APN Property Group grows earnings by 12%
APN Property Group reported a statutory net profit after tax for FY2019 of $14.5 million, an increase of 7% compared to the prior corresponding period (pcp). Operating Earnings per share was 2.94 cents, an increase of 12% and exceeding the top end of the Group’s market original guidance range. Dividends for FY2019 total 2.75 cents per share (of which 1.925 cps fully franked and 0.825 cps unfranked), a 22% increase over FY2018.
APN’s Chief Executive Officer, Mr Tim Slattery, said “APN has delivered a strong set of results for the 2019 financial year with a 12% increase in our operating earnings to 2.94 cents per share with nearly all (99%) of our income being generating from recurring sources."
Funds and Performance Continue to Deliver Strong Risk Adjusted Returns
At an operational level, APN’s funds have continued strong income-focused returns as a result of active management.
The APN AREIT Fund, APN’s largest single fund which is ‘benchmark unaware’ and which aims to deliver 110% of the AREIT index’s distribution yield delivered a 10.2% return for the year. This Fund marked its 10 year anniversary from its inception in January 2009 and has delivered annualised returns since this time of 14.0%.
In 2011, the company launched the APN Asian REIT Fund, an equivalent, income-focused listed property securities fund focused on Singapore, Hong Kong and Japan. The APN Asian REIT Fund has delivered 28.9% over the year to June 2019 and 15.5% per annum since its inception in July 2011.
APN’s ‘Property for Income’ products have benefited from investors desire to generate income from investments, with strong positive capital inflows.
The APN Industria REIT was listed in 2013 with $378 million of office and industrial assets and since that time its portfolio has been built to $739 million in value. The APN Industria REIT acquired four properties during the year and raised $50 million in new equity in a very well supported transaction.
The APN Convenience Retail REIT delivered a total return for the year of 23.7% and delivered earnings (Funds From Operations) of $17.0 million, 4.3% ahead of its Initial Public Offering forecast. The Fund’s portfolio increased in value over the year by 5.3% to $358 million. The fund continues to offer investors a long 11.7 year average lease term and a portfolio leased to leading international and Australian non-discretionary retailers.
APN successfully completed the APN Steller Development Fund with an expected total return of approximately 38% and an equity IRR of approximately 17%.
APN successfully launched the $24 million APN Nowra Property Fund, offering investors a 12 year weighted average lease expiry backed by a Woolworths Limited guarantee and a 7.80% pa initial equity distribution yield.
In March 2019 the APN Regional Property Fund was recapitalised and extended for a further five year term. The Fund owns two A-Grade office buildings in Newcastle, NSW independently valued at $52 million. APN’s assessment of the opportunity was that it represented attractive value at a rate of $5,493 per square metre of lettable area compared to other A-Grade office markets.
Outlook and Guidance
APN are currently working on three new funds in both the Securities and Direct property areas of the business which are expected to be introduced to investors over FY2020.
The Board expects to pay a dividend for the full year of 2.75 cents per share which will be partially franked.
As outlined in the October 2018 explanatory materials, the Board believes it is in the company’s interests to convert itself into a stapled structure. At the 2018 APD Annual General Meeting, shareholders approved the establishment of a stapled structure by 30 June 2019 subject to the satisfaction of certain conditions including the receipt of an appropriate class ruling from the Australian Taxation Office. In May 2019 APN advised that it would not receive the necessary ruling by 30 June 2019 and therefore the stapling proposal would not be implemented by the shareholder approval sunset date of 30 June 2019. The APD Board intends to continue to work towards the restructure of APD into a stapled group. This will require further approval from shareholders prior to implementation, as well as ASIC relief or approval. Subject to receiving any necessary relief and approvals, the Board’s objective is for the restructuring to occur by 31 December 2019.
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