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AIMS Property Securities Fund (APW)
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Tussle for AIMS Property Securities Fund benefits unitholders, takes unit price closer to NTA


By Goola Warden

The effort to wind up AIMS Property Securities Fund (APW) is causing its unit price to rise. Units in APW are up 11% this year compared with a 6% decline in the All Ordinaries Index and a 10% fall in the Straits Times Index. APW has a secondary listing in Singapore. It has also outperformed the ASX 300 A-REIT Index and the ASX 200 A-REIT Index, which are unchanged year-to-date. Since 2013, APW has significantly outperformed these indices (See Chart 1).

APW is a closed-end fund managed by a unit of AIMS Financial Group, which also owns the manager of AIMS AMP Capital Industrial REIT (AA REIT) and 17.88% of AA REIT.

Of course, APW’s performance is also impacted by its own fundamentals. For the 12 months to June 30, 2018, its net asset value increased from A$93.1 million ($92.87 million) to A$105.8 million, while net tangible assets (NTA) per unit rose 13.4% to A$2.37.

APW’s performance is even more striking when measured against its result in 2013, the year that the fund’s manager ensured that the fund was debt-free. From June 2013 to June 2018, NTA per unit grew from A$1.17 to A$2.37, representing an increase of 103.3% (see Chart 2), while unit price rose to A$1.58 from just A$0.67. On Nov 26, APW’s unit price was A$1.87. The fund’s NTA grew by a compound annual growth rate of 22.1% over the past five years. Of course, past performance is no assurance of future growth.

On Nov 19, APW announced that a special unitholder meeting would be held on Dec 7 to vote on two resolutions. The first is on certain strategic initiatives and the second, against winding up the fund.

Two activist fund managers – Samuel Terry Asset Management and Sandon Capital Investments – who together hold 18.6% of APW, have requisitioned from an EGM to be held on Dec 10. The main resolution is to vote for the winding-up of APW. The fund managers said in an announcement to the Singapore Exchange that APW had traded at an excessive discount to NTA for more than 10 years (See Chart 3).

“Units are currently trading at [A$1.87], but the last reported NTA was A$2.37. This represents an unacceptable… discount. We believe that the unit price will continue to trade at a large discount unless the resolution to wind up the fund is passed,” Samuel Terry Asset Management said in the announcement. “AIMS [Financial Group] has made many promises to close the persistent gap between APW’s unit price and its NTA, but has failed to do so. The discount would be greater still had Samuel Terry Asset Management not been supporting the unit price by purchasing almost 50% of all the units traded in the last 12 months.

Activist fund managers continue to buy APW units

Fred Woollard, managing director of Samuel Terry Asset Management, acknowledges that he is buying more units in APW. “Our total entry price is A$1.40 per unit… and we believe in a wind-up unitholders could get A$2.37. Buying at A$1.40 and selling at A$2.37 is a good trade. We believe that if we were not buying shares in the market, the price would be lower than it is. We own six million shares and the difference to us is A$5 million to A$6 million between winning and losing. We believe there is a big difference for unitholders between our proposal succeeding and our proposal not succeeding.” Woollard said in a teleconference last month.

Woollard also claims that AIMS Financial Group is buying more APW shares. “One of the reasons for the timing [of the EGM] is that AIMS Financial Group has been using one of [its] vehicles to buy more shares in APW and using APW’s own money to lock up control, and if we don’t move now, the management will look up control. They control 41% of APW shares in issue.”

Interestingly, the Samuel Terry Asset Management announcement also claims that “AIMS Financial Group refuses to fully disclose the fees and other benefits paid to [itself] for management and other services. The lack of transparency would be illegal if the fund was a company, not a trust, and is a key reason why units trade at a large discount to NTA and will probably continue to do so”.

AIMS Financial Group owns APW’s manager, and the manager has relinquished all fees for managing the fund since end-2016. APW’s FY2018 annual report states that from Dec 1, 2016, the supplemental deed of the fund’s constitution removed the payment of any management fee, performance fee or other remuneration to AIMS Fund Management and hence, the manager is not entitled to receive any fees.

“We gave away our fees in December 2016 and we don’t gain any profit for the work we do in APW,” George Wang, chairman of the APW’s manager, says. “AIMS Financial Group does not charge a fund management fee or performance fee for managing the fund,” he reiterates. Wang – who owns 31% of APW, according to its latest annual report – points out that his interests are totally aligned with those of APW’s minority unitholders. “Their alignment is to their investors and not to those in APW,” he says, referring to Samuel Terry Asset Management and Sandon Capital Investments. AIMS Financial Group and friendly parties control around 42% of the fund.

“We are aligned with our investors and we believe we can continue to deliver very good returns to investors in the long term,” Wang continues, indicating that many investors have stayed in APW since 2009 when AIMS Financial Group acquired MacarthurCook and its distressed funds and REIT, including APW, which was then known as MacarthurCook Property Securities Fund.

APW’s Initiatives in FY2018

As at June 30, 2018, APW has cash of A$4.82 million and no debt. During the year, it acquired A$19 million worth of units in AIMS Real Estate Opportunity Fund and sold A$7.56 million worth of units in Blackwell Property Trust and A$4.8 million worth of units in Arena REIT. Its net investment income was A$14.956 million as at June 30, a y-o-y increase of 2.6 times.

On Nov 19, APW’s manager stated that one of its strategic initiatives was to get a rating for the fund. Additionally, the manager could be directed to undertake a review of the fund’s investment strategy and investment policy. This would involve identifying and seizing new investment opportunities in both domestic and regional property markets, and also looking into overseas assets, which may be at a cyclical low compared with domestic investment.

“We’ve recycled capital and restructured our investments to increase the value of our funds. We’ve got some cash, but we need to be mindful of changes on the global landscape. We’ve looked at investment deals, but our policy is to be prudent. We need to look after unitholders in Australia and Singapore,” Wang elaborates.

The resolutions on Dec 7 and 10

The independent directors are recommending that unitholders vote for the strategic initiatives and against winding up the fund.

For one thing, once a winding-up is announced, it will be public information and any disposals initiated by such a wind-up would be treated by the market as a fire sale. This could erode the realizable value of APW’s assets and any profit, the independent directors say in a letter to unitholders.

The independent directors argue that the costs associated with winding up the fund are likely to be significant and could impact final distributions to unitholders. An immediate winding-up of the fund would result in additional transaction costs, the independent directors say. And, while the fund’s investments are structured in a tax-effective manner, it would not be possible to eliminate all adverse tax consequences arising from a forced-asset sale. For these reasons, APW’s investors may not receive their full A$2.37 per unit  in the event of a winding-up.

For their part, the activist fund managers have said that the winding-up would not be a fire sale, and “AIMS Financial Group will have a duty to sell APW’s assets in a manner that maximizes the return to unitholders”.

Of course, no one can be sure of property cycles, but the independent directors believe the fund still has unrealized potential from development upside and value-add potential from the underlying assets held by the trusts in which the fund invests.

For sure, Samuel Terry Asset Management and Sandon Capital Investments can always sell their units if they are unhappy with APW’s performance and the way the fund is managed. Moreover, if their average cost of investment is $1.40 per unit, they would still make a hefty capital gain at APW’s current price.

Wang, on the other hand, is likely to stay for the long haul.