APN Property for Income Fund | ARSN 090 467 208
APN Property for Income Fund No. 2 | ARSN 113 296 110
The following is an update on the progress APN Property Group (APN) is making in
its efforts to provide liquidity in the APN Property for Income Fund and APN Property
for Income Fund No.2 (the “Funds”).
Since redemption facilities were initially suspended in October 2008, we have assessed
numerous options and have been working hard at structuring a viable liquidity solution.
We believe we are close to finalising a solution that we have concluded is the most
practical and equitable alternative to create liquidity for investors. The proposed
solution will be a first for managed funds in Australia.
Proposed liquidity solution
Our proposed liquidity solution is based on changing the way that liquidity is provided
to investors. Historically, redemptions have been funded from assets held by the
Funds. Whilst this works well in normal market conditions, during extreme periods
such as those of recent years, the Funds can experience structural pressure.
We are mindful that the majority of investors are keen to retain their investment
in the Funds. We have designed a solution that allows those investors wishing to
exit the Funds to do so without compromising the underlying investment portfolio,
whilst at the same time preserving the inherent value for those investors remaining
invested in the Funds.
We have therefore proposed the creation of a new class of units to be listed on the
Australian Securities Exchange (ASX) (“listed units”). There will be two unit classes
– existing (“ordinary unlisted units”) and listed units. Under the proposal, investors
wishing to redeem their investment will be able to convert some or all of their
ordinary unlisted units to listed units. Investors can also remain in the ordinary
unlisted class until such time as they need to liquidate some or all of their holding.
Investors who do not wish to liquidate their investment do not need to do anything.
This proposed solution will be a first for managed funds in Australia and we firmly
believe it is the most equitable and practical solution that meets the needs of
both investor classes; those who wish to remain invested and those seeking liquidity.
It is intended that once the Funds return to appropriate liquidity levels the listed
units will convert back to ordinary unlisted units and the traditional redemption
facility will be reinstated.
Benefits of this proposed liquidity solution
- Long
term investors who wish to remain invested in the Funds can do so without
the portfolio being compromised in seeking to increase liquidity.
- Investors
who convert and wish to sell some or all of their investment are able to
do so. Any discounting of the unit price will be quarantined to investors wanting
to sell their units in this way.
- The
listing structure provides both liquidity and the necessary time to rebalance the
portfolio to normal asset allocations without having to sell unlisted property trusts
at excessive discounts and compromise our investment strategy which would negatively
impact continuing investors.
- We
believe there is significant upside potential for unlisted property trusts over
the medium term which will help us manage the allocation of liquid funds back to
more than 80% of the Funds’ asset weighting.
A recap on why the Funds closed
The fall-out from the Global Financial Crisis (GFC), initially caused by the US
sub-prime mortgage crisis, delivered a particularly painful blow to the Australian
Real Estate Investment Trust (AREIT) sector. Furthermore, the introduction of the
Federal Government’s bank deposit guarantee in October 2008 led to an additional
surge in redemptions from investments in non-guaranteed funds. Regrettably, our
Funds were not immune to these exceptional external factors and ultimately resulted
in the proportion of unlisted property trusts (illiquid assets) in the Funds reaching
unacceptably high levels. The Funds subsequently became technically illiquid under
the provisions of the Corporations Act, forcing withdrawals from the Funds to be
suspended.
Current asset allocations
Currently the proportion of illiquid assets in the Funds stands at around 27%. These
allocations of course vary from day to day according to movements in the AREIT market
but fall well outside the mandated maximum long term asset allocation of 20% and
fall significantly outside the indicative strategic asset allocation to illiquid
assets of 15%.
In order to reduce the Funds’ weighting to unlisted property trusts we have been
exploring the ability to redeem or sell the underlying unlisted investments. However,
those funds offering redemption facilities have also been frozen and we have found
the sale of units to a third party would have to be at a significant discount to
underlying value – if a third party purchaser can be found at all.
While the sale of units at substantial discounts would achieve our goal of reducing
the unlisted component to below 20%, selling at steep discounts would permanently
devalue the holdings of all investors, including the majority of investors
who wish to stay invested in the Funds.
What’s next?
The ASX has provided formal in-principle approval to our proposal which allows us
to be admitted to the official list of the ASX, subject to a number of conditions.
ASIC however, is stipulating various conditions which we are currently working through.
We are currently preparing offer documentation and establishing the operational
framework. Due to the fact that this proposed innovative structure is the first
of its kind in Australia, the due diligence process with external parties is extensive.
The final implementation date remains dependent on approvals from the regulators
and we will update investors as soon as their position is conclusive.
We apologise for any distress the protracted nature of the suspension of redemptions
has caused. We believe this listed option is the best solution for all investors.
Contacts
Adviser Services Hotline 1300 027 636
Investor Services Hotline 1800 996 456
E apnpg@apngroup.com.au
W www.apngroup.com.au
Adviser and Investor Services hotlines are available between the hours of 8:30am
and 5:30pm (AEST).