Investors turn up heat over high fee rates

Craig Stobo, chairman of AMP NZ Office Trust, which has dropped its base fee to a new low. Photo / Paul Estcourt

Pressure is on management fees at listed property businesses in the wake of last week's AMP NZ Office Trust shake-up.

AMP's backdown to drop its base fee to a new low of 0.35 per cent for assets worth more than $1.5 billion set a new hurdle, said fund managers.

Investors now wants other businesses to review their structures and consider taking less cash out of the vehicles before paying investors distributions, as well as linking their fees to performance rather than simply calculating the price of their services as a percentage of the value of assets under management.

Fees in the sector now range from 0.35 per cent to 0.75 per cent of average total assets but professional investors now want other vehicles to follow AMP's lead and push down costs, paying more cash out to unitholders.

At issue are the higher fees charged by the two listed ex-ING real estate vehicles: Argosy Property Trust, charging 0.60 per cent of average total assets under management, and the smaller Vital Healthcare Property Trust, which charges an expensive 0.75 per cent.

Craig Tyson, equity investment manager at ING (NZ), does not expect any immediate action but said the heat was coming on. "All the externally managed vehicles without tiered base fees and performance based on the NZ Property Index [gross] will come under renewed pressure to change."

Tyson and other institutional managers worked hard to bring pressure on AMP to change its structure and yesterday he praised DNZ Property Fund for alignment between management and investors. But he warned against any immediate change, saying changes to the AMP business took 16 months to achieve.

Questions were raised at the AMP meeting about its extra charges for leasing, acquisitions and disposals. Tyson said that since 2004, assets under management in New Zealand's listed property sector grew 215 per cent, incurring higher fees for managers. Yet investors had not seen distributions grow.

Shane Solly of Mint Asset Management also called for further alignment of management and investor interests and predicted more of a focus on this area next year. He believes widespread reform is yet to be achieved in the sector.

"There is unfinished business," he said. He also criticised a table showing managers' fees that was published in KordaMentha's independent adviser's report on AMP.

"There are components of fees which are not in that table, like asset purchases, leasing fees and development fees. Fees on asset purchases/sales, fees on development and leasing fees was not fully detailed in the report for the property securities that were used in the table. When they are included, and fees are considered on an all-in basis, it changes the relative merit order significantly," he said.

KordaMentha outlined performance fees charged by managers of the businesses and praised Goodman Property Trust's charges.

"It is considered by a number of institutional investors to be the best practice performance fee model in the listed property sector," the report said.

But KordaMentha criticised Goodman and Kiwi for loading up additional charges. "The managers of Goodman and Kiwi generate a significant proportion of their total fee income from additional fees," KordaMentha said, producing a table that showed Goodman charged $6.6 million total additional fees as an average during 2008 to this year.

During the same time, Kiwi charged $11.3 million, compared with AMP's extra charges of only $2.4 million over those two years, the report showed.

WHAT THEY CHARGE

Managers' fees as a percentage of investment properties/average total assets:

* AMP NZ Office Trust: 0.35-0.55 per cent
* Argosy Property Trust: 0.60 per cent
* Goodman Property Trust: 0.40-0.50 per cent
* Kermadec Property Fund: 0.55 per cent
* Kiwi Income Property Trust: 0. 55 per cent
* Property For Industry: 0.35-0.70 per cent
* Vital Healthcare Property Trust: 0.75 per cent

Source: KordaMentha independent adviser's report, September