In a recent blog post I suspected that the latest ALI buyback announcement appeared to be of the Claytons variety. Claytons was a non-alcoholic drink but marketed in the 80s as “the drink you have when you are not really having a drink”. It was to give the impression you are out having a drink, but wasn’t quite the same.
I have witnessed plenty of share buybacks announced over the years that were to give the appearance the company wanted to buy back shares, but that wasn’t really the case. It can be handy to announce a buyback program which can fit neatly into the investor presentation slides that the company is focused on narrowing the discount to NTA. APW have conducted some modest share buybacks in recent years that I shall elaborate on a little further.
In early 2015 a buyback was announced. Over the next year they spent about $600k. In February 2016 this ceased for about 6 months, as the balance sheet was digesting some other alternative uses of capital (I shall get to that shortly). Then a buyback recommenced from the 12 months starting from September 2016 where they spent about $700k. This was extended a few months ago where as I write they have again spent about $700k. Admittedly the buying had a little more urgency the last few months. In almost 3 years from that starting point, I estimate the total units bought back would be less than 3% of the capital base.
Was there an opportunity to buy the shares back?
Well I estimate Samuel Terry Asset Management have bought about 7% of units since halfway through 2016, mostly at under $1.35 a share. Sandon Capital a few months back bought a bit over 5% at just under 1.60. It is hypothetical, but I wonder if management showed more urgency they could have done something similar under the buyback programs, which could have boosted the NTA by about 4% with little or no risk involved.
What have been some of the alternative uses of capital?
On Feb 16th, 2015 they invested in AIMS Property Fund Felix St, in Brisbane. On May 12th, 2015 they invested in AIMS Property Fund Laverton. Having a look at an annual results presentation for the year ended 2015, to the most recent one for year ended 2017, suggests the results have been mixed. The Brisbane property had a purchase price of $26 million, but the most recent presentation listed the value as $25 million.
The Laverton purchase price was listed at $35.5 million and has fared better according to the value seen in the last presentation showing $37.5 million.
Recent alternative uses of capital.
APW became more cashed up when they sold a large stake in BWR and received a bit over $7.5 million less than a couple of months ago. One option for using the cash could have been buying back more shares under the existing program, but judging from an announcement last week management see better alternatives again.
$19 million will be invested in the AIMS Real Estate Opportunities Fund (“AREOF”).
AREOF will not be charging a funds management fee for this investment.
That is nice, but it would be even nicer to have it confirmed that there would also be no Trustee Fees, Debt Arrangement Fees, Performance Fees, Property Dealing Fees, & Ongoing Costs that may or may not be incurred inside the AREOF vehicle that effectively flow through to APW unit holders.
It would also be nice to hear further statements giving a bit more colour as to their view suggesting over the next few years opportunities will present themselves in distressed assets. It sounds like the kind of environment that unit holders may have been well served by receiving all the wind-up proceeds by now and sitting in cash, had the proposal been successful at the beginning of 2017.
2017 turned out different to management’s expectations?
AIMS management about a year ago.
“A wind up would result in fire sales of the underlying assets, which may result in capital loss for unit holders.”
And now.
“The current commercial real estate market is at a cyclical high.”
I wonder how the fire sales would have gone if the wind-up proposal was successful?
The Future
Let’s hope for unit holder’s sake that investments in the likes of Felix St Brisbane, Laverton and “AREOF” achieve good returns. Just because there is the opportunity to buy back shares at a large discount, does not necessarily mean that is the best option if management can achieve excellent returns by finding other great investments.
The future of the Responsible Entity.
Article not relating to AIMS, but interesting article I came across in the last week on the topic of the RE in a structure.
Edit post on December 4th
Wow how exciting seeing the new investment already making great gains as per today’s announcement.
http://www.asx.com.au//asxpdf/20171204/pdf/43pwgh0mtzbpqt.pdf
I assume given management fees were waived for the APW investment in the fund, that the large gain already achieved would not generate any performance fees, or other types of fees.
I am guessing this investment, and further investments will be assets that need to be held for the long term, and any move to try and sell them would result in a fire sale and not be in the interests of unit holders.
Well said , sir !