Markets and associated sentiment can be fickle. At times, companies can go about their business building value without necessarily being rewarded by the market. Small cap property focused asset manager, APN Property Group (ASX: APD), would fall into this bucket.
For the uninitiated, APD is a specialist real estate investment manager whose approach is largely focused on the ‘property for income’ philosophy. Established in 1996, APD today manages $2.8bn of direct real estate and real estate securities.
APD’s business encompasses several key operations:

  • Real estate securities management: Includes the APN AREIT Fund and the APN Asian REIT Fund
  • AREIT Management: Includes the APN Industria REIT (ASX: ADI) and the APN Convenience REIT (ASX: AQR)
  • Management of Direct Property syndicates
  • Co-investment: Includes $74m and $28m invested in ADI and AQR respectively

 

Figure 1. APD’s Business Operations
Source: 1H FY2019 Presentation
As highlighted above, one of the further attractions of the APD business is its strong balance sheet. APD has net cash of $23.3m and $107m of co-investments, largely invested in ASX-listed REITs, ADI and AQR. With a patient management team, APD are well positioned to continue growing the business as and when sensibly priced opportunities arise.
A superficial review of APD’s three-year share price chart may lead some to believe not much has happened with the business, a reflection that belies the progress made by management during this time. After receiving a lucrative price for the management rights and associated co-investment stake in the formerly ASX-listed REIT, Generation Healthcare (GHC), in 2016, APD paid out a special fully franked dividend of 10 cents per share. Beyond this, Funds under Management (FUM) has grown by about 30% while recurring income and dividends have grown by a commensurate amount.
 

Figure 2. APD’s Recent Track Record
Source: 1H FY2019 Presentation
 
Though investors may not perceive APD to be among the most adventurous in the property space, we would suggest the business is guided by a relatively safe pair of hands. APD’s management team and directors own approximately 40% of the business and as such, are highly aligned.
APD continues to trade at a relatively small premium to net tangible asset backing, implying that the market is placing little value on its funds management business. This is best illustrated in the below slide from APD’s 1H presentation. With a solid yet unspectacular growth profile, concurrent with a healthy yield of about 5%, we remain comfortable with a modest exposure within the model portfolio.
 

Figure 3. APD’s Implied Funds Management Platform Valuation
Source: 1H FY2019 Presentation
 
Clime Group owns shares in APD.