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Johannesburg – In a first for property unit trusts, Emira Property [JSE:EMI] has changed the fee structure of its management services to match that of internalised models.
Property unit trusts are usually not allowed to have internal property management operations, but Emira's proposed structure - announced on Thursday - will not fall foul of Financial Services Board (FSB) regulations.
Analysts have described the move as innovative, saying unit holders will see a small rise in distributions as a result.
According to the new tariff structure the Emiras property managers, Strategic Real Estate Managers (Strem), will receive a monthly service charge equal to operating costs. In compensation, Strem will receive a once-off cancellation payment of R197.4m.
Many property loan stock companies have internalised their property management service to save on costs and eliminate the conflict of interest when a property is coveted by a management company representing two competing property funds.
Property unit trusts are by definition prohibited to internalise their property management service. Emira, however, obtained permission to change its management fee model.
Previously, the property managers received 0.5% of Emira's market capitalisation plus debt, as a management fee.
Emira CEO James Templeton said this is the next best way to increase competitiveness without breaking the rules.
"We listed in November 2003 with a market cap of R1.1bn; now we're at R8bn and the profit the manager is making has quadrupled so the fee parable is extraordinarily high," said Templeton.
Templeton also said the portfolio was uncompetitive in acquiring properties, due to a service charge of 0.5% which raised the required yield on new acquisitions.
"It's an innovative move," said Avior Research's Naeem Tilly. "It's not very expensive, it cuts out the conflict of interest aspect and will give shareholders a small distribution boost."
According to Tilly, Emira's move may not be imitated by the other property unit trusts listed on the JSE. Tilly said the other trusts' stakeholders bought into their property management services and could make a loss if a cancellation fee is to be paid.
Of the 16 property counters on the JSE with a market cap of R110bn, five are unit trusts.
The group also successfully applied to the FSB to invest in other property unit trusts and loan stock companies, as well as increase its borrowing limit from 30% to 60%. Previously, local unit trusts were only allowed to invest in offshore loan stocks.
- Fin24.com
Property unit trusts are usually not allowed to have internal property management operations, but Emira's proposed structure - announced on Thursday - will not fall foul of Financial Services Board (FSB) regulations.
Analysts have described the move as innovative, saying unit holders will see a small rise in distributions as a result.
According to the new tariff structure the Emiras property managers, Strategic Real Estate Managers (Strem), will receive a monthly service charge equal to operating costs. In compensation, Strem will receive a once-off cancellation payment of R197.4m.
Many property loan stock companies have internalised their property management service to save on costs and eliminate the conflict of interest when a property is coveted by a management company representing two competing property funds.
Property unit trusts are by definition prohibited to internalise their property management service. Emira, however, obtained permission to change its management fee model.
Previously, the property managers received 0.5% of Emira's market capitalisation plus debt, as a management fee.
Emira CEO James Templeton said this is the next best way to increase competitiveness without breaking the rules.
"We listed in November 2003 with a market cap of R1.1bn; now we're at R8bn and the profit the manager is making has quadrupled so the fee parable is extraordinarily high," said Templeton.
Templeton also said the portfolio was uncompetitive in acquiring properties, due to a service charge of 0.5% which raised the required yield on new acquisitions.
"It's an innovative move," said Avior Research's Naeem Tilly. "It's not very expensive, it cuts out the conflict of interest aspect and will give shareholders a small distribution boost."
According to Tilly, Emira's move may not be imitated by the other property unit trusts listed on the JSE. Tilly said the other trusts' stakeholders bought into their property management services and could make a loss if a cancellation fee is to be paid.
Of the 16 property counters on the JSE with a market cap of R110bn, five are unit trusts.
The group also successfully applied to the FSB to invest in other property unit trusts and loan stock companies, as well as increase its borrowing limit from 30% to 60%. Previously, local unit trusts were only allowed to invest in offshore loan stocks.
- Fin24.com
