DNZ share issue upsets investors

Derek Button says shareholders were never consulted. Photo / Paul Estcourt

Retired Auckland builder Derek Button knows property.

As an experienced listed real estate investor, he has confidence in the sector where he worked for decades.

Goodman Property Trust, ING Medical Properties Trust, Kiwi Income Property Trust and Property For Industry are businesses he thinks are well-run and in which he holds units and shares.

But he is one of a group unhappy with DNZ Property Fund's restructuring plan, which will see it list on December 17.

About four years ago, Button bought into DNZ, drawn to its syndication structure, the range of properties it offered and good returns being paid.

He complained that now the value of his investment would be reduced yet shareholders were never asked for their opinion.

"I'm very disappointed that it's been done without giving the existing shareholders good information and telling them it was going to be done," Button said.

David van Schaardenburg, a director of MMG Advisory Partners whose clients are DNZ shareholders, said thousands of existing shareholders would suffer financially.

"The share consolidation in itself causes no value loss. It is the new share issue and the purchase of the management contract which is dilutive for existing shareholders. This deal cuts the net tangible asset value of existing shareholders' investment by almost 40 per cent," he said.

Van Schaardenburg tried to force DNZ to change its constitution to make it seek permission from existing shareholders before it launched such a deal. He remains disappointed about the DNZ board's strong opposition to his motion.

Button is also disappointed.

"It seems we've had the rug pulled from underneath us. You can't stop this deal. It's a fait accompli. But I don't think the managers know how heavy the groundswell is against the way they have done this," he said.

He cannot see any way to recoup his original investment, which amounted to tens of thousands of dollars.

A sum of $43 million, a third of the $130 million raised via the new deal, goes to DNZ chief executive Paul Duffy and ex-chairman Alastair Hasell.

DNZ's prospectus out this month was more of a public relations exercise than a robust document which was clear about the negatives, Button said.

What worries him even more are indications from other businesses of management internalisation. ING Medical's board said at the annual meeting a few weeks ago it was investigating such a structure and AMP NZ Office Trust is also working on the concept. Button intends to keep his shareholding for some years in the hope the price will eventually recover and he can recoup some of his losses.

MMG is "strongly opposed" to the deal for its treatment of existing shareholders but DNZ chairman Tim Storey has defended it. Storey criticised MMG for saying the new deal would reduce the value of existing shareholdings.

Listing would benefit shareholders through attracting a wider investment pool, providing stronger governance, greater transparency and strengthening the balance sheet through debt reduction, he said.

Van Schaardenburg said the DNZ deal was correct from a straight legal perspective "but morally wrong".