Fireworks expected at special meeting

Michael Stiassny has been appointed a Class-B director. Photo / Martin Sykes

Thousands of shareholders will get their say at what could be a heated meeting of the troubled $800 million DNZ Property Fund next month.

The special meeting in Auckland will result in a boardroom shake-up and could see disgruntled shareholders stage their own power play.

A number of matters are up for debate at the 10am meeting on May 12 at the Ellerslie Racecourse conference centre.

Those issues include the election of two new directors and the structure of the business which last year cancelled its $130 million capital-raising scheme and axed its planned NZX listing.

Part of the money DNZ wanted to raise was to pay out two management bosses for their $43 million management contract.

Directors Paul Duffy and Alastair Hasell were to get the big reward for selling their management contract. The plan was shelved last year, criticised as one of New Zealand's worst related-party transactions since the Capital Markets/Fay, Richwhite deal in August 1990.

Now, DNZ needs to reduce debt and elect new directors. It has sold properties to cut its gearing but still faces a number of boardroom issues.

Shareholders were angry last year about the proposal to pay out Duffy and Hasell, who never got the money.

Shareholders are vowing next month to put forward their own nominations for the board to challenge the existing power structure and change the direction of the business so it works more in investors' interests.

Money Managers Action Group was formed to give dissatisfied Money Managers' clients a voice and it could nominate two candidates to the board. The group says retired engineer Peter Fletcher and pioneering tourism owner Peter Bruce are its candidates.

But NZ Fund's David van Schaardenburg and MMG Advisory Partner's Derek Young also want the two DNZ board seats.

Van Schaardenburg and Young sought shareholders' consent to be elected last year and van Schaardenburg said about 6000 of the 8000 investors voted for them. However, DNZ's manager would not agree and outvoted the shareholders.

So the pair are again standing for election and want DNZ shareholders to vote for them.

Fletcher's group is vowing to get its two reps on the board.

"Fletcher and Bruce have a substantial shareholding in DNZ and are keen to see matters resolved in the interests of shareholders," the group says.

"The Money Managers Action Group is pleased to give shareholders the opportunity to vote on to the DNZ board two people who, like them, have invested in DNZ and lost money. We believe all investors will welcome the chance to get independent investor representation on the board."

A group spokesman predicted postal ballots going out in the next few days would decide the outcome well before the May 12 meeting.

DNZ last year valued its properties at $743 million but its website now says it manages property valued at more than $800 million and its investors are mainly Money Managers' clients who bought into the original 32 often single-asset syndicates, restructured into Dominion Funds in 2001 which later became DNZ.

Simon Curtis, DNZ marketing manager, said next month's meeting would deal mainly with the election of directors.

In a boardroom blow to DNZ, lawyer Mark Hopkinson and crusading investor advocate Simon Botherway resigned when the NZX listing was cancelled.

Hasell has resigned as a director, Curtis said. That was announced in November, but he continues as the alternate director for Paul Duffy.

DNZ has two classes of shareholders: Class A which is the 8000 investors, and Class B which is their managers who can outvote the investors as they did last year when attempts were made to bring better corporate governance and transparency to the business.

Ex-PricewaterhouseCoopers partner John Harvey has resigned as Class-A DNZ director and been appointed a Class-B director.

That means Harvey is now on the board as a management representative, not for the bulk of shareholders.

In a surprise move, Michael Stiassny, the KordaMentha receiver handling the Crafar dairy farm sale, has been appointed a Class-B director at the behest of the managers.

Stiassny has a high-profile business career, not only as a receiver but also as chairman of Vector and the New Zealand Racing Board.

Curtis said DNZ's board was chaired by Tim Storey, with Harvey and Stiassny as independent directors and Duffy an executive director.

"This reflects the desire to have an independent and professional core director group that continues to govern DNZ," Curtis said.

MMG Advisory Partners, formerly Money Managers, has been highly critical of the way DNZ was being run and last year tried to rally shareholders to remove directors Botherway, Harvey and Hopkinson.

DNZ said it had entered deals to sell properties for $44.7 million in the past few months, mainly at or near market valuations.

Those deals include a proposal to sell a Wairau property tenanted by Warehouse Stationery, Rug World and Curtain Supermarket on the North Shore and a deal to sell two Lower Hutt properties: Bunnings on the corner of Cambridge Tce and Hollands Cres and an office building on High St.

Storey said the sale programme was going well.

"The board is undertaking limited property sales to reduce the fund's current bank debt and these are among the first of those sales," he said of the three conditional deals all due to settle later this month and in May.

Fletcher said many elderly investors' funds were at stake.

"Like the majority of DNZ shareholders, we have invested our retirement savings into A-class shares. Our sole purpose in standing for election is to ensure our needs and wishes and the needs and wishes of other small investors are properly represented."

Fletcher and Bruce said shareholders were worried about falling dividends, DNZ's low share price on Unlisted, limited ability to sell the shares and the lack of shareholders' voice.

"The dividend shareholders received for the last quarter of 2009 was half the previous payment and with lending costs on the rise and rents staying still that trend looks likely to continue," Bruce said.

"For the majority of shareholders who rely on those dividends to supplement their superannuation, that is not sustainable. If shareholders want to get out, they can't."

Fletcher said he understood the resentment shareholders felt towards the management but he encouraged them to focus on their investments.

"Getting upset is understandable, considering the way management have enriched themselves at shareholders' expense over the past few years.

However, it is the present structure that has allowed them to do so and if shareholders want that situation to end they need to bite the bullet and support a change."

He initially favoured liquidating DNZ's assets but said a closer review of the company's situation had led to his deciding to support the proposal to list on the NZX.

"As we have seen recently, liquidations aren't cheap, quick or necessarily the best way for shareholders to get the best return possible," he said, criticising proposals for DNZ to pay down debt by disposing of its assets.

"The assets are not the problem. Lack of cash is the problem. If assets are sold holus-bolus, cashflow will be cut to almost nothing, and shareholders will be left with the rump of a portfolio that would be an even less attractive proposition than the present set-up."

DNZ was trading on Unlisted yesterday at 73c.

DNZ Property Fund

* Business was established in 1996.

* Originally 32 real estate syndicates.

* Now needs to restructure to cut debt.

* Has conditional property sales of $44.7m.

* Slogan: One Entity. One Vision.

* Reality: Two shareholder classes.

* Managers can outvote 8000 investors.