Dividend Detective – APN Property
Security price: 37 cents
Industry: Property
Forecast distribution: 2 cents per share fully franked
A few months ago we looked at a number of income-producing property securities. One we noted was the Industria REIT, which is managed by specialist real estate investment manager, APN Property Group.
We think that APN Property itself is a good option for income investors looking for exposure at the smaller end of the market.
The company has upgraded earnings twice in the past six months with its funds management business growing strongly. It’s also trading significantly below value and has a prospective dividend yield of more than five per cent.
APN Property, whose shareholders include the Grollo family, manages real estate investment funds for investors, super funds and institutions.
Its four businesses manage 15 funds with a total of $2.2 billion of funds under management. That makes it one of Australia’s largest and most comprehensive real estate fund managers.
APN earns management and performance fees from the funds, but it also ‘co-invests’ in them using its own money.
The company is benefiting from the growth in superannuation savings, but also renewed interest in income-producing assets such as property, which is driving strong inflows to APN’s funds.
Its real estate securities business includes the flagship APN AREIT, which has $940 million of funds under management and strong monthly inflows of up to $20 million.
It also operates the Generation Healthcare REIT, Australia’s only listed REIT that invests exclusively in healthcare property and one of the best performing A-REITs in recent years.
The Industria REIT owns and manages ‘workspace focussed’ industrial,  business and technology parks in Sydney, Brisbane, Melbourne and Adelaide.
APN Property’s Direct Funds unit runs unlisted direct property syndicates with $187 million. It too is growing strongly and new syndicates have been launched recently after a post-GFC hiatus.
That strong growth in funds under management is translating into profit growth. In the first half net profits doubled to $8.5 million.
The company recently upgraded its earning guidance of full-year pre-tax operating earnings from a range of 3.3 cents to 3.6 cents per share, to between 4.21 cents per share and 4.5 cents per share.
APN should be able to keep growing funds under management strongly, which will underpin profit growth.
In addition to growth, the company has a solid yield. It paid a fully franked interim dividend of 1.25 cents per share. We expect APN to deliver a total fully franked payout of 2 cents per share over the coming 12 months, taking the yield of 5.4 per cent. That includes a 0.25 cent distribution at the full-year result, followed by a 1.5 cent to 1.75 cent payout in the first half of 2016.
Based on our forecast, APN has solid net tangible assets of around $85 million, or 28 cents per share, versus a market capitalisation of $111 million.
At 37 cents, APN is trading significantly below our valuation of around 47 cents per share. Along with a solid dividend yield and strong growth outlook, we think that makes it a good option for income investors.
This issue of Dividend Detective was written by Damen Kloeckner, Associate Analyst.