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Property trust management fees issue divides sector

Thursday 28th October 2010

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AMP NZ Office Trust’s decision to restructure itself into a listed company is likely to put pressure on other property trusts to follow suit, as investors push managers to deliver on earnings performance over fund size.

But not all the listed trusts are biting. Chris Gudgeon, chief executive at Kiwi Income Property Trust, the retail and mall space investor, says corporatisation may not be the silver bullet for all property trusts and comes with its own pitfalls. He says the ANZO move is a test case for the industry.

“We are looking at the outcome, and at Kiwi Income we have always been competitive in terms of overall fee structure and intend to remain so,” Gudgeon said. “What does this development mean for market and industry, and are we on the pace with our competitiveness? That’s what we will be reviewing now we have the benchmark.”

Last week over 80% of ANZO’s shareholder approved the move to transform the property investor from a unit trust structure to a corporate one, after pressure from institutional investors saw the trust’s manager AMP Haumi Management Ltd. lower its fees and increase its transparency.

In June, DNZ Property Fund Ltd., the property investor that grew out the relationship between Dominion Funds and Money Managers, bought out its management contract from Paul Duffy and Alastair Hassell, and listed itself on the main board of the NZX.

Similarly, National Property Trust’s unit holders voted earlier this year to buy-out its management contract from St Laurence-associated National Property Trust Ltd., and convert to a company.

“The problem that has manifested with the externally managed model is that the manager is incentivised to grow the size of the trust, because their fee is based on funds under management,” said Craig Brown, a senior investment analyst at ING New Zealand.

“The trusts have grown aggressively in size over the last few years and the management fees along with it, but earnings haven’t - either on an earnings per unit and dividend per unit basis,” Brown said. “The trusts say they don’t do this, but the structure incentivises it.”

Kiwi Income’s Gudgeon said under its new structure, ANZO shareholders will find it more difficult to replace external manager AMP Haumi Management for under performance. It fielded criticism from the trust’s largest shareholder Accident Compensation Corp. that it had destroyed longer term value.

ANZO shares were unchanged at 78 cents on the on the NZX, and have risen 2.6% this year. Kiwi Income rose 1% to $1.05.

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