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Charter Hall vows to fight hedge funds threat, but analysts said the firm would fold up

Monday, June 20, 2011

David Harrison
Opalesque Industry Update – Charter Hall fund, which is at loggerhead with at least three hedge funds (that together own 18.2% of Charter Hall Office REIT), has vowed over the weekend to defend its management after the hedge funds scheduled a meeting for shareholders in July to vote on appointing Bill Moss to take control of the fund. Moss built the Macquarie Group into a $23bn platform before leaving the firm in 2007. The Charter Hall Office REIT was previously known as the Macquarie Office Trust before Moss sold it to Charter Hall in March 2011 as part of a larger $300m deal.

"There is no way Charter Hall is going to sit back and allow these guys to interfere in the market," Charter Hall joint managing director David Harrison told The Australian.

The infighting between the management of Charter Hall and hedge funds, Capital, Luxor Capital and Point Lobos Capital, was apparently sparked by the decision made by Charter Hall in late May 2011 to sell 100% of its $1.6bn US component of the business, with a shortlist of 28 buyers for specific assets or the entire portfolio.

Amongst the names which emerged as the likely buyer of Charter Hall’s U.S. properties, is a Charter Hall-managed trust comprising Charter Hall Office REIT and Australian superannuation funds.

The Australian reported that the New York-based Orange Capita has accused Charter Hall of undervaluing the assets by at least $108m.

Last week, the three hedge funds met and scheduled a meeting for all shareholders on July 27, to vote on removing Charter Hall as the responsible manager of the trust and to instead appoint Moss Capital Funds Management, led by Bill Moss and Glenn Wills, and backed up by asset manager Fortius Funds Management.

In an emailed statement, Orange said that Fortius Funds and Moss Capital have already signified their intentions to manage the trust, proceed with the sale of the U.S. assets, hunt for bidders for its Australian assets and review whether any of its approximately $200m should be returned to unitholders.

“Moss Capital and Fortius are well positioned to manage Charter Hall’s assets,” said the statement.

Charter Hall fund to wind-up
Amidst the struggle for control over the Charter Hall fund, broking analysts are predicting that Charter Hall is set for a wind-up by Moss Capital and Fortius Funds instead of the firms becoming perceived long-term caretakers of the fund.

UBS’s Tom Bodor and John Freedman issued a note to clients over the weekend which said that the proposed appointment of Moss Capital and Fortius Funds as responsible entity or manager for Charter hall “seems satisfactory for a wind-up/sale role but might be less so as an ongoing operator.”

''A change in RE will likely see Charter Hall Office Fund disappear (though perhaps slowly) given the activists are likely to propose revising the RE fees to incentivize this. Tax consequences will vary for different holders and scenarios but, according to the activists, this might be avoided with a 100 per cent equity takeout,” the note added.

For his part, Peter Zuk, of Goldman Sachs, has acknowledged that the proposed appointment of new managers raises more questions.

Zuk added, ''If/when the US asset sales are executed, will proceeds be required to firstly repay Australian debt, or will a potential return of capital to investors still be possible?. What does this mean for Australian assets that are co-owned by the office fund and whether the joint-venture partners look to acquire the balance of ownership?''
Precy Dumlao

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