Property fund of AIMS under attack from wind-up attempt

Singapore

SINGAPORE-LISTED Australian fund AIMS Property Securities Fund (APW), is currently under attack from minority unitholders who have convened a Jan 3 meeting to vote on a motion to wind up the fund.

The motion was initiated by Samuel Terry Asset Management, a Sydney-based boutique investment management company, which claims to have amassed substantial support from other unitholders to go against APW's majority shareholder, AIMS Financial Group.

However APW's executive chairman George Wang is confident of defeating the motion, pointing out in a recent interview with The Business Times that this is not the first time Samuel Terry (referring to the company) has tried to wind up APW; the previous unsuccessful attempt occurred in 2013.

The current attempt comes after Hong Kong hedge fund LIM Advisors successfully garnered enough unitholder support to wind up another fund, AMP Capital's China Growth Fund, which was managing more than A$400 million (S$417 million).

LIM had reportedly been agitated to action by the fund's stubborn trading discount as well as management fees that it considered to be too high.

Mr Wang said: "This group saw that happening and they came up and wanted to have a go again."

According to him, Samuel Terry had taken advantage of APW's rights issue in 2013 to invest at a relatively low entry price. Later that year, its associates called for a similar meeting to wind up the fund, which unitholders overwhelmingly rejected. But instead of liquidating its interests on the open market as one would have expected it to do, Samuel Terry has since bought more units.

In a letter to investors in December, Mr Wang said: "These unitholders are short-term and opportunistic. . . whose interests may not align with all unitholders in the fund."

In the BT interview, he said: "That's their business. That's what they do. They go to different funds, talk to investors to wind up the fund and take over the fund."

AIMS Financial Group owns close to 38 per cent of the units in the trust, but Samuel Terry is banking on the fact that AIMS would not be able to vote with its stake, taking a leaf from the pages of the AMP Capital episode where the subject fund's largest shareholder AMP Life was banned from voting, thus giving the activist pack a smaller hurdle to cross to close the fund.

This was due to rules dictating that any party that stands to profit, such as by means of receipt of fees, from the fund is not allowed to vote.

To circumvent this, Mr Wang said the fund manager has altered its remuneration structure to waive management fees and instead operate on a cost-recovery model. This means that it will only reap gains from the properties in its portfolio. Waiving management fees would thus allow the manager to use all its 38 per cent when voting against the motion, it believes.

Samuel Terry's gripes with APW are similar to LIM's with AMP Capital's fund. First, APW's share price in December 2016 remains at a significant 23 per cent discount to its net tangible assets, although this is already an improvement from 72 per cent in 2009, when AIMS took over the nearly-insolvent MacarthurCook Limited.

Another of Samuel Terry's gripes is that APW being a "fund of funds", there are extra layers of fees and costs, not all of them disclosed. Also, 71 per cent of the portfolio is now invested in other funds managed by AIMS, compared to just 18 per cent two years ago.

APW currently only invests in trusts holding Australian properties. It plans to diversify in the next two to three years, possibly in Singapore, as the domestic slowing commercial property market may have bottomed out by that time, Mr Wang says.

It seeks good-location opportunistic buys that are income-yielding and that the fund can add value to or redevelop. Its investors are primarily retail. The fund's annualised distribution yield as of September 2016 was 5.14 per cent, and it has been debt free since 2013.

Mr Wang, who is also chairman of the Singapore-listed AIMS AMP Capital Industrial Reit (AAReit), is no stranger to takeover attempts.

In November 2009, during the global financial crisis, the manager of Cambridge Industrial Trust (CIT) had approached MacarthurCook Industrial Reit or MI-Reit, the former name of AAReit, with a merger proposal, which was rejected.

MI-Reit, with gearing at 65 per cent, was in poor shape, having just announced a recapitalisation plan to refinance its debt obligations by raising close to 70 per cent more equity, at more than 50 per cent discount to its last share price close. Essentially, it was trying to avoid a loan default at the expense of highly diluting its existing shareholders. A few days after, CIT accumulated enough shares in MI-Reit to become its largest shareholder, and said it would vote against the recapitalisation plan. Its manager also requested a meeting to replace MI-Reit's manager with itself. But the Monetary Authority of Singapore stopped CIT's attempt, citing potential conflict of interest in it managing two separate Reits with similar investing strategies - that is, in buying industrial properties.

Amid talk of Reit consolidation in Singapore, especially among smaller players in a universe that values size and clout, Mr Wang said: "I think M&A (merger and acquisition) for Singapore Reits is quite difficult unless you buy the manager.

"I think if the investors of both Reits are willing to merge, that is possible, but I think it is a lot of ground work to put two Reits together because their fundamental strategies, such as of acquisition, are different. Anything is possible. . . If we see any opportunity, we have an open mind."

But when it comes to APW, which is also listed on the Australian Securities Exchange, his stand is firm that Samuel Terry and those acting in concert with it have no business meddling in the fund.