TRANSCRIPTION OF FINANCE NEWS NETWORK INTERVIEW WITH REAL ESTATE CAPITAL PARTNERS (RECAP) CEO, ANDREW SAUNDERS
Clive Tompkins: Hello Clive Tompkins reporting for the Finance News Network. Joining me to discuss its bid for the MacarthurCook Industrial Property Fund (ASX:MIF), is Real Estate Capital Partners (ReCap) CEO, Andrew Saunders. Andrew welcome to FNN. Can you start by telling us who ReCap is and what experience it has in property and funds management?
Andrew Saunders: Yeah sure. Real Estate Capital Partners was formed in 2006. It was formed by myself and a company called Mulpha Australia Ltd. Now Mulpha own the likes of Sanctuary Cove, Hayman Island, the InterContinental Sydney, Norwest Business Park - which is one of the bigger business parks in Sydney. And now own 26 per cent of FKP, one of the bigger property development groups in Australia. They’re fundamentally a Australian real estate investor. The reason we formed Real Estate Capital Partners is because we wanted to form a funds management business that was also an active asset manager. The structure of having Mulpha on board allows the company to have a major shareholder that has four or five hundred million dollars of net assets in its balance sheet and provides the company with basically a very stable capital base from which to grow off and to drive the business. And that’s particularly useful obviously in a market like today.
Clive Tompkins: Andrew what’s ReCap’s position in the fund?
Andrew Saunders: We own 12 per cent of the MacarthurCook fund, which is just a pure Australian property fund that holds some Singapore exposure. We are the second largest unitholder, our units are effectively owned by the company Real Estate Capital Partners – that’s an important point to make. MacarthurCook hold about 22 per cent of the fund but they actually hold their interests on behalf of third party investors to other security funds like their MacarthurCook Property Securities Fund. So we’re actually voting as genuine shareholders, and the issue with MacarthurCook is who are they voting for when they vote their interests? Are they actually voting in the interests of MacarthurCook or are they voting in the interest of the unitholders in those underlying funds.
Clive Tompkins: You’ve put forward three resolutions. Resolution one seeks to remove the reimbursement fee on the replacement of the current responsible entity. Why is this important?
Andrew Saunders: It’s quite common in a lot of trusts to have fees where managers are basically replaced. These fees are generally not equitable in the sense that the unitholders should be able to choose who manager their funds. Now tick of credit to MacarthurCook they’ve acknowledged that, that fee is inequitable and they have, in their recent communication with unitholders, agreed to support that resolution. Why it took Real Estate Capital Partners to call a meeting for that to occur I have no idea. The fact that it took us, required us to call a meeting for them to take that action I think says a lot. The other thing I’d also add about the MacarthurCook fees is I think it was in 2008, they took fees in excess of five million dollars, four to five million dollars out of this fund, representing about five per cent of the money that was invested in the fund. That is ludicrous quite frankly, it’s very excessive.
Clive Tompkins: Now resolution two seeks to remove MacarthurCook as the responsible entity for the fund, again why is this important?
Andrew Saunders: Resolution number two is actually very core and our fellow unitholders have to acknowledge that the reason for voting for the resolution two is to remove MacarthurCook, to remove effectively the manager of this fund. Now the point to make here is that the management team that generated and presided over the several years of returns, which I think averaged 13.2 per cent on average, have all gone. Haddock, Dunstan, Calvert, all gone. The current management team has presided over a negative performance, a very significant negative performance. Why would you keep that team? They don’t talk to you, they’re not experienced, they are not led by executives with property experience. Resolution two is fundamental.
Clive Tompkins: And lastly can you talk us through resolution three which seeks to appoint ReCap as the new responsible entity for the fund?
Andrew Saunders: Yep. As the largest shareholder, second largest shareholder in the fund, obviously Real Estate Capital Partners share the same focus and want to see value restored to unitholders. That is our sole objective, to see this fund stabilised, value restored, and to see it grow.
Clive Tompkins: Ok Andrew so what risks do unitholders need to be aware of in changing managers?
Andrew Saunders: There are very few risks in actually changing the management of the trust. The accounting, legal and regulatory guidelines set out the process for changing the manager and it is quite a clear process. The trust remains listed, your units remain exactly the way they are there are no changes to your unit holdings. The other risks of course are the practical risks, I mean obviously MacarthurCook have raised the point that there may be a breach of the NAB facility. If that occurs we will simply refinance it with the ANZ facility. They’ve have also raised the issues of tenants, now the tenants in this trust have been dealing with a manager who has limited access to money. With our capital management strategies for the trust Real Estate Capital Partners will have the money to provide tenants with incentives and the things that they need to conduct their business in our buildings that is a positive approach. MacarthurCook also mention the management team, and that you will lose an experienced management team. Again I make the point that the original management team that you invested in has gone already. The new management team is exactly that. And that management team I don’t believe match’s the quality of the team at Real Estate Capital Partners, nor does it own 12 per cent of this trust. We are completely aligned with unitholders.
Clive Tompkins: Last question. Assuming all your resolutions pass, where do you see the MacarthurCook Industrial Property Fund in 12 months from now?
Andrew Saunders: The important thing is the unit price and restoring value. We see the unit price going up, we see the trusts balance sheet being more stable and we see it as a platform for growth. We see it as a platform for growth both in unit price and potentially in asset acquisitions. I mean we are obviously looking at a number of assets right now, and we believe the vehicle can grow, move forward quite successfully. A number of the other pure industrial funds like ING Industrial and Goodman Group are in severe trouble, I think there is a big gap in the market for a pure Australian industrial fund.
Clive Tompkins: Andrew Saunders thanks for explaining ReCap’s position.
Andrew Saunders: Pleasure.
