"The Board also reviewed Contract Renewal Information regarding fees charged by the Manager to other U.S. clients investing primarily in an asset class similar to that of the Fund, including, where applicable, institutional and separate accounts. The Board was advised that the fees paid by such institutional, separate account and other clients generally are lower, and may be significantly lower, than the Management Fee. The Contract Renewal Information discussed the significant differences in scope of services provided to the Fund and to these other clients, noting that the Fund is provided with administrative services, office facilities, Fund officers (including the Fund’s chief executive, chief financial and chief compliance officers), and that the Manager coordinates and oversees the provision of services to the Fund by other fund service providers. The Contract Renewal Information included information regarding management fees paid by open-end mutual funds in the same complex (the “Legg Mason Open-end Funds”) and that such information indicated that the management fees paid by the Legg Mason Closed-end Funds generally were higher than those paid by the Legg Mason Open-end Funds. The Manager, in response to an inquiry by the Board as to the reasons for the fee differential, provided information as to differences between the services provided to the Fund and the other Legg Mason Closed-end Funds and services provided to the Legg Mason Open-end Funds. The Board considered the fee comparisons in light of the different services provided in managing these other types of clients and funds."
Stock closed at $14.90 the day before distribution announcement. Now $11.54. With dividend at $.72 per year, it will take over 4 and 1/2 years, to break even. Apparently the Board is content with the investment manager and the excessive fees in relationship to the dividend income. Time for a change in the Board and the investment manager.
The Board should reevaluate the management contract. Less management fees unless performance improves The $.06 rate has been in effect since December 09. In December 08 the dividend was reduced from $.19 per month to $.08 per month. In prior years there were substantial one time distributions. Time to look out for the shareholders.
On Tuesday May 21st the Company announced distributions for July-September at $.06 per month. Since that date the stock has dropped $2.45 or 16.7%. Is the decline due totally to the Federal Reserve announcements, the decline in the market value of the owned assets or the failed expectations that the dividend would be increased? And all along I thought the commercial real estate market was recovering.
In the year ended December 31, 2012, investment management fees totaled $1,565,397. Dividend income was $7,464,539. Thus over 20% of the income was paid out in management fees. Distribution to shareholders was $8,231,150. Perhaps management fees should be based on performance and not assets managed. Are the Board of Directors acting in the best interest of shareholders?
Seems that the price drop has been more significant than other stocks with decent dividend yields. Notice in particular the price performance since the announcement of the same dividend payout level as prior months. Perhaps investors were expecting an increase from $.06 given the recovery in the real estate market.