Apologies as this probably turns into a rant because I am annoyed at not selling all of my holding in APW a bit over a year ago. As a bit of background I became involved with APW after they changed name and survived a resolution for a wind up, yet before they won a lawsuit giving the NTA and share price quite a nice kicker.
So my first year as a shareholder I was very pleased with the returns, particularly seeing a large number of shares being bought back by the company at a huge discount to NTA. I sold half my holding at $1.40 (equivalent allowing for the recent share consolidation) a bit over a year ago, and now wishing I exited completely because the last 12 months have been disappointing.
I recently successfully made a quick trade in the well-publicised AMP China Fund (AGF) on the basis that they were not acting responsibly and more pressure would occur via the media to sort out a solution for unit holders and the discount to NTA. What surprised me though was the successful wind up vote that eventually took place. It occurred because the Supreme Court ruled that the AMP Life stake that was more than 30% was not entitled to vote. The reason being they had interests “other than that as a member”.
With APW (Aims Property Securities Fund) the largest holder at 31% is Aims Securities Holdings. Like AMP Life, to me it appears that they also may have interests “other than that as a member”. Aims receives fees based on total assets managed like AMP with the AGF situation. Despite the units trading at a discount of more than 40%, Aims have found better investments than buying the shares back. Refer to the company announcement on May 12, 2015. Even then the shares were at a discount of 35%, and rather than deploy a share buyback (I am not counting the insignificant amounts bought back in recent times) we saw a significant acquisition which increases assets under their management. They must be very skilful investors indeed to back their judgement with that purchase rather than buy back shares.
In a recent company presentation they patted themselves on the back for reducing the discount to NTA from 72% in the GFC to 36%. As I said though now we are above 40% I believe. Also on the same page it shows the shares reached a discount of just 27% in 2014, so whilst the company is patting themselves on the back about the discount being reduced it raises another question. Why is the company completely silent about the discount in the last year or so moving from 27% to over 40% when we have witnessed the opposite trend throughout the REIT sector? It certainly loved highlighting the discount to NTA when it went through a stage of compressing.
If we get a strong update from the company in the next reporting release and commitment of a major share buyback and continued focus on the NTA discount then my criticisms could possibly be too harsh.
In defending a few decisions they have made of late, they have shown some signs at not always wanting to expand their empire. Company updates on the 2nd & 29th of June has seen them willing to sell stakes at times and raise some cash. I suppose the share consolidation is some sort of attempt to get the share price moving yet personally I don’t have much regard for games like that which don’t impact the company’s value, unlike a share buyback. Unfortunately, what has spoilt these announcements is their unwillingness to provide unit holders with any hint at the company direction in the future as to where that cash may be deployed.
Hopefully there is enough balance sheet room to still get the share buyback going seriously very soon. Since they reported the half year results at least their listed holdings of which we can get a clear look at are moving in the right direction, and these were about 30% of the NTA. Aside from the usual 10% on market share buyback I wouldn’t mind exploring the realisation of more assets and perhaps a major off market buyback even well north of the current share price. Even a price exactly in the middle would probably be 20% below the NTA. Yet it could be 20% above the current share price and possibly many shareholders may actually want to sell into such a program. If not, then asset realisations could enable even larger distributions. Australian shareholders are ridiculously obsessed with yield and with a bit of marketing the share price could surge in such a scenario. I’d probably be supportive on some marketing spend by the company if they went down that track.
Recently I thought that with management’s attitude all these measures were not going to happen since they get fees by AUMs and they control over 30% of the company. Yet as the AGF situation showed do they really have control?
Please note my legal background only consists of having a man crush when I was a kid on the cool Corbin Bernsen in his flash car on the 80s tv show L.A. Law. So I could well be way off the mark about whether their stake could or could not defend a wind up. I was not smart enough for a law degree and to be honest a career in law seemed like too much hard work! One of the reasons I made this blog entry as there might be someone out there that is far more certain about this aspect than me, if so I welcome you to make contact with me and set me straight. What I do know is a few years ago when they were named MacarthurCook they defended a wind up, but in that case all the Aims shareholding was eligible to vote and no prizes for guessing what their vote would have been. Here is a link with a bit of history..
Here is a link about the windup resolution, the pages towards the end details the grievances of some unit holders and their wind up plan.
At this stage I’ll be conservative and assume the AGF court situation doesn’t change anything and look at the shares independent of this possibility. As I said above we can actually tell that their listed holdings did well since they reported the half year results. Recent small asset sales I mentioned above announced in June I would think give scope to get the share buyback going again. Just that in itself should assist the share price from these levels. Looking at the positives the share consolidation and small asset realisations only very recently, could indicate the discount to NTA is still on their radar and timing wise it just may suit to get it going again as they release their results to the market soon. They did buy back a lot of shares a few years back. However, that was probably sparked by investors trying to wind up the fund in the year prior.
So forgetting about the legal talk and whether Aims can vote to defend a wind up, I felt recently I can justify topping up my holding when it trades below $1.25. Also assisting me in this trade is recently my exposure to the REIT sector has been reduced substantially with the successful trade in UPG, now having banked the large capital return there. One risk is there are some skeletons in the closet around some of their assets in the unlisted space and when they report in August it’s a case of “ah that’s why the stock was so weak!”. I certainly don’t want that, but it would at least bring to the surface the market’s perception of management and a strong catalyst for something to be sorted out. I admit I am not in love with the sector, but as Warren Buffett described the cigar butt investing approach, perhaps another puff or two will be enjoyable here. There doesn’t appear to be too many issues with the current occupancy, yields, or the cap rates being used in the valuations. If we always trade at this large discount I still am confident the distributions should be at least maintained or increased and should be attractive to investors.
If management does not start to talk about capital management more seriously though, investors are going to get further frustrated. The shareholder in the above AFR link appears to be still on the register with 2.6%. I am confident other shareholders that actually voted for a wind up a few years back are still holding.
So if I am wrong about the voting eligibility of the Aims holding, another comparison with the AGF situation I believe is how AMP looked in the media from their behaviour. Nearly every journalist took a very poor view of how they acted. If Aims behaved in a similar fashion it could also reflect very poorly for them.
Surely Aims won’t shoot themselves in the foot like AMP did? There was middle ground in the AGF situation that should have kept the fund going, albeit with reduced funds under management.
I want to make it clear my number one preference is to keep APW going and NOT a wind up. A wind up is a consideration if management neglect the opportunity to buy back shares at a huge discount and continue their pattern of the last year and favour more acquisitions.
I realise I have a very small audience on this blog but if anyone wants to email me the number of units they hold in APW and feel similar to the above let me know. It can be just emailed by an anonymous method of you like as an indicative guide on saying that you would support a wind up IF at the next release of results, APW seem completely silent on the NTA discount like they have all this year.
I wasn’t a holder under the old name when it went to a wind up vote, nor do I have contact at this stage with the disgruntled investors who were campaigning for a wind up. I’m just a little tired of nothing happening so if other unit holders feel the same possibly it has become time soon not to just completely sit back passively. It may help to see how many unit holders share this frustration and how much they hold. The information may assist an investor who wants to go down the path of a few years ago and put forward a wind up resolution if things never change.
Also it may assist a far more sophisticated investor than myself drafting a far more professional letter initially to management to address many questions and frustrations from the frustrated unit holder base. If someone was skilled in writing this it may also be of interest to a lot of journalists, who seemed to enjoy covering the AGF situation and AMP.
I am at firstname.lastname@example.org