National Property Trust defends itself

Friday 9th February 2001

By Chris Hutching

National Property Trust's management fees have come under the spotlight this week following the announcement of a takeover bid for Southway Properties.

Some shareholders are suspicious that the main driver for the bid is to boost the fees paid to the National Property Trust's management company.

At the same time Southway shareholders are also concerned about the control exerted by Southway directors over the voting capital of the company and they are awaiting an appraisal report on the effective price of the bid.

National Property Trust chairman and the chief executive of its management company, Dunedin-based Paul Dallimore, rejected the notion of a management windfall and said fees were modest. The management company was required to pay for a range of costs, such as directors' fees, that some other listed trusts levied against operating costs.

"In fact our structure has one of the lowest management expense ratios and is more controlled than a normal company structure where directors' fees and management expenses often have no cap."

The fees paid to the management company are set at 0.75% of the average of the gross value of the trust fund and in the year to June 2000 were less than half a million dollars.

The advantage of taking over Christchurch-based Southway, owner of Eastgate and Hornby shopping centres, would be to provide liquidity for shareholders and enhanced earnings prospects from redeveloping Eastgate at a cost of $20 million. The expansion would be funded by a mix of debt and equity and the sale of Hornby shopping centre.

National Property Trust is offering 10 of its own shares for 11 Southway shares values, effectively offering $12 million for Southway, which has assets valued at $43 million and net assets of $17 million.

The discount simply represents the price that Southway directors are prepared to accept on a liquidation basis, according to Mr Dallimore.

Southway has been in liquidation mode for some time because it has been unable to attract funding capital to redevelop its properties, which continue to decline in value.

But directors have been criticised for maintaining the 10% cap on individual shareholdings, contained in the constitution, when other parties have been interested in buying controlling stakes. It appears Southway directors, who all own shares in their own right, have adopted an all or nothing approach to the sale of the company's assets.

Director Brian Kreft, who shares offices with fellow National Property Trust director Peter Rae, is also on the board of Southway. He has stood aside from all dealings, according to Mr Dallimore.

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