Dunedin-based NZ Mortgage Income
Trust has suspended payments to investors for at least 90
days from a more than $50 million mortgage fund, as the
trust's cash reserves have fallen below 5% of the value of
the fund.
In a letter to investors obtained by the Otago Daily Times,
the Dunedin-based chairman of manager Fund Managers Otago
Ltd, John Farry, said that while "good progress" had been
made last year reducing the level of "non-performing loans",
there had been a combination of factors, including delays in
mortgage settlements during Christmas, prompting the
suspension decision.
The outstanding Christmas mortgage settlements were "delayed,
but otherwise all proceeding" towards payment, Mr Farry said
when contacted yesterday.
"We are responsible lenders and the fact we have survived
[the recession] is indicative of that; we just needed a
breather," he said of the 90-day suspension.
He said the "hard battle" began six years ago, and between
the downturn in the property market, the general recession
and property valuations "plummeting", the company had worked
"with the support of the trustee [Trustee Executors Ltd] and
is getting to the end of it".
Mr Farry had written to investors that he believed the fund
would build up "sufficient cash reserves" during the 90-day
period to allow redemptions to recommence at the end of the
suspension period on May 14, saying yesterday he "was
confident", repayments could resume on May 14.
The suspended $54 million NZMIT PIE Fund is spread over 50
mortgages; 61% in the North Island and 39% in the South
Island.
About 62% are commercial mortgages, 34% residential and 4%
farm related - with an average mortgage size of $1.06
million.
NZ Mortgage Income Trust is also one of 27 creditors of
fallen property tycoon Terry Serepisos, but Mr Farry said
yesterday the company "was not in danger of [financial] loss,
as advances on his [Serepisos'] properties were
satisfactorily secured".
The NZ Mortgage Income Trust Funds lend against the security
of a first ranking mortgage to homeowners, landlords; of
residential and commercial premises, commercial building
owners and farmers.
NZ Mortgage Income Trust had three funds totalling $86.3
million under management, as at December, with a total 2670
investors, covering 177 mortgages throughout the country.
The fund's level of liquidity had subsequently fallen "below
the best practice guidelines of 5% of the value of the fund",
he said.
"Accordingly, as manager we have decided to suspend
redemptions from the fund as at February 13, 2012, for 90
days to protect the interests of all investors," Mr Farry
said.
The fund's trust deed allows for redemption requests to be
suspended; "for an initial period of up to 90 days", and also
for the fund managers to extend the 90-day term if deemed to
be prudent.
"As manager, we have decided that until the mortgage
settlements occur and liquidity levels improve, we should not
allow the fund's cash reserves to fall further," Mr Farry
said.
Mr Farry said the suspension was "fully supported" by fund
trustees Trustees Executors Ltd, and said quarterly income
distributions to all investors would continue "as usual".
"This decision will only affect a minority of investors in
the fund but we are required to advise all investors," Mr
Farry said.
In mid-2008, NZ Mortgage Income Trust moved to reassure
investors it was in a "sound condition", and while not immune
to current market conditions, it is adequately protected.
One of the trust's funds, started in 1994, has more than $153
million invested, secured mainly on first mortgages.
Commercial and industrial loans make up 47% of the mortgage
portfolio, residential loans are 42%, farm loans are 6% and
bank deposits make up 5%.
A second fund, started in 2007, had $6 million in it and it
too was secured against first mortgages.
simon.hartley@odt.co.nz
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