Centro has made statements that it believes it is in Syndicate members best interests for Centro to remain as Responsible Entity. The uncertainty surrounding Centro’s financing issues, its proposed recapitalisation and the sale of specified parts of its business continues.
Also, on 26 March IMF (Australia) Ltd advised that it was funding a class action against Centro for breach of its disclosure obligations. Today it was reported that Centro’s bankers are against an equity injection proposal and would prefer asset sales. The Syndicate meetings have been deferred for 6 weeks as the viability of Centro’s business and/or its break-up is a material consideration for unit holders.
In addition, during its due diligence enquiries, Pelorus discovered a number of matters of concern in relation to:
• Insufficiently disclosed related party transactions between Centro and the Syndicates including the interest rate hedging facilities;
• The structure of resolutions put to investors in a number of syndicates where Centro has sought to change its powers as Responsible Entity and introduce new fees;
• Centro’s financial capacity to act as the Responsible Entity for the Syndicates;
These matters have been raised by Pelorus’s solicitors with Centro’s board. No satisfactory response has yet been received to these queries and concerns. In addition Pelorus’s suggestion for a proper, fair and transparent proxy procedure at the Meetings has been rejected by Centro in a letter from its solicitors Clayton Utz.
In response to these matters and following consultation with a number of Syndicate members Pelorus has made the following changes to its proposal:
Trust Company Limited To Act As Responsible Entity
During Pelorus’s investigation of the management of the Syndicates Pelorus has raised concerns regarding apparent conflicts between Centro’s corporate interests and that of the Syndicate members. Pelorus has found that in many syndicates Centro acts as property managers, project manager, leasing manager, syndicate manager, trustee, responsible entity, banker and holds investments on behalf of itself and various other trusts it also controls.
Centro charges fees for each activity and in most cases is not subject to any independent checks and balances.
To ensure that management of the Syndicates (should Pelorus’s proposal be accepted) is undertaken with the highest level of oversight and corporate governance Pelorus propose a Trust Company Limited entity, Permanent Investment Management Limited, to be voted in as the Responsible Entity of the Syndicates.
Trust is an Australian ASX-listed group that has provided a broad range of financial services to intermediaries, institutions and individuals for over 120 years. Trust has over $65 billion under custody in property and infrastructure and is the trustee to over 60 superannuation funds with respect to more than $20 billion of assets and acts as responsible entity for over 20 schemes with combined assets in excess of $10 billion. For more information on Trust see
the attached summary or visit www.trust.com.au.
Under this change the management of the Syndicates would be undertaken by Pelorus with Trust’s role being to ensure that Pelorus’s dealings with Syndicate assets and members is undertaken in accordance with the relevant constitution, compliance plan and the Corporations Act. This would include the disclosure of related party transactions and oversight of proposals put to unit holders.
Pelorus believes that a separation between the asset management and responsible entity functions give the Syndicates a level of probity and transparency that has been missing under Centro’s tenure. The fees paid to Trust will be paid by Pelorus out of Syndicate fees and will not increase the management costs of the Syndicates.
Further Fee Reductions
In response to discussions with a significant institutional investor Pelorus agrees that there is scope for further fee reductions. Pelorus now proposes to reduce the performance fees charged to the Syndicates by half from 4.5% to 2.25%. In the case of Centro MCS 11 this reduction equates to $5,214,000 ($886,000 and $554,000 in Centro MCS 16 and 19 respectively) based on the most recently published numbers.
Meeting Proxy Handling
A number of investors have contacted Pelorus to express concern at the requirement to return their proxy directly to Centro, the incumbent responsible entity. In response to these concerns, Pelorus, on its own behalf and that of the requisitioning members, contacted Centro seeking to gain access to lodged proxies to confirm receipt and to verify their validity.
Granting this access would not prejudice either Pelorus or Centro’s interests and would have given unit holders confidence in the integrity of the meeting process.
By a letter received yesterday, Centro has rejected the suggested proxy handling procedure.
As a consequence Pelorus will now appoint an independent third party to receive and process proxies in the lead up to the rescheduled meetings. Under this procedure the independent third party will be required to give equal access to proxies to both Centro and Pelorus prior to the rescheduled meetings.
Please contact Seph Glew or Stuart Brown with any questions.
Ph +61 2 9033 8621
Ph +61 2 9033 8608