Wednesday 23rd of February 2005

The debate has largely dwelt on the merits or otherwise of internally managed (Capital Properties) versus externally managed property investment vehicles (Kiwi).

Some of the commentary has been well informed and constructive but, in some instances, the opinions expressed have been somewhat dubious.

One commentator, John Schellenkens of Ernst & Young (Herald, January 26), asserts that "to some extent unit-holders can control their managers by refusing to participate in capital-raising exercises". Unfortunately, this is fine in theory but, in practice, there is no such control mechanism.

Property trusts have a long history of raising capital at significant discounts to either net tangible assets or the prevailing unit/share price - investors choosing to forgo participation in such capital raisings are not controlling their manager's capital appetites as such issues have regularly been underwritten or have been undertaken by way of institutional placement. Non-participation would be cutting off your nose to spite your face.

If you owned a property directly that was yielding 10 per cent, would you take on a partner to purchase another property if the new partner demanded a 13 per cent return on his money? That is what an investor would be doing by withholding capital.

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