Evans Dixon property fund in retreat – The Australian Financial Review

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URF, which has a market value of $350 million, listed on the ASX in 2012 to give investors exposure to the New York City residential property market. It was marketed as a way for local investors to take advantage of the strong Australian dollar and higher rental yields.

But after its shares slumped 41 per cent in the past year, the URF hopes to reduce the growing discount between its unit price and net tangible asset (NTA) value.

The URF is a key product for Evans Dixon, which is an ASX-listed wealth advice firm. The Financial Review has in the past week reported client concerns about heavy portfolio exposure to Evans Dixon funds such as URF and New Energy Solar.

Evans Dixon was created in 2017 from the merger of Dixon Advisory and Evans & Partners.

One current Dixon client who declined to be named estimated he would be at least $150,000 better off in capital value had he kept his superannuation with an industry fund, rather than taking up the firm’s advice to buy URF equity and debt. The client had 25 per cent of his portfolio exposed to URF, mirroring several other client experiences.

This client also is invested in other Evans Dixon products such as New Energy Solar, Evans & Partners Australian Flagship Fund, Evans & Partners Asia Fund, and the parent company.

The firm has never advised him to sell any in-house investment over the seven years he has been a client, he said. In a 2013 email seen by the Financial Review, it was suggested to the client he would need to reduce his “exposure to Australian shares” to top up his URF holdings. He was last recommended in January 2018 to boost his URF investment.

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“There has never been advice to say you should sell, which I find extraordinary,” he said. “They say it’s up to you, but there has never been a statement of advice saying we should sell.”

In April the company flagged a review of the URF, including the potential sale of its properties across the New York area to plug a hole in its cash flow.

On Wednesday, URF said it would look to sell off single homes in individual transactions, and sell groups of assets to “institutional purchasers” as well as other capital initiatives.

One analyst said the cutting of the dividend would have been an action of last resort by Evans Dixon.

“There is no way they can do another capital raising or refinance the notes, so the only option left is to sell properties to pay down the debt,” the analyst said.

“Cutting the dividend is also a very drastic step; management would know their retail client base will absolutely hate that. That would have been an action of absolute last resort.”

The company called the reduction in the distribution to ordinary unitholders “disappointing” but a “necessary step in accelerating the repayment of the notes and the aim of the program to reduce the Fund’s trading discount to NTA.”

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URF originally listed in 2012 at $1.60. The fund closed trade at 1¢ lower at  94¢ on Wednesday.

“The press release highlighted that the original investment thesis had come to fruition and that ‘value-add initiatives are almost complete’,” said the analyst. “It is apparent that value has not accrued to unitholders.”

While the URF has been widely recommended to clients of Evans Dixon, few external investors have bought shares in the fund.

One fund manager said the move to cut the dividend “at least buys the fund time” but it did not solve the bigger issues of excessive fees payable to the Evans Dixon parent, and debt.

A report written in May 2016 by eViser described the URF as “a magic pudding, just not for investors”.

The fund was “one of the most expensive managed funds we’ve ever laid eyes on” said the report written by the online financial advice website that has since closed.

“We have so many questions about the fund, its strategy, the strength of its balance sheet and the risks, that even if we were to ignore the fee load, we’d be unlikely to ever get comfortable making an investment.”

URF said in an ASX statement that proceeds of the sale program include a minimum of $33 per note to the early repayment of the URFHB Notes due on September 30, 2019 and to assist with the early repayment of the URFHB Notes.

URF said there will be no change to the 30 June 2019 Convertible Step-Up Preference Unit distribution.