Wellington, Nov 19 NZPA - DNZ Property Fund promoted its move to manage its activities internally as it launched plans to raise up to $140 million as part of a proposed listing on the stock exchange.

Some of the proceeds from the capital raising are to be used to internalise management of the fund, with other capital raised used to reduce existing bank debt.

DNZ is spending $43m to terminate or assign existing management agreements, with half of that amount to be put into shares of DNZ at the offer price.

An independent report from PricewaterhouseCoopers said DNZ's portfolio of 61 commercial, retail and industrial property assets under management was valued at $729.9 million at September 30, with total bank debt at $352.1m and a loan to value ratio of 48.6 percent.

At a briefing on the capital raising today new board member Simon Botherway said most listed property vehicles in this country were externally managed.

That produced a conflict of interest between the interests of the manager, and the interests of the investors, he said.

"My view is that the investor experience in those vehicles has been less than satisfactory for a number of reasons, but the primary one is that you have a manager who is ... by and large incentivised to grow the asset base, rather than grow the distributions per unit," Mr Botherway said.

Over extended time periods, say 10 years, the investors' total returns had not kept pace with total returns in the property market.

"That's because you're getting capital raisings that are being undertaken at significant discounts to NTA (net tangible assets), you're getting dividend reinvestment plans that are taking place at significant discounts to NTA," he said.

"That's a result of the manager's incentive to grow the asset base, whereas shareholders would prefer to see growth in distributions."

Some of the managers were also taking on significant development risk which had not always been appropriate in light of the risk profiles of the underlying investors, Mr Botherway said.

While the internalisation of those structures was "highly desirable", it could be a painful process for investors, as had been seen in Australia where it had happened at valuations that seemed quite favourable to the managers.

But that was the nature of the management agreements. "Terminating them is an expensive exercise, but I think having done that, DNZ will have a more attractive governance structure."

DNZ's initial public offer (IPO) includes a $30m priority pool reserved for existing shareholders and a $100m offer to institutions and NZX primary market participants. Oversubscriptions of up to an additional $10m may be accepted under the priority pool, DNZ said.

The offer price is 82c per share, following a two for five share consolidation earlier this week.

The capital raising is fully underwritten by Goldman Sachs JBWere.