Ascot joins DNZ to fight break-fee costs

The future of two real estate management contracts worth $46.5 million hang in the balance after challenges to the cost of internalising management of the NZX businesses.

DNZ Property Fund has taken Argosy Property Trust to task over a proposal to buy the management contract for $32.5 million and achieved some success after Argosy's independent directors, Peter Brook and Trevor Scott, indicated last week they could not recommend the internalisation deal.

At the same time, Ascot Property Management has decried Vital Healthcare Property Trust's $14 million management sale proposal, saying it is too high. Last week, Ascot launched its attack on Vital.
Argosy and Vital's management contracts are owned by ANZ Bank's OnePath. Although DNZ's battle has been going on for weeks, Ascot's fight is new.

Ascot - led by ex-South Canterbury Finance chief Sandy Maier, David Glenn and Craig Priscott - wants to reduce the $14 million internalisation proposed by Vital's manager to no more than $4.5 million.

Ascot's letters to Vital unitholders implored support.

"While we agree with the internalisation in principle, the $14 million upfront payment to the current manager is unacceptably high.
"The price of $14 million does not reflect the fact that under the terms of the trust deed, the current manager's contract can be terminated for a one-off payment of approximately $3.1 million with unitholder support," the letter from Ascot says.

Ascot wants unitholders to meet and dismiss the managers for that cheaper amount and appoint Ascot as the new manager to run the internalisation process.

Ascot sent out a meeting request form with its letter.

"Ascot is a specially formed entity. We have a variety of backgrounds and collectively have more than 60 years' experience operating in financial markets both in New Zealand and offshore.
"We consider ourselves to be people of high integrity and have taken action," the letter read.

But Vital's independent directors fired a shot back, telling investors not to act.

Bill Thurston and Graeme Horsley said Ascot was "a company formed just last week to put an opportunistic offer before you".

But even Thurston and Horsley have qualms about the $14 million and said they were talking to OnePath about a new deal.

Glenn, of Ascot, described this as "a somewhat strange response from the so-called 'independent directors' who you would have thought would welcome a way to reduce the cost of the internalisation to the benefit of unitholders".

Ascot wrote back to Vital at the weekend.

"Since our proposal was made public on Thursday we have been delighted with the positive response and messages of support we have received from Vital unitholders, particularly retail unitholders," Ascot said.

"As we anticipated, you seem determined to try and paint the management of healthcare properties with long-term leases and straightforward inflation-linked rent review clauses as complex, needing specialist expertise.
"We already manage nine healthcare properties throughout New Zealand and fully appreciate what is involved," Ascot told Vital.
"We are somewhat bemused by the approach you have adopted in your NZX release attacking our proposal. We would have thought it is in the clear interests of unitholders for you to support any proposal that delivers such significant cost savings to investors," Ascot said.

Yesterday, Bryan Connor, general manager of corporate client services at Guardian Trust, advised Argosy's unitholders to wait until they had more information before they decided what to do. Guardian is Argosy's trustee.

Connor mentioned DNZ's moves and that Grant Samuel would soon issue an independent report on the management deal and proposed price.

"We have been involved in reviewing and approving the terms of reference for that report to ensure it covers matters relevant to unitholders. The report is currently in the process of being prepared," Connor said.

Who's who
- Argosy: 81 properties worth $946.5m.
- DNZ: 50 properties worth $671m.
- Vital: 14 properties worth $517m.
- Ascot: Manages 9 healthcare properties.
- OnePath: Owns Argosy and Vital's management contracts.