ASX code: APD
Share price: $0.57
Industry: Real Estate
Forecast FY2017 Distribution: 1.75c (+ 10.00c special dividend)
APN Property Group shareholders have been enjoying riding the tailwinds of its strong operational momentum, thanks to an experienced management team, as well as an ongoing rerating of the A-REIT sector. The company has recently delivered a great annual result on the back of the sales of some of its property assets and strong growth in funds under management. Following an exceptional result with the sale of its healthcare division for approximately $90m, the company will be looking to pay its investors a hefty, fully franked special-dividend.
APN is a Melbourne based specialist property investment manager, founded in 1996. Today it has $2.2b in funds under management. The company operates in four segments post the sale of its healthcare division. These include Real Estate Securities, Direct Real Estate, Industrial Real Estate and an Investment Revenue segment to account for the company’s direct co-investments. The company operates under a ‘property for income’ investing philosophy and prides itself on its co-investment and thus strong alignment with its investors.
Of the various divisions of APD, Real Estate Securities is the largest, representing over 70% of total FUM. The primary fund that makes up this division is the APN AREIT Fund, with FUM of $1.3b. The AREIT fund continued to achieve strong risk adjusted returns over the year while providing an attractive monthly dividend to investors. As a result, it saw strong inflows during the year, growing at an average of $12m per month. Encouragingly, it was awarded the AFRs best Australian listed property fund for 2016 and the ‘First State First Choice’ award from Colonial.
The Industrial Real Estate division represents APD’s property management of Industria (ASX: IDR). The AREIT has $422m under management. Industria has an attractive mix of industrial assets across Sydney, Melbourne, Adelaide and Brisbane. These assets are generally of high quality, located between 20-40kms outside their respective CBDs. The year proved successful for APD, increasing its occupancy levels to 96% whilst maintaining its WALE of 4.9 years.
The Direct Funds division saw steady growth over the year, with FUM up 3% to $205m. The portfolio of properties were successfully managed during the year, with occupancy across the six funds between 97% and 100%. APN also successfully launched a new fund during the year, the Stellar Development Fund, raising over $18m.
Earlier this month APD reported a cracker full year result. NPAT came in at $49.7m, significantly boosted by the profit from the sale of its healthcare holding. Cash generation was strong during the year, hitting the top range of guidance, and management expect the company to have a healthy cash position of around $34m post the special dividend. Another promising feature of the result was that management flagged further capital management going forward, making it likely that shareholders may see further asset sales and realisation of investment profits.
APD offers a potential investor ownership in a conservatively and well run property manager, with strong reoccurring revenues from its management fees as well as the potential for further special dividends on asset sales. Management have guided to a 1.75c dividend for FY17, which equates to a 3.7% yield on an ex-special basis. With its powerful tailwinds in the property sector and many economists tipping rates to continue lower, the company is well placed to benefit from investors chasing yield. On a cum-special-basis, our valuation suggests an entry price below $0.57 would be attractive. On an ex-special-basis, this would reduce to $0.47.
Gareth Abernethy is an analyst at Clime Asset Management
Originally published in The Australian, Tuesday 30th August