Big DNZ payday leaves investors reeling

DNZ chief executive Paul Duffy (left) with chairman Tim Storey, and former chairman Alastair Hassell (not pictured) will each get $21.5 million. Photo / Brett Phibbs

Paul Duffy and Alastair Hasell, DNZ directors, will get $43 million for selling the management contract of their business.

The initial public offering of DNZ Property Fund, listing on NZX next month, will see the two paid a third of the $130 million being raised.

According to DNZ's prospectus, they will get $21.5 million each, a sum that has left some institutional investors reeling.

Duffy, chief executive, and Hasell, the former chairman, will each get $10.75 million cash and $10.75 million shares.

At a press conference on the float yesterday, Duffy refused to answer questions about what he would be spending his money on. Tim Storey, DNZ chairman, said it was inappropriate for Duffy to answer directly because it was private.

But he added that some of the $43 million might be used to repay debt. Hasell, who lives on Australia's Gold Coast, was not at the conference. Storey said Hasell would retire as a director in March.

DNZ, which owns properties valued at $730 million, is raising $130 million to pay out the directors and slice back its high-borrowing ratio, above 40 per cent.

"Storey said the $130 million capital raising was ... being used to reduce existing bank debt," a DNZ statement said.

"Like a pig with lipstick on," said one major institutional investor of the float, criticising the listing for the low-quality of its properties, the $43 million being paid to the directors, the high gearing and its former genesis from Money Managers and syndicates.

Other property managers were delighted with the $43 million payout, saying it made their management contracts far more valuable, and they might now also want to sell to their shareholders, the investor said.

Simon Botherway, a new DNZ director and an investment agitator formerly of Brook Asset Management, praised the internalised management contract.

Botherway singled out AMP NZ Office Trust and Kiwi Income Property Trust as examples of listed real estate vehicles, where management and investment were separate and therefore in conflict with each other.

DNZ would be different because it would have an internal management structure, which aligned interests of the manager with those of the investors, he said.

David van Schaardenburg, an MMG director whose clients are DNZ shareholders, said he did not oppose the IPO but had wanted the business to sell properties to repay debt, instead of issuing extra shares.

"The management have chosen to take a different path, and the outcome of that is more negative for the existing shareholders than what we suggested," van Schaardenburg said.

"We're not happy that the management has taken that approach, which will reduce the value for existing shareholders."

DNZ's share offer opens next Monday, with listing expected on December 17.

Rob Lang, chief executive of AMP NZ Office Trust, defended his business and said the board and management had consulted with a range of unit holders to gauge their views on improvements.

"The obvious outcome is to further enhance returns to unit holders. That is why the manager is currently undertaking a comprehensive review," Lang said.