H&G Limited – National Property Trust
21 JULY 08
H&G Limited – National Property Trust
The Cushing family investment vehicle, H&G Limited, announced today that it intended to vote its 5.5m units in the National Property Trust against some key resolutions at the Special Meeting of Unit Holders on 29 July.
H&G director, David Cushing, said “We believe the proposed changes are not in the best interests of Unit Holders. We urge other owners to reject all the proposals put up by the Manager, a subsidiary of St Laurence Limited, relating to fees. The existing fee structures are already excessive for the Trusts long suffering Unit Holders. The proposed fee structures are simply ridiculous.”
While St Laurence was reducing the base fee, it was also proposing charging a raft of new property service fees – gross rental fees, leasing fees, rent review fees, project management fees, due diligence fees, accounting fees and disposal fees. These are in addition to the base fees and performance fees and are simply going to increase the returns to St Laurence.
By way of example, St Laurence is proposing to charge disposal fees on property sales subject to a cap of 0.75% of the sale price. This disposal fee will be on top of the fees paid to real estate agents who are clearly incentivised to maximize sale proceeds. It is argued by the Manager that currently there is no incentive for the Manager to maximize or perform extra duties during the sales process. Such an assertion is ludicrous in H&G’s opinion, given that the Manager is at the same time being paid base fees and performance fees and should at all time act in the best interests of Unit Holders.
Mr Cushing adds: “It is our view the reduction in base fees will be more than offset by a substantial increase in property service fees and result in more related party transactions. Unquestionably under this proposal the Trust will pay higher property service fees than it has in the past which we believe is unfair to Unit Holders. How many times does St Laurence want to clip the ticket for arguably the worst performing property trust on the NZX?”
Additionally, H&G did not consider a change in the performance fee methodology to be in the best interests of Unit Holders. The Manager is currently entitled to a performance fee based on the increase in the capital reserve account. It is proposed this be changed to an “excess return” approach based on the NZX Property Index. H&G believe the timing of this change in methodology is totally in favour of St Laurence for several reasons:
• Given the subdued market conditions there appears to be little potential for upward movement in the capital reserve account over the near term.
• The units currently trade at the largest discount to Net Tangible Asset (“NTA”) backing of all the listed property trusts on the NZX.
Mr Cushing said: “Given the poor performance of the National Property Trust and vast discount to NTA backing of approximately 50%, for St Laurence to capture another performance fee if the units are simply rerated to the average discount of the Trusts listed peers is totally unacceptable and inequitable. On top of this it is also proposed that the performance fee units issued to St Laurence be at the heavily discounted market value not NAV further eroding Unit Holder value.”
H&G also believed there were other features of the proposed performance fee structure that were potentially unattractive, for example the performance fee account being set to zero every three years thereby enabling St Laurence to unfairly benefit from the clearing of any debit balance.
In conclusion, H&G will vote against resolutions 4,5 and 6 relating to the Managers fees, transactions with the Manager/Property Service fees and transactions with the Manager/Perormance fees. On balance H&G believe that resolutions 4,5 and 6 are not in Unit Holders best interests. H&G will, however, vote in favour of resolutions 1,2 and 3 which relate to Unit Holder meetings, Unit Holder proposals and independent directors.