Promise on fees ahead of loan vote

As a vote to approve extra debt-raising looms, the Kiwi Income Property Trust's management company says it will waive management fees for its latest Wellington property investment.

The company has bowed to investor concerns over high fees, saying it will review them.

The company is preparing for an extraordinary general meeting on Thursday, where it will ask unit holders to approve a proposal allowing the trust to raise its debt levels.

Kiwi Income Properties is the management company that runs the trust.

It said yesterday that it would not get management fees associated with its 19.9 per cent investment in Capital Properties, made in November last year.

Weekend Herald investment columnist Brian Gaynor has criticised the high fees paid to Kiwi's managers, saying the relationship is lopsided, with investors not provided with enough information.

Management company chief executive Angus McNaughton yesterday said feedback from unit holders about the overall performance of the trust was "very positive".

There was a view that the management fees for the Capital Properties investment were not justified.

A review of all its management fees was now being carried out, designed to "deliver a competitive fee that reflects the scale and strength of the trust's $1.1 billion office and retail portfolio".

This review should be finished by the end of March.

McNaughton said both retail and office portfolios had reached record occupancy levels - 98.9 per cent and 99.7 per cent respectively.

The trust is seeking unit holder approval at the extraordinary general meeting to increase the trust's gearing limit from 35 per cent to 40 per cent of the gross value of its $1.1 billion fund.

That means the trust could borrow $440 million instead of $385 million.

Support of just over half the unit holders is needed for the resolution to pass.

McNaughton said debt was cheaper than equity, so the "higher, yet conservative" gearing would be good for unit holders.

"We have received strong support from the trust's key institutional unit holders for the proposed increase."

Some of this support came yesterday in the form of Shane Solly, senior investment manager at ING, the fund that owns just under 10 per cent of the trust.

Solly said ING would support the proposal to allow the trust to increase its borrowings, which would move it to a capital structure in line with comparable businesses in New Zealand and Australia.

The trust had attractive reinvestment opportunities, he said.

The main concern had been whether the increase in gearing would be used to raise capital to buy the management rights of Capital Properties. He was confident this would not happen.

Solly said that ING's due diligence process ensured that manager interests were aligned with the interests of ING's investors.

"Governance practices for larger New Zealand listed property stocks are generally good but I still believe there is room for improvement."

Trust us

The management company of the Kiwi Income Property Trust has been criticised for its high fees.

Yesterday it said it would review all its fees and waive those due from its latest investment.

Unit holders will be asked this week to approve an increase in the trust's borrowing capacity.