Industrial landlord buying a fight

John Dakin

A listed industrial landlord's proposal to buy $200 million of real estate from a related party is expected to come to a head at a meeting this week when critics outline their concerns.

NZX-listed Macquarie Goodman Property Trust already has $639 million of real estate but wants to buy an extra $318.2 million, much of it from its own manager, Australia's Macquarie Goodman Group, which is listed on the ASX.

If unitholders approve the deal on Wednesday, the New Zealand trust will buy development properties from the group for $200 million and other properties from Newcrest Developments and the Fisher family. Some institutions see a conflict of interest between the group and the trust, saying it is in the group's interests to increase the trust's assets under management because then the group earns more fees.

The group's base management fee is projected to almost double, rising 55 per cent from $2.7 million this year to $4.2 million next year, according to Macquarie's explanatory memorandum distributed for the meeting.

Yet unitholder distributions will increase only 0.6 per cent. Critics say the group is selling $200 million property to the trust at the peak of the industrial property cycle to increase the trust's assets under management and earn more fees.

But they say the deal results in few benefits to unitholders, whose earnings are projected to grow less than 1 per cent. With the deal, earnings are forecast to be 10.20 cents a unit this year but 10.13 cents a unit without it. At least one representative from an institutional investor plans to make his views known at the unitholder meeting on Wednesday.

John Dakin, chief executive of the trust's manager Macquarie Goodman NZ, agreed the deal would only marginally increase unitholder distributions but said investors should look at other benefits such as increasing the weighted average lease term by a year, lowering the portfolio's age and diversifying its customer base. The Australian group was the largest investor in the New Zealand trust and would not act against the trust's interests, he said. "Why would the group do anything detrimental to the trust? It doesn't make any sense. To put up a deal which was bad for unitholders when the group is the biggest unitholder would be illogical," Dakin said.

The group is selling a Millennium Centre office development to the trust for $72.9 million, yet the group valued the property in its latest annual report at just $56 million. But Dakin said the property had been valued as a development site and the group had since leased half the new building, hence the higher price. "You're not comparing like with like," Dakin said of the 19,903sq m office block project.

Asked if his remuneration was linked to the price of Macquarie Goodman Group rather than the New Zealand trust, Dakin said part of his package did include options in the group. "My motivation is not to produce a bad return for New Zealanders," Dakin said. He objected to the criticism, saying all the major institutional investors who were satisfied with the trust and its performance.

* Macquarie Goodman Property Trust unitholders meet at 1.30pm, Hyatt Regency, Princes St, Wednesday.