ILF shareholders pushfor internalised managementBY: FLORENCE...

ILF shareholders pushfor internalised management
BY: FLORENCE CHONG From: The Australian November 10, 2011 12:00AM
Increase Text Size
Decrease Text Size
Print

Simon Owen. Picture: James Croucher Source: The Australian
SHAREHOLDERS in seniors housing owner ING Real Estate Community Living Group (ILF) are agitating for an internalisation of management, with its Dutch investment banking parent expected to exit the Australian real estate market before next year.

The trust manages and develops $500 million in assets through Australia and the US, as well as a small portion of student accommodation in New Zealand.

ILF unitholders are stepping up pressure on ING Real Estate after a deal last week in which New Zealand fund manager Torchlight Group acquired the management rights of the ING Entertainment Fund.

In that deal, parent company ING Real Estate waived $8m in bank fees and did not charge for the management right's transfer.

In July, ING also waived $5m in fees owed by its healthcare fund when it sold the management right for about $3m to Melbourne's APN Property Group.

"Unitholders now expect a similar outcome for ILF, including waiving back fees of around $10m, which was based on inflated asset values anyway," shareholder Votsaris Vasilios said.

"I bought into the trust on the basis that it would be internalised. Like other shareholders, I think chief executive Simon Owen has done a solid job and we want him to continue running the trust."

ILF's single largest shareholder, Simon Marais, who is the Orbis Investment Management chief executive, supported the internalisation of the trust's management. Orbis owns almost 15 per cent of ILF, and Mr Marais holds another 3.6 per cent on his own account.

"It doesn't require money or an external manager, it has good management of its own," he said.

Convincing ING to forgo the $10m worth of deferred management fees was the only obstacle to internalisation, he said.

Given the cost of its current management structure, Mr Marais said it did not make sense for ING to continue running the trust and it should make a decision sooner rather than later.

Another substantial shareholder said if internalisation was an option put to him, he would consider it.

"The notion of internalisation is often attractive," another unitholder said, although he questioned whether internalisation of the trust would be a good thing, depending on costs and structure.

Mr Vasilios said it was likely ILF could "rent" a temporary responsible entity, paving the way for eventual internalisation.

"I don't think ING has other options," he said." It would be embarrassed if it tries to sell the RE. Unitholders would vote it down." Other options include a merger, a private equity takeover, a phased run down of the fund and transferring the responsible entity to another organisation.

Mr Owen, who was recruited in 2009 to salvage the sinking ship caught in the eye of the global financial storm, has been credited for stabilising ILF's balance sheet and lifting its share price.

In 2009, ILF had debts of $746.1m and a 74 per cent gearing level, which has since been reduced to about 40 per cent.

"We are unique in that we have 1400 rental properties," Mr Owen said. "We receive rents, linked to residents' pensions, every fortnight and we do not rely on deferred management fees. We have constant cashflows. This gives us a very strong point of differentiation from our competitors."

Having sold assets in North America, and repatriated spare cash back to Australia, the group was now a pure retirement village outfit with access to capital, and one of a very few listed groups in a position to undertake development or acquisition.

Mr Owen is undertaking due diligence on six villages or greenfield sites as bolt-on acquisitions to the trust's existing villages.

"We will be defined by the way we invest capital in the next 12 to 18 months," he said. "If we can invest and develop well, we can position this trust very strongly."