AMP offers $30m fee holiday in last bid to save wholesale office fund deal with Dexus

AMP has made an eleventh-hour pitch with a fee waiver to convince investors in its $7.5bn wholesale office fund to side with its preferred manager, Dexus, over rival Mirvac.

An artist's impression of the Quay Quarter Tower which is owned by several funds including the AMP Capital Wholesale Office Fund.

AMP has made an eleventh-hour pitch with a fee waiver to convince investors in its $7.5bn wholesale office fund to side with its preferred manager, Dexus, warning they will face a hostile situation if they shift to rival Mirvac.

In a letter to stakeholders on Monday, AMP real estate boss Kylie O’Connor said the company acknowledged the “significant disruption and distraction” caused to AMP Capital Wholesale Office Fund investors by the process to change its management.

The issue comes to a head on Friday when investors must vote on management. AMP has agreed to sell its local property and infrastructure business to Dexus, sparking fierce debate over the best outcome for investors.

“In recognition of these difficult circumstances, AMP Capital, as manager of AWOF, will implement a full waiver of the base management fee in relation to AWOF from 1 July 2022 for the following eighteen-month period … on condition that the unitholder vote to appoint Mirvac as manager of the fund is defeated,” Ms O’Connor said.

“This waiver represents approximately $30m of aggregate fees which will no longer be payable by investors in the above circumstances. AMP and AMP Capital are offering this fee waiver on the basis of the unique and highly unusual circumstances and issues that AWOF and its investors have faced over the past two years and, once the waiver period has elapsed, the base management fee will return to the basis as proposed in the enhanced AMP Capital/Dexus proposal.”

But she went on to issue a thinly veiled threat to investors about how AMP would manage the transition should they side with Mirvac in the vote. Proxy votes must be submitted by mid-morning on Wednesday ahead of the formal poll on Friday.

“We understand that Mirvac has provided to AWOF investors a detailed transition steps plan, including a draft transition services agreement,” Ms O’Connor said. “AMP Group will not be entering into any detailed transition arrangements with Mirvac. AMP Capital will comply with its legal obligations to effect the transfer of the management rights of the fund to Mirvac, if it is successful in the vote and to effect the transfer of ownership of the assets but will not be engaging in detailed discussions or contractual documentation with Mirvac to effect the transition of the people or proprietary systems that underpin the management of the fund.”

Kylie O’Connor, AMP’s head of real estate.

An AMP spokesman declined to comment. The fund has interests in major assets such as the Quay Quarter Tower at Sydney’s Circular Quay, Angel Place in Sydney’s CBD and Collins Place in the heart of Melbourne.

AMP’s dramatic bid to cut fees to make up for recent instability over AWOF’s future while taking a hard line on transferring the vehicle’s management to Mirvac indicates the lengths it will go to ensure the fund transfers to Dexus. In most fund switches, a facilitation payment is made to cover the costs of shifting staff and systems, and denying this in the event of a Mirvac win risks further alienating investors.

Investment executives questioned AMP’s motives for sending the letter as many investors had already cast votes, saying the battle for control of AWOF was not about fees but AMP’s treatment of investors. “The unitholders I have spoken to say it has made them angrier,” one executive said.

Senior industry players told The Australian the AWOF voting did not reflect a protest against Dexus, but rather a lack of consultation by AMP, which suddenly dumped a planned spin-off of its real estate and infrastructure units – known as Collimate – in May. Some investors are worried about the consolidation of fund managers in the office sector.

“It is not a vote on Dexus but over the concentration risk and conflicts of interest that are thrown up (by its acquisition of Collimate),” one executive said.

A senior asset consultant said going with Dexus offered investors a largely business-as-usual option, as the entire AMP local business was being acquired by the property group and Dexus had already moved AMP’s diversified property fund to its platform.

“However, (this) creates potential manager concentration issues for those already invested with Dexus and potential conflicts with managing AWOF office assets,” the asset consultant said, on condition of anonymity.

Switching to Mirvac required investors to vote for change, and the consultant noted it had less experience in managing wholesale capital, especially co-mingled funds. But Mirvac arguably had fewer conflicts and a good development pipeline, he added.

Sources said industry fund UniSuper – an AWOF investor – was leaning towards Mirvac as the new manager but its position was yet to be locked in. A spokeswoman declined to comment.

Complicating deliberations is the departure of Kit Georgeos, who became AWOF’s fund manager in 2019 and plans to leave by September 30.

Separately, Mirvac’s AWOF proposal is believed to include sweeteners and a redemption facility for those wanting to exit their holdings. Investors yet to vote will comb through both options and any AWOF reports by asset consultants.

If the vote goes against Dexus it will curb the price agreed for the AMP platform by putting a dent of as much as $150m in the seller’s potential proceeds via the deal’s earn-out provisions.

AMP last month told investors the AWOF vote would “not impact” the completion timeline for a sale of its local infrastructure and real estate business to Dexus.

AMP anticipates the sale to Dexus will complete by the end of September, while it expects the divestment of its global infrastructure unit to DigitalBridge to be ruled off by November 30.

Under the transaction terms, Dexus acquires the Australian private markets platform for an upfront payment of $250m while AMP is also eligible for an earn-out of up to $300m if it maintains assets under management.

The last-ditch strategic AWOF moves come as international media reports suggest AMP is weighing the sale of its €1bn-plus Irish Infrastructure Fund, which houses assets including the Convention Centre Dublin.