Hot Topic NBR Focus: GMO
Hot Topic NBR Focus: GMO
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Goodman fends off call to internalise management

Duncan Bridgeman
Tue, 02 Aug 2011

Listed property investor Goodman Property Trust today rebutted calls to look at internalising its management contract amid some controversial proposals by its rivals.

The trust is currently managed by Goodman (NZ), which is ultimately owned by the Goodman Group – also the largest investor in the trust with 17% of the units.

At today’s annual meeting in Auckland unit holder Jonathan Olsen questioned the appropriateness of this structure and asked the board whether the management contract should be internalised instead.

While he acknowledged the work of the manager – the trust has been a solid performer through the recession – he said the current structure presented too many conflicts and internalisation could result in significant savings for the trust.

“We can do without Goodman Group owning the management company. If this [structure] was put forward today it wouldn’t get off the ground. Its time unit holders made a fuss about it,” he said.

External management structures have come under fire not least because their fees are based on the value of the listed entity’s assets, meaning their interests may not be well aligned with those of unit holders.

Listed trusts Argosy and Vital Healthcare have put internalisation proposals to investors but have caused controversy because of the high cost of paying out the existing managers.

Goodman Property Trust chairman Keith Smith said the board was aware of debate in the industry over management contracts and had done some independent work on the issue.

However, Goodman was different to some of the other listed property trusts because its manager was actively involved in the property sector and not part of a bank like the manager of Argosy and Vital.

Mr Smith said Goodman Group offered several benefits, including international expertise and 50 plus staff who might otherwise not want to work internally.

The manager also gave the trust first dibs at development projects such as the $1 billion Highbrook business park in Auckland.

“I don’t think there’s a conflict with the 17% ownership, in fact it’s a commitment,” Mr Smith said.

He said there was no compelling reason to change the existing structure at present but the board was open-minded about the issue.

Director Phil Pryke chimed in saying if it made sense from a value point of view it would be looked at closer.

He reiterated Mr Smith’s point about Goodman’s commitment to New Zealand and that the trust gets preferential rights to any development activity undertaken by the Group.

“Frankly I don’t think it appropriate for the trust to take a large expense when the trust benefits from Goodman’s involvement.”

Mr Olsen said he didn’t agree entirely and suggested the board should consider commissioning an independent report to assess the cost of internalisation.

Duncan Bridgeman
Tue, 02 Aug 2011
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Goodman fends off call to internalise management