Shareholders in the GCP Student Living Reit may see little immediate difference in fees despite the investment management charge being sliced 25%.
GCP Student Living will reduce Gravis’s investment management fee from 1% of net asset value to 0.75% but property management fees, which reach up to 0.25% of NAV, will now be paid directly by the Reit.
“In some years the fee retained by the investment manager may be unchanged under the new arrangements,” says Winterflood Investment Trusts analyst Emma Bird.
For the 12-month period ended 30 June, property management fees were 0.18%, meaning Gravis netted 0.82% from the management fees. The board of GCP Student Living has therefore stated investors would have saved £0.6m or 7% had the new fee arrangement been in place over that period.
But Gravis confirmed to Portfolio Adviser that property management fees were slightly lower in the last year due to the effect of Covid-19.
GCP Student Living, which is managed by Nick Barker (pictured), Stephen Ellis and Tom Ward, has been battered around by the coronavirus pandemic with its premium of 15.3% at the end of January dropping to a discount of 27.2% six months later at the end of July, according to Association of Investment Companies data.
While Bird said it was possible the investment management fee retained by Gravis may be unchanged in some years, it would not be higher than the existing 1% fee under the new arrangements. And new tiered fees means that once the Reit reaches net assets of £950m investment management fees would reduce to 0.6375% and then 0.5625% once assets hit £1.5bn.
“In our opinion, the introduction of tiering in the investment management fee is a positive step as it allows shareholders to share the benefit of economies of scale achieved as the fund grows,” she said.
Net assets currently sit at £775.2m.
Reit strikes up agreement with Scape for property management
Scape Student Living had been responsible for property management for all except two of the GCP Student Living Reit’s assets. It will now be responsible for the entire portfolio.
The chairman of Scape, Nigel Taee, and its global chief executive, Tom Ward, have resigned as directors of Gravis. Neither had been involved in investment management immediately prior to their resignations, an RNS said.
The RNS also stated that one remaining unnamed director at Gravis indirectly holds a 6% stake in Scape.
The GCP Student Living board also stated investors were set to save approximately £0.8m, based on last year’s accounts, as Scape takes on “certain employment cost overheads” that were previously incurred by the Reit.
A clause has also been written into the property management agreement stating that only 80% of fees will be paid in the case of a pandemic or epidemic, including the currently Covid-19 pandemic, that “materially and adversely” affected occupancy.
Bird said she was not aware of other Reits or property investment trusts that had introduced a pandemic clause into their property management arrangements.
She said there were positives from the link between property management costs and income earned under the new arrangement “as it allows greater costs savings in years where income is lower and vice versa”.
For purpose-built student accommodation, Scape will take a fee of 4% of total income and 1.25% of net operating income. In all other assets it will take a fee of 2% of income.