The New Zealand Rural Property Trust is sweetening its proposal to close the trust for five years with by reducing its management fees and making a 15 per cent capital repayment to unitholders.
The New Zealand Rural Property Trust is sweetening its proposal to close the trust for five years with by reducing its management fees and making a 15 per cent capital repayment to unitholders.
The fund's manager said, in November, it was planning to seek unitholder approval to close the trust for five years and remove unit redemption rights.
This is a big ask for investors as their only out, under this scenario, would be to sell their units on the secondary market. Currently units are trading at about 70 cents each on the secondary market, which is a 42 per cent discount on the net asset backing of $1.21. (Readers can get the latest secondary market prices on the market page).
While investors would be making a sacrifice under the closure proposal, the manager is also prepared to take a hit.
It is proposing to reduce its fees from a flat 2 per cent cash to a tiered structure which is made up of a mix of cash and units.
The proposed new structure is:
1.5 per cent cash and 0.5 per cent in units of the gross value of the fund up to $50 mill
1.25 per cent cash and 0.5 per cent in units of the gross value of the fund between $50 mill and $100 mill
1.0 per cent cash and 0.5 per cent in units of the gross value of the fund in excess of $100 mill.
An added sweetener is that the manager is proposing to make a capital distribution of 15 per cent of the market value of the trust to unitholders if they approve the closure motion.
Depending on the market value of the fund is this likely to be between 10.5 cents per unit and 16.5 cpu for a unit price range of 70c to 110c.
Long-time unitholders have been disappointed that the yield on their investments has dried up over the past few years. The manager is now planning to, in future, make income distributions of 100 per cent of the free cash flow generated by the trust in the preceding financial year.
Other changes proposed include giving the manager the ability to borrow up to 15 per cent of the trust's value without getting trustee approval. It could go up to 25 per cent with approval.
The manager has always had the ability to use debt, however when it sought approval to borrow money to redeem unitholders the trustee, NZ Guardian Trust, said no.
Currently NZRPT is conducting a nationwide roadshow to explain the changes. Dates and venues are available on in Good Returns'diary.
The New Zealand Rural Property Trust is sweetening its proposal to close the trust for five years with by reducing its management fees and making a 15 per cent capital repayment to unitholders.