APN Property Group Cashing Up

22 February 2019

This week APN Property Group reported lower Operating Earnings for the 1H 2019 of $4.8M or 1.55 cents per share. The results was marginally down on the pcp results of $5.1 million or 1.67 cps, and mainly due to higher income tax paid over the period. The operating earnings before tax was up 6% on pcp. Highlights Operating Earnings $4.8 million with 98% of earnings generated from recurring sources Operating Earnings 1.55 cents per share (cps); on track to achieve full year guidance range of 2.40 cps to 2.90 cps Statutory net profit after tax $6.0 million versus $9.6 million in the pcp Funds Under Management (FUM) remained steady at $2.8 billion overall Cash holdings increased 96% since June 2018 to $29.3 million Net tangible assets of $121.2 million; NTA per share of 38.6 cents (up 3% versus June 2018) Average lease expiry of 8.3 years and occupancy of 98% Interim dividend declared of 1.25 cps (fully franked); FY19 dividend guidance reaffirmed at 2.25 cps Stapled structure proposal progressing – shareholder approval received Statutory net profit after tax for the 6 months ended 31 December 2018 of $6.0 million. This compares to $9.6 million in the prior corresponding period (pcp) primarily reflecting prior period unrealised mark to market gains on co-investments. APN’s key products include; APN Industria REIT APN Convenience Retail REIT APN’s Real Estate Securities APN Asian REIT Fund APN’s Direct Property These products offer consistent cash distribution yields backed by real assets and continue to be attractive to a wide range of investors. APN expect the potential changes to the treatment of franking credits will benefit property trusts which offer comparatively higher after tax cash returns for low tax bracket taxpayers including retirees. APN has held on to cash (now at $29.3M) in order to be ready to acquire assets which offer compelling value for securityholders. APN’s Real Estate Securities division reported FUM at balance date of $1,594 million, which was $74 million lower than June 2018 primarily due to negative mark-to-market movements for the portfolio of $64 million (which have largely been reversed between balance date and 21 February 2019). Net inflows into the APN AREIT Fund were flat over the period reflecting negative sentiment towards property and expectations of higher interest rates (which have subsequently receded) among other factors. Some investor channels have also been affected by changes resulting from the Hayne Royal Commission which may continue for some time. The APN Asian REIT Fund continues to gain traction with FUM increasing by 63% over the past 12 months to $31 million at balance date. The Fund gained additional independent research ratings and has recently added been added to BT’s investment platform. The Asian REIT Fund has delivered a total return since inception in 2011 of 13.9% and offers investors a liquid investment in a high quality portfolio of commercial properties primarily in Singapore, Hong Kong and Japan. The Fund pays monthly cash distributions consistent with APN’s ‘property for income’ approach. APN’s Direct Property division increased FUM 24% over the period to $157 million with the addition of a fifth fund, the $25 million APN Nowra Property Fund successfully closing during the period. The APN Steller Development Fund is well advanced on the completion of its sixth and final project with 108% of investors capital returned to date and the Fund being on track to deliver its target IRR of 18%. On 4 February 2019 the APN Regional Property Fund launched an equity raising transaction for the two AGrade office buildings it owns in the central business district of Newcastle, NSW. The Fund has delivered an 18.8% annualised return over the last three years and the buildings under APN’s management have been maintained at an average occupancy of 99% over the past 10 years. At an independent valuation cap rate of 7.25% which equates to a building value of $51.75 million or $5,500 per square metre of lettable area compares favourably against comparable Sydney properties at approximately $17,500 per square metre Stapling proposal progressing APN’s stapling proposal is progressing, with ASIC and shareholder approvals received or on track for receipt by the 30 June 2019 target completion timeframe. APN has flagged potential changes to the proposal subjec to the outcome of discussions with the ATO in relation to the tax treatments. Outlook and guidance reaffirmed Operating Earnings guidance is reaffirmed at 2.40 to 2.90 cps for the 2019 financial year. CQR Trading Chart vs ASX200 AREITs Blue – CQR Purple – ASX200 AREITs #APN