Dear Fellow Investors,
We have requested APW to hold an Extraordinary General Meeting (“EGM”) to seek
unitholder support for our proposal to wind up APW. The EGM has been convened in Sydney
on 3 January 2017. After years of underperformance we believe this is now the only way for you
to realise your investment in APW at Net Asset Value (“NAV”) less costs.
TO REALISE THE UNDERLYING VALUE OF YOUR INVESTMENT
Instructions on how to vote are included at the end of this letter
SIX COMPELLING REASONS TO SUPPORT THE WIND-UP OF APW
1) Our proposal to wind up APW will benefit you.
2) Unless APW is wound up, there is a high risk that the historical discount to NAV will return
and the price of APW units will fall heavily.
3) There are four reasons for the large discount and why it is likely to persist.
4) AIMS has a major conflict of interest in recommending how you vote.
5) It will be relatively easy to wind up APW.
6) By winding up APW, there is a good chance you can increase your property trust income.
1) Our proposal to wind up APW will benefit you.
If APW is wound up, you will receive NAV (less wind-up costs) for each of your APW units.
Ever since AIMS became manager of APW in 2009, its units have traded on the ASX at a
large discount to the NAV per unit. In the last five years, this discount has averaged 44% and
was recently over 30%. Wind-up is the only way to realise that value in the foreseeable future.
2) Unless APW is wound up, there is a high risk that the historical
discount to NAV will return and the price of APW units will fall
heavily.
Prior to lodging our proposal to wind up APW, its units were trading at a discount to NAV
of over 30%. After lodgement, the unit price rose 15%, reducing the discount to around 23%.
This recent improvement in value has nothing to do with AIMS’ management of the Fund
– instead it reflects the market’s expectation that our proposal might succeed in unlocking
APW’s underlying value. As a result we believe there is a high risk that APW units will
revert back to a larger discount if our proposal does not pass at the EGM on 3 January 2017.
The effect of the discount to NAV is that if you wanted to sell your units at any time in the last
several years, you would have received much less than the actual value of the trust’s underlying
assets. A well managed property fund would be expected to trade at or around its NAV as
investors would reasonably expect to be able to trade their units at a price which reflects the
underlying value of the assets. If a fund consistently fails to deliver this, then it can be argued
that it is not fit for purpose and unitholders should have the opportunity to realise their
investment and place their funds with a manager with a proven track record.
3) Reasons for the large discount and why it is likely to persist.
We believe there are four main reasons why APW units have consistently traded at a large
discount to APW’s Net Asset Value:
i) APW is itself a mix of other property funds, resulting in two layers of fees and expenses
between the unitholders and the underlying properties. This extra layer of fees and costs
makes it harder for any investment trust to perform well. APW’s recent decision to stop
charging management fees while continuing to be entitled to be reimbursed out of the
assets of APW for the costs and expenses of AIMS key personnel managing APW doesn’t
remove the problem.
ii) Around 71% of APW’s portfolio is invested in funds managed by AIMS, compared to
just 18% in 2014. AIMS has chosen to invest swathes of the Fund’s money in single asset
securities it manages such as the 100% owned Laverton site. This unnecessary, costly,
and complex investment structure brings with it a lack of disclosure and transparency for
APW unitholders. Two of these trusts publish no accounts and there is no disclosure of
the fees AIMS charges those trusts – being fees that ultimately come out of APW’s assets.
iii) AIMS has done almost nothing to close APW’s NAV discount. In the last three years, less
than 1% of APW’s units have been bought back, a fraction of the 10% yearly maximum.
Buying back more units would have increased both the unit price and the NAV per unita
strategy of significant benefit to unitholders. However it would also have reduced the
management fees payable to AIMS, perhaps explaining why AIMS chose not do so.
iv) Since AIMS became APW’s manager, its unit price has underperformed the A-REIT
sector. That is despite APW’s one-off $15m windfall in 2014 from the litigation against
TFML, which added 26% to APW’s value. That windfall will not be repeated, but we fear
APW’s underperformance will be.
We see no evidence that any of these problems are about to disappear. The persistent deep
discount on ASX is a statement by the market and unitholders that they do not believe AIMS
will deliver value to you and the other APW unitholders.
4) AIMS has a major conflict of interest in recommending how you vote.
While you and other unitholders will benefit from winding up the Fund, AIMS will not
benefit. In fact, the opposite is true – upon wind-up, AIMS may lose the management fees
from the AIMS trusts in which APW has invested. Certain AIMS key personnel, possibly
including George Wang, will lose the remuneration they would otherwise receive from
APW under the new fees and expenses arrangement. Bear this in mind when you read their
recommendation to vote against the wind-up proposal and their claim that “the Responsible
Entity’s interests are fully aligned with the interests of Unitholders” – they are not.
5) It will be relatively easy to wind up APW.
If our resolution succeeds, we expect a rapid payout of about $0.77 per unit, with the balance
promptly following. The initial rapid payout is from APW’s existing cash (at 30 June 2016) of
about $0.29 per unit and listed securities worth about $0.48 per unit. AIMS manages the rest
of APW’s assets and APW is the largest unitholder of each of those assets, so AIMS should
have no trouble selling them. The Australian commercial property market is very strong, so
there will be no need for a fire-sale, even if APW is being wound up.
6) By winding up APW, there is a good chance you can increase your property trust income.
Many APW unitholders depend on distribution income. If APW is wound up at close to
its reported NAV, then at current unit prices, APW unitholders will be able to reinvest their
payouts into high-quality A-REITS like Scentre, GPT or ALE and enjoy higher annual
distribution income.
Who is Samuel Terry Asset Management?
This resolution has been proposed by APW’s largest independent unitholder, Samuel Terry
Asset Management, whose fund owns 7.7% of APW and has been a unitholder in APW for
over three years. We are one of Australia’s top-performing fund managers.
Our website is www.samuelterry.com.au
We, and other unitholders, have had many discussions with AIMS over the last three years about
improving the Fund and its unit price, but these have achieved little. It is time for action!
Your vote is important
Inaction by unitholders and continuation of the current strategy may result in the Fund’s units
continuing to trade at a large discount to NAV indefinitely. This is your opportunity to fix the
situation, but to succeed we need at least half of all eligible votes.
I look forward to your participation at the meeting and your vote in favour of the Resolution.
How to vote to support the winding up of the Fund
All unitholders should have received a proxy form from Computershare, the Registrars of APW. If
not, please contact Computershare or our Information Line who will arrange to send you a proxy.
If you have already received a proxy form, all you need to do to vote for our proposal to wind-up
APW is vote ‘FOR’ by marking that box ‘x’ and returning the form to Computershare by mail or
fax. This means you are voting in favour of winding up APW in order to redeem your investment
at NAV per unit (less costs).
Alternatively, this letter includes a blank, pre-filled proxy form and accompanying instructions on
how to complete your personal details and where to send it. This form has been prepared by Samuel
Terry Asset Management and not by the responsible entity of APW. You should not use this form
if you do not wish to vote in favour or our proposal to wind-up APW.
Please note: For your vote to count, your proxy must be received by Computershare before 9.00am
(AEDT) Sunday 1 January 2017. If you intend mailing your proxy, we strongly recommend you
put your signed proxy form in the post by 23 December 2016.
If you have any questions or comments please contact:
Samuel Terry Asset Management Pty Ltd at [email protected]
Or our Information Line on 1300 560 339
or +61 2 8011 0354 if calling from overseas.
Yours sincerely,
Fred Woollard
Director
Samuel Terry Asset Management Pty Ltd
APW Price at posting:
$1.55 Sentiment: Hold Disclosure: Held
(20min delay)