Discounts are steep in the listed property sector. With interest rate reductions unlikely to close the gap, shareholders are asking what else can be done to grow earnings and cut discounts. And now, investment management agreements have come into focus.
Over the past month, two real estate investment trusts, PRS Reit (PRSR) and Supermarket Income Reit (SUPR) have modified their agreements while Warehouse Reit (WHR) recently announced that its was under review.
External investment managers are not necessarily a problem. They are widespread in the listed property sector – more than half of real estate investment trusts (Reit) have one. When many of these vehicles were set up, the Reits were trading at a premium to net asset value (NAV) so few investors questioned the wisdom of tying fees to this rather than market capitalisation. However, faced by persistent discounts, shareholders have begun to question how aligned external managers really are.