ASX RELEASE 6 January 2012HDF performance fee payment highlights...

ASX RELEASE 6 January 2012

HDF performance fee payment highlights need for new ownership

APA Group (ASX:APA) today said a $30.7 million “performance fee” payment by takeover target Hastings Diversified Utilities Fund to its responsible entity Hastings Funds Management highlighted the need for new ownership.
Today’s announcement means HDF will have paid more than $110 million in performance and management fees to HFM since listing in 2004. This is more than 30 per cent of total distributions to securityholders in the same period.
APA Managing Director Mick McCormack said the fee leakage to external managers would not happen under APA’s internally managed structure.
“Under APA’s internally managed model, security holders benefit from APA’s performance, not an external manager,” he said.
HDF announced it would pay HFM $30.7 million in cash, which HFM had calculated it was entitled to for the six months to December 31, excluding the payment of another $23.3 million which has been deferred.
APA had sought the deferral of the remaining portion of the fee that accrued following the announcement of APA’s takeover offer as a condition of the bid, arguing that portion of the performance fee was because of a rise in share price following APA’s offer to takeover HDF, not because of any actions of the HFM as the responsible entity.
APA had also required as a condition that HFM take any performance fee in HDF scrip at the original issue price of $2.56, as it has previously done, not cash, and HDF recently sought approval from its security holders to continue to do so.
The performance fee is calculated on a six-monthly basis by comparing the HDF share price to a benchmark index.
Following the announcement of APA’s takeover offer in early December, the HDF security price has risen from $1.77 to $2.05 on December 30, the final day for the fee’s calculation. This rise means HFM is entitled to a fee of $54 million, rather than $30.7 million that HFM has calculated from the price and performance of HDF up to December 14, due to the price increase following the offer.
APA Managing Director Mick McCormack said the performance fee payment meant the bid condition was not satisfied, but APA was yet to decide whether to waive the condition.
“As HDF’s major security holder with more than 20 per cent of HDF, APA does not agree with the payment of any fee which is based on a rise in a security price which is likely to fall in the absence of an alternative bid if the APA offer was not successful,” he said.
“As such HDF needs to make it clear what its intentions are with regards to the deferred portion of the fee.

“It should also be of serious concern to all security holders that HFM has taken the performance fee in cash, not in scrip at the original listing price of $2.56, as it has previously done.
“The $30.7 million cash payment is greater than the $26.5 million of distributions to be paid to HDF security holders for the corresponding six-month period to December 31. This comes in a year that distributions to shareholders were cut from 12 cents per share to 10 cents per share.
“It demonstrates that HFM perhaps has little faith in the company returning above its listing price under the current structure.
“We note that securityholders were advised at the HDF General Meeting last March that ‘payment of the Base Fees and Performance Fees in HDF Stapled Securities rather than cash ensures that Hastings’ interests are more closely aligned with the interests of security holders, and maximizes the cash available to HDF for other purposes (including payment of distributions)’.
“This alignment with securityholder interests appears to no longer be the case.
“This payment of the performance fee highlights the fee leakage to HFM – more than $110 million in fees to the externally owned manager instead of value retained by security holders since listing.
“Under APA’s internally managed model, security holders benefit from APA’s performance, not an external manager.