While many investors may be unhappy with poorly performing investment managers, without the guidance oftheir advisers, many will not know how they can make a difference to the way the fund is managed.

Denison was recently been approached by a group of investors, representing 9.2% of issued capital in the 360 Capital Industrial Fund, to take control of the Fund and eject the existing management team and Responsible Entity.

To hear the views of investors and discuss how it would manage the Fund, Denison recently a country-wide roadshow where they met with approximately 300 investors. 

Denison Funds Management CEO, Matthew Burrows, said that while the vast majority of those present at the roadshows wanted a change in management, many were unsure of how they should vote and what their rights were as investors.

“Most investors were concerned with the recent move by 360 to change the constitution of the Fund, which has been ruled as in breach of the Corporations Act.  They are also concerned that listing the fund at this time will have a serious, negative impact on the value of the Fund.  However, many investors said the information sent by 360 was confusing.  In particular, the proxy voting form is ambiguous in terms of the treatment of votes from abstaining investors.”

Mr Burrows said dialogue with advisers was crucial at times like this to ensure investors’ interests were protected.

“Advisers need to speak with their clients to help them decide what is the best course of action for their circumstances.   Too often in the finance industry we assume a level of engagement or knowledge from investors that they simply don’t have.  Most investors simply want a good return and their advisers can help them set the course to achieving that.”

According to a letter from the group of investors requesting the change, unitholders listed the dilution of  their investments, changes to the constitution and 360 Capital’s plan to list the Fund on the ASX as their major concerns. 

Legal proceedings undertaken in the Supreme Court of Victoria and resulting orders made on 31 July 2012, found constitutional changes made on 31 May 2012 and 5 July 2012 contravened investors’ rights and were ordered to be ineffective by The Honorable Justice Sifris. Additionally, the order restrained 360 Capital RE Limited from putting the special resolution to investors of 360 Capital Industrial Fund, as proposed in the Notice of Meeting dated 12 July2012.

Mr Burrows said should Denison be appointed managers of the Fund, they would:

• Immediately reduce management fees from 6% to 5.5% of the Fund’s gross rent and permanently remove the special exit mechanism fee.
• Reduce fund management and operational costs by leveraging existing operational efficiencies to improve net asset cash flows.
• Defer any capital raising to avoid heavy dilution of Members’ interests.
• Establish a liquidity facility specifically for those Members who require special consideration due to a valid, urgent need for liquidity by using our global relationships including Forum and its networks
• Seek Members’ approval for an extension of the Fund’s investment-term for three years.

Mr Burrows said this would allow Denison to execute a strategy aimed to stabilise and enhance the portfolio value.

“This will pave the way for the opportunity for liquidity in the future. By being measured in our process, we believe that we can retain and improve on Member value, which would be preferable to listing on the ASX in current market conditions.”

The unitholder meeting to vote on the proposed change of Responsible Entity will be held at 10.00am (AEST) on 17th September 2012 at Oaks on Collins, 480 Collins Street, Melbourne.

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According to a letter to investors, unitholder Dr Chi Kuan Chin, states that together with 169 other investors, he is calling a meeting of members to replace 360 Capital RE Limited (‘360 Capital’) as responsible entity with Denison Funds Management.

Dr Chin states that Denison would be a preferable manager for the Fund, given its history in managing the interests of smaller investors and strongfinancial backing, by way of Forum Asian Realty Income III LP, an affiliate of Forum Partners Investment Management LLC (‘Forum’). Forum is an independentglobal real estate investment management firm with US$5.5 billion of assetsunder management, with a focus on real estate.

The letter outlines a number of areas of concern for the unitholders including that the value of units was being diluted and that changes had been sought to the constitution in a manner that was contrary to the requirements of the Corporations Act . There was also concern expressed in relation to 360 Capital’s plan to list the Fund on the ASX; a move unitholders believe would be ‘destructive to our investment value’, as commented by Dr Chi Kuan Chin.

Legal proceedings undertaken in the Supreme Court of Victoria and resulting orders made on 31 July 2012, found the constitutional changes made on 31 May 2012 and 5 July 2012 contravened investors’ rights and were ordered to be ineffective by The Honorable Justice Sifris. Additionally, the order made by The Honorable Justice Sifris restrained 360 Capital RE Limited from putting the special resolution to investors of 360 Capital Industrial Fund, as proposed in the Notice of Meeting dated 12 July 2012.

Denison Funds Management CEO, Matthew Burrows, said Denison would willingly step into the role as Responsible Entity of 360 Capital Industrial Fund. Mr Burrows said Denison would commit to a strategy to help introduce liquidity via private placement of existing units and a unit redemption facility, which Denison’s association with Forum could facilitate.

Specifically, Mr Burrows said Denison would;

·       Immediately reduce management fees from 6% to 5.5% of the Fund’s gross rent and permanently remove the special exit mechanism fee.

·       Reduce fund management and operational costs by leveraging existing operational efficiencies to improve net asset cash flows.

·       Defer any capital raising to avoid heavy dilution of Members’ interests.

·       Establish a liquidity facility specifically for those Members who require special consideration due to a valid, urgent need for liquidity by using our global relationships including Forum and its networks; and

·       Seek Members’ approval for an extension of the Fund’s investment-term for three years.

Mr Burrows said this would allow Denison to execute a strategy aimed to stabilise and enhance the portfolio value. “This will pave the way for the opportunity for liquidity in the future. By being measured in our process, we believe that we can retain and improve on Member value, which would be preferable to listing on the ASX in current market conditions.”

Mr Burrows said Denison had significant experience in actively managing and repositioning property portfolios to restore investor value.

“If appointed managers of the Fund, we will proactively engage with tenants to extend lease terms, including undertaking any required capital expenditure, to enhance the reliability of rental income and the opportunity for increased distributions in the future;

“We will also undertake a full portfolio assessment, and if necessary, dispose of non-core or underperforming assets to strengthen portfolio returns. We will also ensurebank debt is appropriately structured and use existing relationships with lenders to provide more favourable loan terms, within safe and sustainable levels.”

Denison Funds Management will hold an information presentation for investors and advisors. Details of the meetings are:

Perth  –  27 August 2012
12 midday
Rydges Perth
Cnr King & Hay Streets Perth WA 6000

Adelaide  – 28 August 2012
9am
Rydges Southpark
1 South Terrace, Adelaide SA 5000

Melbourne  –  29 August 2012
9am
Oaks on Market
60 Market St Melbourne VIC 3000

Brisbane  –  30 August 2012
9am
Queen Ann Conferencing Facilities at Mantra Hotel
570 Queen St, Brisbane QLD 4000

Sydney  –  30 August 2012
4pm
Rydges World Square
389 Pitt Street, Sydney NSW 2000

The unitholder meeting to vote on the proposed change of Responsible Entity will be held at 10.00am (AEST) on 17th September 2012 at Oaks on Collins, 480 Collins Street, Melbourne.

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