Wednesday, May 29th, 2019
Financial year 2019 marked the return of volatility. We saw turmoil in the December half, which eased into a relative calm in response to more accommodative monetary policy settings.
In this environment business quality, or lack thereof, can be the difference between a good or bad year for investors. This is especially so for smaller companies.
A good case in point is APN Property Group (ASX:APD), in our view a good option for those seeking a sound mix of income and capital growth.
APD is a specialist commercial real estate manager, and one of the best in its field.
Importantly, APD has long kept a disciplined approach to new investments, one which is highly focused on income generation. This is perhaps reinforced by the level of management and director ownership, which is approximately 40% of the business. As such, they are highly aligned with shareholders.
These characteristics are ultimately reflected in healthy operating metrics. As last reported in first half results, APD had $2.4bn of Funds Under Management, comprised of $1.6bn in real estate securities and $1.2bn in direct property vehicles. The direct property portfolio of mainly office, industrial, and convenience store assets boasted 98% occupancy and a weighted average lease period of 8.3 years.
Another attraction of the business is its strong balance sheet, which has it positioned to take advantage of new opportunities to grow the portfolio. APD has net cash of $23 million and $107 million of co-investments, largely invested in ASX-listed REITs, APN Industria REIT (ASX:ADI) and APN Convenience REIT (ASX:AQR).
At its AGM last year, APD announced it would be moving to a stapled structure, which is a trust contractually linked with the company, with stapled units traded on the ASX as single securities.
In mid-May the company updated that it will not receive approval by 30 June, and the Board now expects the restructure to occur by 31 December.
The change won’t impact on operations, however because trust distributions are made before corporate tax, the shift to a stapled structure will effectively lift APD’s headline yield. It will also see APD favourably compared on a like-for-like basis with other listed property fund managers.
We forecast FY20 dividends of approximately 2.5 cents per share, fully franked, equating to a forward yield of 5.7 percent.
Clime Group owns shares in APD.