Support grows for performance-based A-REIT fees
Support is growing for listed property trust managers to link the fees they charge investors more closely to the performance of their trusts.
The latest to criticise the current fee system is Bill Moss, chairman of Moss Capital, currently locked in the battle to acquire management control of the $3.63 billion Charter Hall Office REIT.
Moss says he will cut the office trust’s base management fee to 30 basis points from an average of 41 if his company is voted as the new manager at a shareholder meeting scheduled for July 27, 2011.
He argues property fund managers should have cut fees more than they have since the global financial crisis, given the poor performance of the listed property trust sector and rationalisation in the industry, The Australian reports.
ASX-listed Centuria Property, which manages a $1 billion unlisted property trust, agrees fees should be re-evaluated.
It says historically, many funds (listed or unlisted) have been able to charge a “success” fee despite poor performance.
Centuria’s performance fee is only charged subject to investment costs being recovered and a minimum 10% internal rate of return per annum being generated for investors.
The fund is also opposed to what it calls “poison pill” provisions, which require the relevant fund to pay the responsible entity, even if it is removed by a vote of investors before the end of a fund.
Centuria’s funds do not include poison pill provisions, and its CEO believes no reputable fund should.
“Whether a trust is listed or unlisted, these are issues that need to be eliminated,” Centuria CEO John McBain tells Property Observer.
“Performance fees are not being tested.”
Centuria’s position on fees is supported by Property Funds Association of Australia, with CEO Geoffrey Gedge saying they will “restore faith with investors”.
Bianca Rose, portfolio manager of equities and property at Ibbotson Associates Australia, says excessive management fees are part of the reason A-REITs have performed poorly since the outbreak of the GFC.
“There were many reasons why A-REITs performed so poorly: too much debt, paying out unsustainably high dividends, paying expensive management fees to related companies, and sourcing earnings from newer, less stable income sources rather than from traditional Australian property rental,” Rose writes in an ASX investor update newsletter.
Rose says the sector has now recovered and performance prospects are excellent.
“The sector is likely to be one of the most attractive growth asset classes over the next five years on a risk-adjusted basis,” she says.
Moss is battling three hedge funds Orange Capital, Luxor Capital and Point Lobos Capital for control of Charter Hall Office Trust, which hold a combined 19% of the trust’s units.
Moss established the business as the Macquarie Office Trust 1987, before it was taken over by the Charter Hall Group in 2010.
The Charter Hall Office REIT portfolio is made up of 33 office buildings in major business districts across Australia (62%) and the United States (38%).