ANZO changes miss fundamental issue - report

AMP NZ Office Trust chief executive Scott Pritchard Photo / Dean Purcell

A proposed management fee review by AMP NZ Office Trust (ANZO) and plans to change from a trust to a company are positive for investors but do not address a fundamental issue, an independent adviser's report says.

The KordaMentha report, published today, said the changes proposed by ANZO would better align the incentives of shareholders and manager, and would increase the ability of shareholders to influence the governance of the company.

But they did not address the issue that an increasing number of investors saw as fundamental with the local listed property entity (LPE) sector, that of external management, the KordaMentha report said.

"Many investors believe that internalising the management of the LPEs would unlock value for investors that is currently accruing to the external managers.

"Consequently, whilst the proposed changes are a positive step for investors, they fall some way short of achieving the full alignment of incentives that would be achieved under an internally managed model," KordaMentha said.

It was understood that the shareholders of the manager, AMP Haumi Management Ltd (AHML), did not want to consider internalisation of management as part of the review.

"Nor would we expect that the shareholders in AHML would consider relinquishing their management rights without receiving value. The reality for unit holders is that internalisation of management is likely to be costly, and could potentially result in a significant loss of human capital," the independent adviser's report said.

"We note, however, that the company's balance sheet currently has ample capacity to contemplate an acquisition of the external management."

ANZO was proposing to lower its base management fee and implement a performance fee based on unit holder returns. It was the only New Zealand listed property entity that did not include a performance component in its manager remuneration.

The proposed management fee involves the introduction of a tiered base fee structure which would lower the base fee from the current 0.65 percent of gross assets per annum.

It would be lowered to 0.55 per cent of the value of investment property up to $1 billion, and 0.45 per cent of the value of investment property above $1 billion.

The proposed performance fee would be calculated as 10 per cent of the amount by which unit holders' returns for the quarter exceeded the returns of ANZO's listed property group peers.

KordaMentha said that from a unit holder perspective, ANZO now had one of the most onerous fee structures in the LPE sector.

While the proposed base fee had some way to go to match sector leaders, when additional fees were taken into account, ANZO's proposed management fees were likely to be similar to those of the sector leading Goodman Property Trust, KordaMentha said.

The proposal would also reduce the incentives for the manager to drive fees through asset growth.

Unit holders are to meet on October 21 to vote on the proposals.