarked the terms of the loan against those available to companies that are broadly comparable to CFX Co. On this basis, the loan to CFX Co is considered to be on arm s length terms. CFS Retail Property Trust Group

57 CFX Notices of Meeting and Explanatory Memorandum 55 Step Step 8 Monday 24 March 2014 Step 9 Monday 24 March 2014 Step 10 Trading on a deferred settlement basis Wednesday 12 March 2014 to Monday 24 March 2014 Trading on a normal settlement basis Tuesday 25 March 2014 Description of step Acquisition of Target Entities and commencement of management: CFX Co will acquire the Target Entities (except CMIL which CFX Co acquired on 17 December 2013 and CFX FM Co) and as a result acquire the Property Asset Management Business, and in respect of the Property Investment Management Business, CFX will commence management of CFX and a number of Wholesale Property Funds and Property Mandates. Admission of CFX Co and Stapling: CFX Co will be admitted to the ASX. CFX1 and CFX Co will be stapled. Quotation of New CFX Stapled Securities on the ASX: The New CFX Stapled Securities, which comprise one share in CFX Co stapled to one CFX1 Unit (if the De stapling Proposal is approved), will commence trading on the ASX initially on a deferred settlement basis but as noted in the key dates on page 7, after trading on a deferred settlement basis for nine trading days, the New CFX Stapled Securities will commence trading on a normal basis. 4.4 how the Internalisation Proposal works if the De stapling Resolutions are not passed by CFX Securityholders If the Internalisation Resolutions are passed by CFX Securityholders but the De stapling Resolutions are not passed, the Internalisation Proposal will still proceed. All of the steps set out in Section 4.3 of this Explanatory Memorandum will take place except that CFX2 will remain stapled to CFX1. In this event, no CFX2 Units will be transferred to CFX Co and CFX Co will not hold any units in CFX2. Each CFX Co Share will be stapled to one CFX1 Unit and one CFX2 Unit and will be quoted and trade on the ASX as a triple-stapled security. The diagram in Section 1.2(c) represents the structure of CFX if the Internalisation Proposal proceeds but the De stapling Resolutions are not passed. 4.5 Key dates The key dates on page 7 of this Explanatory Memorandum provide an illustration of the likely timing for implementing the steps set out in Sections 4.3. Note the key dates are indicative only and they may change. If it is likely that they will change materially, CMIL will make an ASX announcement about the change. 4.6 consideration of the Internalisation Proposal Since the public announcement of the receipt of the Internalisation Proposal from CBA on 24 July 2013, no other proposal for CFX has emerged. The Independent Board Committee considered maintaining the CBA Group as an external manager of CFX. Under the current externally managed structure, CFX has delivered strong returns for CFX Securityholders. However, rejecting the proposal from CBA to internalise management and maintain the status quo would not change CFX s management structure to be in line with major A-REIT peers. It may also create uncertainty for CFX Securityholders if CBA were to seek an alternative exit via sale of the management rights to a third party. After careful consideration, the Independent Board Committee sees considerable merit in the Internalisation Proposal and is satisfied that it is in CFX Securityholders best interests in the absence of a superior proposal. The Independent Board Committee expects that implementation of the Internalisation Proposal will provide significant benefits for CFX Securityholders, which are described in Section 2.1 of this Explanatory Memorandum. The Independent Board Committee will consider any alternative proposal received prior to the Meeting and provide further advice to CFX Securityholders. It is also noted that implementation of the Internalisation Proposal does not preclude any subsequent corporate activity in relation to CFX. Meeting Booklet

58 56 Section conditions Precedent to the Internalisation Proposal The Internalisation Proposal is subject to the following Conditions Precedent: Condition Precedent ASIC and ASX modifications: ASIC and ASX grant all approvals, waivers and modifications that each of CBA and CMIL have reasonably required, or ASIC or ASX as the case may be has indicated in writing that a requested approval, waiver or modification is not required. CFX Securityholder approval: the Internalisation Resolutions are approved at the Meeting by CFX Securityholders (other than Excluded Securityholders). Independent Expert s Report: the Independent Expert provides an Independent Expert s Report to CMIL which states that, in the Independent Expert s opinion, the Internalisation Proposal is fair and reasonable for, and in the best interests of, Non-Associated CFX Securityholders. Independent Board Committee s recommendation: a majority of the Independent Board Committee recommend that CFX Securityholders approve the Internalisation Resolutions, in the absence of a superior proposal, and that majority does not change, withdraw or adversely modify their recommendation at or before the Meeting. Restraints: no permanent injunction or similar order issued by any court of competent jurisdiction or Government Agency, or other material legal restraint or prohibition, preventing the Internalisation Proposal is in effect at 9.00am on the Completion Date. ASX listing and quotation: ASX approves the listing of CFX Co and the official quotation of the New CFX Stapled Securities on the ASX. Judicial Advice: the Judicial Advice is obtained. Status ASIC has granted the relief necessary to implement the Internalisation Proposal. CFX Co and CMIL have applied to ASX for an in principle decision to grant all relevant waivers and confirmations. The Meeting is to be held at 10.30am (Sydney time) on Friday 7 March 2014 at Hilton Sydney, 488 George Street, Sydney NSW Satisfied as at the date of this Explanatory Memorandum. Satisfied as at the date of this Explanatory Memorandum. CFX is not currently aware of any such restraint or prohibition being in effect on the Completion Date. It is proposed that CFX Co will lodge with ASX a listing application on or before 14 February On 6 February 2014, the Court confirmed that CMIL is justified in convening the Meeting to consider the Internalisation Proposal. If the Internalisation Resolutions are approved, on the second court date (expected to be 10 March 2014) CMIL will seek advice from the Court that it is justified in implementing the Internalisation Proposal. If any of the Conditions Precedent is not satisfied or waived by 31 May 2014 (being the end date as defined in the Implementation Deed), CBA and CMIL will consult in good faith with a view to determining whether to proceed by way of alternate methods or to extend the end date. If no agreement is reached, the Implementation Deed may be terminated by either party. CFS Retail Property Trust Group

59 CFX Notices of Meeting and Explanatory Memorandum Transitional arrangements As part of the Internalisation Proposal, in order to ensure an orderly and efficient management of the internalisation process, it is proposed that transitional services will be provided by CBA to CFX Co to ensure that CFX has access to a range of functions and systems until the internalised CFX is able to operate on a standalone basis. Limited transition arrangements are required for the Melbourne-based retail asset management business as the majority of its key systems and processes currently operate independently of CBA. If the Internalisation Proposal is implemented, a transitional arrangement will be entered into in relation to CFX continuing to conduct the Property Investment Management Business and Property Asset Management Business under the brands used in conducting those businesses prior to internalisation for a period of up to 12 months. During this time, the internalised entity will develop a new corporate name and brand. The brands of the directly owned or managed assets are not involved in this transitional arrangement, and no changes are expected to their individual branding arrangements. More information on these transitional arrangements is provided in Annexure E of this Explanatory Memorandum. 4.9 impact of the Internalisation Proposal on material agreements (a) Funds management and asset management agreements As set out in step 8 of Section 4.3 of this Explanatory Memorandum, in respect of the Property Investment Management Business, CFX will commence management of CFX and a number of the Wholesale Property Funds and Property Mandates on implementation of the Internalisation Proposal. Consent is required from the Property Mandates counterparties in order for CFX to commence management of these mandates on and from implementation of the Internalisation Proposal as outlined in Section 2.5(a)(v). On implementation of the Internalisation Proposal, CFX will acquire the Target Entities and as a result acquire the Property Asset Management Business. These entities are parties to the various property management agreements and development services agreements that comprise the Property Asset Management Business, and these agreements will largely remain on foot following implementation of the Internalisation Proposal. (b) Convertible notes CMIL as Responsible Entity of CFX1 has outstanding the following convertible notes: (a) the $92.3 million of 5.075% Convertible Notes due 2014 (Notes due 2014), and (b) the $300 million 5.75% Convertible Notes due 2016 (Notes due 2016). The Notes due 2014 have a conversion price of $ and a final maturity date of 21 August The Notes due 2016 have a conversion price of $2.40 and a final maturity date of 4 July Bank of New York Mellon (BNYM) is the trustee, or the successor to the trustee, under the trust deeds relating to the Notes due 2014 and the Notes due 2016, in each case as amended or supplemented from time to time. If the Internalisation Proposal proceeds, it is CMIL s intention to seek appropriate modifications to the note terms to reflect certain consequences for the notes from implementing the Internalisation Proposal which aim to ensure that: (i) the securities, in relation to which conversion rights apply, are New CFX Stapled Securities, not CFX1 Units (ii) there is no change to the conversion price from the CFX1 capital distribution to effect the internalisation, as this amount is reinvested into CFX Co and its value is reflected in the market price of New CFX Stapled Securities, and (iii) where there is a requirement in the note terms to undertake a calculation by reference to the market value of a CFX1 Unit, that the calculation is undertaken by reference to the market value of a New CFX Stapled Security; for example in relation to the cash settlement option that CMIL, as issuer of the notes, can exercise in the event that a noteholder exercises conversion rights and in relation to certain conversion price adjustment events. It is expected, in the first instance, that CMIL will discuss these suggested modifications with BNYM. CMIL can give no assurance that the modifications will be approved. However CMIL does not expect that there will be material adverse consequences for CFX if the note terms remain unaltered. Meeting Booklet

60 58 Section 4 (c) ISDA arrangements In respect of CFX s ISDA or derivative arrangements with CBA, Deutsche Bank AG and UBS AG London Branch, implementation of the Internalisation Proposal will require the consent of the derivative provider. Failure to obtain such a consent will trigger termination related events and/or other restrictions. This may result in the payment of an early termination amount by CMIL and may result in CFX incurring additional costs in establishing replacement ISDA arrangements. CFX has sought the consent of Deutsche Bank and UBS AG London Branch and, under the Implementation Deed, CBA has agreed not to exercise any termination rights arising as a result of the Internalisation Proposal Taxation Report and stamp duty Greenwoods & Freehills Pty Limited was engaged by the Independent Board Committee to advise on the tax consequences for CFX Securityholders that will arise from implementation of the Internalisation Proposal Foreign Holders For the reasons outlined in Section 9.6 of this Explanatory Memorandum, CFX Co Shares will not be issued to Foreign Holders under the Internalisation Proposal. If the De stapling Proposal is approved, the CFX2 Units that comprise part of the Existing CFX Stapled Securities held by Foreign Holders will be transferred to CFX Co. Subject to the above, the Existing CFX Stapled Securities held by Foreign Holders will be transferred to the Sale Nominee. After CFX Co Shares are stapled to those securities, in accordance with the Internalisation Proposal, the Sale Nominee will pool and sell such securities on the ASX in accordance with the Sale Facility and account to the Foreign Holders for the net proceeds of such sale. More information on the Sale Facility and the treatment of Foreign Holders can be found in Section 9.6 of this Explanatory Memorandum. The Australian tax consequences of the Internalisation Proposal for CFX Securityholders are set out in the Taxation Report in Annexure C of this Explanatory Memorandum. In addition, CFX does not consider that the Internalisation Proposal, if implemented, will give rise to any direct stamp duty costs for CFX Securityholders. It is expected that there should be some stamp duty costs incurred by CFX, which have been included in the forecast implementation costs. The Independent Board Committee recommends to CFX Securityholders that they seek their own independent tax advice relevant to their own specific circumstances. CFS Retail Property Trust Group

61 CFS Retail Property Trust Group SECTION 5 Description of an internalised CFX

62 60 Section overview of an internalised CFX If the Internalisation Proposal is implemented, CFX is expected to become one of the largest fully integrated and independently managed retail property groups in Australia, with $13.9 billion 1 in assets under management (AUM), approximately 850 property professionals, and proven capabilities in investment management, asset management and corporate services. In addition to CFX s interests in 28 retail assets valued at $8.6 billion located throughout Australia, CFX will manage $5.3 billion in retail assets through Wholesale Property Funds and Property Mandates. 29.8% pro forma gearing 1 $13.9bn AUM 35 retail assets managed 2 ~850 property professionals CFX 3 1.6m+ sqm 5,000+ retailers 230m customers p.a.+ $9.3bn retail sales p.a. Direct investments Strategic partnerships Owner and manager of interests in a portfolio of quality, predominantly regional and large sub-regional shopping centres, and DFO retail outlet centres in Australia Provider of funds management and asset management services to wholesale funds, mandates and partners $8.6bn assets 28 retail assets 3 15 strategic 6 partners 5 $5.3bn retail AUM 99.4% portfolio occ. 6.4% WACR retail assets 3 Investment management Corporate Asset management Portfolio management Capital management Capital transactions Finance and tax Treasury Strategy Sustainability Legal, compliance and risk Human resources Research Investor relations and communications Property management Development management Leasing Notes: 1. Based on reported gearing as at 30 June 2013 and adjusted for post balance date items including the sale of Rosebud Plaza, proceeds from the June 2013 distribution reinvestment plan, estimated asset revaluations, capital expenditure, interest and fees paid. 2. Interests in 28 assets are directly held on the CFX balance sheet. Wholesale Property Funds and Property Mandates and other third parties have interests in 16 retail assets, of which nine are co-owned by CFX. 3. As at 30 June 2013 and adjusted for asset sales post balance date, estimated asset revaluations and capital expenditure. Excludes funds in wind down and cross investments. 4. Shopping centre portfolio weighted average capitalisation rate. 5. Three wholesale funds/mandates and 12 asset management partners. 1) Based on 30 June 2013 figures, and adjusted for post balance date items including asset sales, estimated asset revaluations and capital expenditure. Excludes funds in wind down and cross investments. CFS Retail Property Trust Group

63 CFX Notices of Meeting and Explanatory Memorandum strategy post internalisation CFX s vision is to be the leading Australian retail property group. CFX s objective is to provide superior, sustainable, risk-adjusted returns for both our investors and our strategic partners, from the ownership and management of quality Australian retail assets. CFX s current long-term strategy is focused on four key elements and reflects CFX s focus on owning and managing a portfolio of Australian retail assets: Intensive asset management: Protect and enhance income streams through intensive asset management to create compelling places to shop Disciplined investment decisions: Enhance portfolio quality through strategic acquisitions and divestments Prudent capital management: Optimise debt pricing, balanced against diversity, duration and hedging strategies, and Investing responsibly: Managing environmental, social and governance risks to create and maintain value for our investors. Importantly, CFX will continue to maintain its focus on Australian retail assets, maintain its intense focus on asset management to drive income and growth, and maintain a target gearing range of 25% 35%. It is also the current intention to maintain the existing distribution policy of paying out 100% of distributable income. CFX also remains committed to achieving best practice standards in responsible investment by proactively managing environmental, social and governance risks. As a consequence of the Internalisation Proposal, CFX will also own a leading, high quality, integrated retail property funds management and asset management platform, including approximately 850 property professionals and direct control over key systems and processes. A key focus for CFX post internalisation will be to ensure that the culture of excellence with respect to its people, systems and processes that has been developed under its existing ownership is maintained and further developed. This will be achieved by attracting, developing and retaining the best people, efficient and effective systems and processes, and a sustained focus on continuous improvement and efficiency. This culture of excellence is focused on delivering superior and sustainable, risk-adjusted returns for investors and strategic partners. Strategic partnerships will be a component of CFX s strategy post internalisation and are one of the benefits of the Internalisation Proposal. Income from strategic partnerships will comprise approximately 8% 2 of CFX s revenue post internalisation. Strategic partnerships provide CFX with the potential to derive income diversification and incremental growth by leveraging its leading retail expertise to provide funds management and asset management services to strategic partners. CFX will focus on maintaining and establishing retail sector funds and mandates by targeting like-minded domestic and off-shore partners. It is expected that strategic partnerships will add to CFX s income and incremental growth going forward. In summary there is no material change to CFX s strategy post internalisation. CFX will continue to focus on owning a quality portfolio of Australian shopping centres, be conservatively geared, and the significant majority of its income and growth will continue to be derived from the existing portfolio. 2) Pro forma basis for the year ending 30 June Meeting Booklet

64 62 Section 5 Details of CFX s near-term strategic focus post internalisation are as follows: Disciplined investment management Transact to enhance portfolio quality Actively pursue the sale of non-core assets Reinvestment of proceeds from non-core asset sales Maintain a strong balance sheet Maintain conservative gearing profile and a competitive cost of debt Investigate opportunities to extend and/or diversify sources of debt Intensive asset management Continue to lead our retail peers in responsible investment Undertake NABERS ratings of portfolio and establish asset performance targets Maintain best practice in corporate governance Progress developments Complete and open Emporium Melbourne and DFO Homebush projects fully leased Progress design development of Chadstone Shopping Centre Continue to master plan other planned projects Continue to tailor tenant mix to each centre s trade area Maintain effectively full occupancy Culture of excellence Commence integration of systems and processes Maintain continuous improvement and efficiency programs Establish new corporate brand and foster a culture of excellence Strategic partnerships Continue to develop relationships and allocate capital Progress appropriate asset acquisition opportunities Continue development of capital partnering/relationships to leverage the CFX platform CFS Retail Property Trust Group

65 CFX Notices of Meeting and Explanatory Memorandum cfx directly owned assets The internalisation will not result in any changes to the assets that are directly owned by CFX. The CFX portfolio is high quality, well diversified and comprises 28 partly and wholly owned retail properties outlined in the table 3 below. Property CFX (%) Centre type 1 Latest valuation ($m) MAT growth (%) Spec. MAT growth (%) Spec. MAT/sqm ($) Occ. cost (%) Occ. (%) Cap rate (%) Retail portfolio 2 (%) Chadstone Shopping Centre, VIC 50 Super-Regional 1, , Chatswood Chase Sydney, NSW 100 Regional , Bayside Shopping Centre, VIC Regional , QueensPlaza, QLD 100 CBD-Regional , Northland Shopping Centre, VIC 50 Regional , Myer Melbourne, 4 VIC 46 5 Development N/A N/A N/A N/A N/A N/A N/A The Myer Centre Brisbane, QLD 50 CBD-Regional , Elizabeth Shopping Centre, SA 100 Regional , Broadmeadows Shopping Centre, VIC 100 Regional , Forest Hill Chase, VIC Regional , Rockingham Shopping Centre, WA 50 Regional , Lake Haven Shopping Centre, NSW 100 Sub-Regional , Grand Plaza Shopping Centre, QLD 50 Regional , Eastlands Shopping Centre, TAS 100 Regional , Clifford Gardens Shopping Centre, QLD 100 Sub-Regional , Brimbank Shopping Centre, VIC Sub-Regional , Castle Plaza Shopping Centre, SA 100 Sub-Regional , Runaway Bay Shopping Village, QLD 50 Regional , Corio Shopping Centre, VIC 100 Sub-Regional , Roxburgh Park Shopping Centre, VIC Sub-Regional , Northgate Shopping Centre, TAS 100 Sub-Regional , Altona Gate Shopping Centre, VIC 100 Sub-Regional , Post Office Square, QLD 100 Other , The Entertainment Quarter, NSW 50 Other , Shopping Centre portfolio 7, , ) Valuation information based on most recent independent valuations as at 31 December 2013, retail sales information as at 30 September 2013, occupancy cost and occupancy rate as at 30 June Excludes Rosebud Plaza Shopping Centre. Meeting Booklet

66 64 Section 5 Property CFX (%) Centre type 1 Latest valuation ($m) MAT growth (%) Spec. MAT growth (%) Spec. MAT/sqm ($) Occ. cost (%) Occ. (%) Cap rate (%) Retail portfolio 2 (%) DFO Homebush, NSW Retail outlet , DFO South Wharf, VIC 50 Retail outlet , DFO Essendon, VIC 100 Retail outlet , DFO Moorabbin, VIC 100 Retail outlet , DFO Retail Outlet Centre portfolio , Bowes Street, Woden ACT 100 Office 12.6 N/A N/A N/A N/A N/A 1. Regional Shopping Centres and Sub-Regional Shopping Centres classified as per Property Council of Australia definitions. 2. Based on independent valuations excluding Myer Melbourne and 15 Bowes Street, Woden. 3. Development impacted centre. 4. Development impacted centre. 5. Based on a blended share of the ownership interest in Emporium Melbourne and Myer Bourke Street department store. 6. Development impacted centre. 7. Development impacted centre. 8. Development impacted centre. 9. Represents the value of CFX s units in Bent Street Trust. 10. Development impacted centre. CFX s directly owned portfolio is geographically diversified throughout Australia with a bias towards Victoria, Queensland and New South Wales. The portfolio is predominantly comprised of Super-Regional Shopping Centres and Regional Shopping Centres with exposure to a portfolio of retail outlet shopping centres. Geographic diversification by value* Property centre type diversification by value* VIC 52% QLD 18% NSW 17% SA 6% WA 4% TAS 3% Regional 56% Super-regional 21% Sub-regional 14% Retail outlet 8% Other 1% Notes: * Excludes Myer Melbourne, Rosebud Plaza Shopping Centre and 15 Bowes Street, Woden. CFS Retail Property Trust Group

67 CFX Notices of Meeting and Explanatory Memorandum 65 The portfolio is diversified by tenant group with the top 15 tenants representing <30% of total income. Top 15 tenant Groups Income % Specialty store lease expiry profile Wesfarmers Woolworths % 23.4% David Jones 3.2 Myer % 18.5% Premier Investments 1.7 Hoyts 1.4 Commonwealth Bank Westpac 1.0 Specialty Fashion Group 0.9 By Gross Lettable Area (%) 15.0% Australian Pharmaceutical Industries 0.9 Angus & Coote 0.9 Country Road 0.8 FY14 1 FY15 FY16 FY17 Beyond BB Retail Capital 0.8 Cotton On 0.8 Note: 1. Includes vacancies and holdovers. Best & Less 0.8 Top Notes: 1. Including Coles, Target, Kmart and subsidiary brands. 2. Includes the head office of CFSPM and centre management offices. Assuming the Internalisation Proposal is approved, this would be 0.8%. As outlined below, CFX has a number of development projects under way. The development management business is expected to continue to drive incremental growth and profitability of the portfolio going forward. Dec - 12 Jun - 13 Dec - 13 Jun - 14 Dec - 14 Jun - 15 Dec - 15 Beyond Emporium Melbourne $590m DFO Homebush $100m Chadstone retail (Stage 35) $240m Chadstone office $40m Eastlands In progress Planned 1,2 Deferred 2 Castle Plaza Notes 1. Cost shown is CFX share and is indicative only. 2. Commencement subject to approvals and timing. Meeting Booklet

68 66 Section corporate governance The 2013 CFX Annual Report sets out a summary of the corporate governance arrangements that apply to the management of CFX (which can be accessed on the CFX website cfsgam.com.au/cfx). CMIL and CFX operate in a robust regulatory environment created by the operation of Australian corporations law, managed investment scheme obligations, the ASX Listing Rules and the ASX Corporate Governance Council s Principles and Recommendations. The high standard of CMIL and CFX s existing corporate governance will be maintained following implementation of the Internalisation Proposal, with appropriate charters and policies to be adopted by CFX Co and CMIL. In several key aspects, existing corporate governance arrangements will be tailored so as to be appropriate for the new internalised structure, including the code of conduct, and policies related to securities trading and continuous disclosure as summarised in the table below: Issue CFX Securityholder influence on the composition of the board Pre-Internalisation Proposal The appointment of directors to the CMIL Board is made by CBA. As a result, CFX Securityholders do not have an opportunity to vote on the appointment, re-election or removal of directors of CMIL. Post-implementation of the Internalisation Proposal Following implementation of the Internalisation Proposal, CFX Securityholders will be able to influence the composition of the CFX Co Board by voting on the election and re-election of CFX Co Board members (other than the Managing Director) through ongoing Annual General Meeting processes. Further information Section 5.5 Remuneration of key management personnel Directors fees Remuneration and terms of appointment of senior executives are determined through CBA s People and Remuneration Committee. CMIL does not have a remuneration committee nor does it employ personnel directly. The remuneration arrangements for independent directors of CMIL are set by CBA through the CBA Board Performance and Renewal Committee. Executives of CBA are not remunerated for their duties as directors of CMIL. Following a transitional period, it is proposed that any newly appointed directors of CFX Co will be appointed to the CMIL Board. Management will be employed and incentivised directly by CFX, including through a shortterm incentive and a long-term incentive scheme to incentivise long term performance and align management s interests with those of CFX Securityholders. CFX Co will establish a remuneration committee. An aggregate director fee cap for non-executive directors has been established and will not exceed $1.9 million per annum. Refer to Section 6.5 of the Prospectus which provides further details on director remuneration. Section 5.7 Section 6.5 of the Prospectus CFS Retail Property Trust Group

69 CFX Notices of Meeting and Explanatory Memorandum 67 Issue Pre-Internalisation Proposal Post-implementation of the Internalisation Proposal Further information Diversity program CMIL participates in CBA s diversity program, as CFX personnel are employees of CBA. CFX Co will establish a diversity program in accordance with the ASX Corporate Governance Council s Principles and Recommendations. The diversity program policy will be finalised prior to implementation of the Internalisation Proposal. A copy will be made available for inspection on CFX s website at cfsgam.com.au/cfx. Board committees Committees of the CMIL Board include a Compliance Committee and Audit Committee (each comprising only independent directors). It is anticipated that CFX Co will establish various CFX Board committees prior to implementation of the Internalisation Proposal including: audit committee risk and compliance committee remuneration committee, and nominations committee. The Charters governing each committee will be finalised prior to implementation of the Internalisation Proposal. Copies will be made available for inspection on CFX s website at cfsgam.com.au/cfx. Each committee will be governed by a Charter and subject to an annual performance review. Composition of each committee will have regard to the ASX Corporate Governance Council s Principles and Recommendations. The CFX Co Board will adopt a Board Charter setting out, among other things, the matters reserved to the CFX Co Board and the right of directors to seek independent advice. Meeting Booklet

70 68 Section 5 Issue Pre-Internalisation Proposal Post-implementation of the Internalisation Proposal Further information Wholesale Property Funds sub-committees CMIL acts as the Responsible Entity or trustee of certain of the Wholesale Property Funds. Protocols are established to ensure that actual and perceived conflicts of interest are managed by CMIL when acting in the capacity as Responsible Entity or trustee. There are circumstances where decisions need to be made by the CMIL Board that relate not only to certain of the Wholesale Property Funds but also to CFX (Potential Conflict Matters). Additional protocols will be established to ensure that any such decisions in relation to the Wholesale Property Funds are made having regard to the best interests of the investors in those funds. N/A Where circumstances require, the CMIL Board proposes to establish a subcommittee comprising a number of independent directors of the CMIL Board. The role of the subcommittee, acting solely on behalf of the relevant Wholesale Property Fund, will be to make recommendations to the CMIL Board in relation to the Potential Conflict Matter. 5.5 CMIL and CFX Co Boards post internalisation It is proposed that the composition of the CFX Co and CMIL Boards will ultimately be the same and comprise eight directors, a majority of which will be independent, non-executive directors. Mr Richard Haddock AM will remain the independent Chairman of both CFX Co and CMIL. All existing Independent Board Committee members, being Mr Haddock, Mr James Kropp and Ms Nancy Milne will remain on the CMIL and CFX Co Boards. Non independent directors, Mr Ross Griffiths and Mr Michael Venter, will resign from the CMIL Board effective from the Completion Date. Upon implementation, Mr Angus McNaughton, Managing Director, Property, CFSGAM, will be invited to join the CFX Co and CMIL Boards as Managing Director and CEO for CFX. The CFX Co Board will invite two non-executive directors to be nominated by The Gandel Group immediately post implementation, with a further two independent non-executive directors to be appointed in due course. The independence of directors is assessed having regard to the independence relationships identified in the ASX Corporate Governance Council s Principles and Recommendations. CFX Securityholders will be able to influence the composition of the CFX Co Board through voting on the election and re-election of directors through ongoing Annual General Meeting processes. Following a transitional period, it is proposed that any newly appointed directors of CFX Co will be appointed to the CMIL Board. CFX Co will thereafter appoint directors to the CMIL Board and ensure that the composition of the CMIL Board is consistent with CFX Co. CFS Retail Property Trust Group

71 CFX Notices of Meeting and Explanatory Memorandum 69 Set out below are the profiles of the independent directors: Richard Michael Haddock AM Independent Non-executive Chairman Mr Haddock is the Chairman of CMIL; a Director of CFX Co; a director of Retirement Villages Group Fund; the honorary treasurer and a national director of Caritas Australia; the chairman of Catholic Care; the chairman of the Australian Catholic Superannuation and Retirement Fund; and chairman of St Vincent s Curran Foundation. Term in office 5 years as at January 2014 Mr Haddock has had a long career in financial services and was Deputy General Manager, Australia at BNP Paribas, Sydney from 1988 to 2001 Mr Haddock is a Fellow of the Australian Institute of Management, the Financial Services Institute of Australia and the Australian Institute of Company Directors James Frederick Kropp Independent Non-executive Director Mr Kropp is Chairman of CMIL s Audit Committee. Mr Kropp is a Director of CMIL and a Director of CFX Co. Term in office 10 years as at January 2014 Mr Kropp was a senior audit and risk management consulting partner in the Sydney office of PricewaterhouseCoopers for over 18 years, retiring from the practice in December 1999 Mr Kropp is a Fellow of CPA Australia and was its National President in Nancy Jane Milne OAM Independent Non-executive Director Ms Milne is a Director of CMIL; a Director of CFX Co; a director of Australand Holdings Limited (and chair of the Risk and Compliance Committee, and a member of the Remuneration and Nominations Committee); chair of Securities Exchange Guarantee Corporation Limited; a director of Australian International Disputes Centre Limited; a director of Good Beginnings Australia; and a director of Crowe Horwath Australasia Ltd. Term in office 5 years as at January 2014 Ms Milne is a lawyer with over 25 years experience, with primary areas of legal expertise in insurance and reinsurance, risk management, corporate governance and professional negligence Ms Milne was at Clayton Utz as a partner until 2003 and as a consultant until 2012 and is a member of the Australian Institute of Company Directors Meeting Booklet

72 70 Section Key management team Continuity of the key management team is expected with the following appointments: Current CFSGAM Property Managing Director, Angus McNaughton, to be appointed Managing Director and CEO, and Current CFX Fund Manager, Michael Gorman, to be appointed Deputy CEO and Chief Investment Officer. Angus McNaughton Managing Director and CEO Mr McNaughton currently oversees the performance and strategic direction of the funds and businesses managed within the property division of CFSGAM, including listed property, wholesale property and retail asset management and development. Mr McNaughton, who was appointed to his present role in November 2011, has more than 20 years experience in the property sector. He has been employed in the broader CFSGAM group for nearly 20 years in various roles, including Head of Wholesale Property and Chief Executive of the Manager of Kiwi Income Property Trust, which is New Zealand s largest diversified listed property trust. Mr McNaughton is a Director of CFX FM Co. Michael Gorman Deputy CEO and Chief Investment Officer Mr Gorman is currently responsible for all aspects of management of CFX, including strategic direction, performance, financial analysis, acquisitions and disposals and has been in this role since November Mr Gorman also works closely with the retail management team to optimise the performance of CFX s portfolio. He has more than 25 years property investment experience and, prior to joining CFSGAM in February 2003, Mr Gorman worked at Lend Lease for 10 years. During that time, he held a variety of positions, including Retail Portfolio Manager, General Property Trust and CEO of the Lend Lease Foundation. Mr Gorman is a Director of CFX FM Co. CFS Retail Property Trust Group