In its 10th update to investors, trustee KordaMentha said it currently assesses the fund’s realisable assets to be between A$11.2m and A$13.7m which, relative to unitholders’ total original investment of A$330m, equates to a return of less than 5 cent in the dollar.
KordaMentha emphasised that the estimation of the fund’s existing realisable assets was prior to recoveries from planned legal action and excludes costs and expenses of the administration of the fund. It did include net cash held by the fund of A$3.7m and estimated recoveries from loans of between A$7.5m and A$10m.
In its update, the trustee was also critical of initial estimations made by the former manager of the fund, LM Investment Management, of the worth of a key development within the fund.
‘Unrealistic and overstated valuation’
KordaMentha said the valuation place on the Maddison Estate development by LMIM was “unrealistic, aggressive and overstated”, coming to this conclusion after having marketed the land over the last few months.
The update stated: “Having undertaken a thorough process to achieve the most optimal return for unitholders it is clear that the market does not attribute the same value to the Maddison Estate that the former trustee, LM Investment Management, may have indicated to unitholders.
“In that regard, we understand that the outcome of this transaction will raise queries with unitholders as to how the value of the investment (as previously communicated by the former trustee) in this project has so materially decreased.”
Specifically, LMIM had originally estimated that the financial feasibility of the initial master plan, which comprised 804 detached dwelling sites and eight “medium density sites, relied upon revenue escalation rates of 50% in both years two and three, followed by rises of 30% and 15% in the following two years.
KordaMentha said these estimations mean that a A$300,000 detached dwelling would have increased in value to A$1.01m by the end of year five and total gross realisations increase from A$467m (if zero escalation rates are applied) to A$1.04bn.
With this in mind, the trustee concludes its update with notice that it is considering the possibility of winding down the fund. KordaMentha suggests this may be a suitable course of action for a number of reasons, including: the financial position of the fund, the fact it is no longer in a position to raise/accept further funds and that the likely return to investors is a small percentage of the amount originally invested.
