APN Property Group (APD) Buy Share Price: A$0.41

Transcription

1 APN Property Group (APD) Buy Share Price: A$0.41 Success in direct syndicates Target Price: A$0.51 Direct property syndicates have always been an integral part of the APN Property Group (APD) business. While currently they only comprise 13% of total FUM, historically that number has been closer to a quarter, and reflects a number of Funds being recently wound up, and having delivered investors some spectacular returns. From APD s perspective the attraction of these type of funds is their: (i) illiquidity which makes them sticky money ; and, (ii) superior FUM to Fee ratio compared to other funds in their stable. Our forecasts assume APD launches $50-75m in new syndicates p.a. We maintain our BUY recommendation. Investment Highlights NTA of 32.5 cps FY18 P/E of 11.0x FY17 Funds Management Initiatives For six years during the Credit Crisis APD did not launch any new syndicates, given a lack of demand and falling commercial property values. Although, the group did continue to managed a number of syndicates such as the Property Plus Portfolio (petrol station assets), Regional Property Fund (regional commercial property), and the National Storage Trust (storage facilities which were sold into the National Storage IPO). In February 2013 APD re-entered the market with the launch of the 541 St Kilda Rd Fund, and has since launched a number of new funds; Coburg North Retail Fund, APN Steller Residential Development Fund, Newmark APN Auburn, Retail Property Fund (Puma Energy), which clearly indicates the syndicates distribution channel for APD is well and truly open again, comprising a total of $226m in new FUM. Two of those Funds, 541 St Kilda Rd Fund and Newmark APN Auburn, have subsequently been wound up, delivering investors 30% and 55% returns respectively over a year. Earnings Revisions and Valuation No Change to our forecasts. Our valuation for APD remains at $0.51cps based on our NAV valuation. Company Data Shares ordinary (M) Dilution (M) 6.7 Total (fully diluted) (M) Market capitalisation ($M) month low/high ($) 0.32 / 0.54 Average monthly turnover ($M) 2.4 Index All Ordinaries GICS Industry Diversified Financials Financial Summary (fully diluted/normalised) Year end June 2015A 2016A 2017F 2018F 2019F Net Income ($M) Costs ($M) EBITDA ($M) NPAT (adj.)($m) EPS ( ps) EPS Growth (%) PER (x) Free Cashflow ($M) FCFPS ( ps) Enterprise Value ($M) EV / EBITDA (x) Dividends ( ps) Payout ratio (%) Yield (%) Franking (%) APD performance over one year $0.55 $0.50 $0.45 $0.40 $0.35 $0.30 $0.25 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Disclosure and Disclaimer This report must be read with the disclosure and disclaimer on the final page of this document. Jonathan Kriska

2 APD s Direct Syndicate Business Overview Direct property syndicates, unlisted trusts which own physical real estate, have always been an integral part of APD s business. However, for six years during the Credit Crisis APD did not launch any new syndicates, given a lack of demand and falling commercial property values. Although, the group also continued to managed a number of syndicates such as the Property Plus Portfolio (petrol station assets), Regional Property Fund (regional commercial property), and the National Storage Trust (storage facilities which were sold into the National Storage IPO). In February 2013 APD re-entered the market with the launch of the 541 St Kilda Rd Fund, and has since launched a number of new funds; Coburg North Retail Fund, APN Steller Residential Development Fund, Newmark APN Auburn, Retail Property Fund (Puma Energy), which clearly indicates the syndicates distribution channel for APD is well and truly open again. Measuring APD s success in this channel by FUM growth would be misguided, given a number of these newer Funds have been wound up, having returned investors some spectacular returns. From APD s perspective the real attraction of these type of funds is their illiquidity which makes them sticky money and the superior FUM to Fee ratio they provide (Figure 3). Figure 1: Syndicates FUM Growth (excluding recent Retail Property Fund) Figure 2: APD FUM Platform (30 June 2016) Figure 3: Average FUM/Fee Ratio % REITs 25% 1.20% 1.00% 1.24% 1.03% 0.80% Syndicates 13% Property Securities 62% 0.60% 0.40% 0.20% 0.46% 0.48% 0.00% Property Securities Syndicates GHC IDR 2

3 Recent Funds 541 St Kilda Rd Fund (wound up) In February 2013 APD launched the APN 541 St Kilda Road Fund and raised capital of $19.1 million to invest in an eight storey commercial office building located at 541 St Kilda Road. The building had been substantially refurbished and is close to 80% leased to SEEK Limited. The Fund offered an initial forecast distribution yield of 9.0% pa. In March 2014 the group announced it had sold the building for a price of $35.8m, which was a 27.7% premium to the purchase price and well above the December 2013 valuation of $30.6m. The fund will now be wound up, delivering a forecast total return to investors in excess of 30%. Figure 4: Fund Details Commercial office building at 541 St Kilda Road, Melbourne Total Assets: $28 million Gearing: 45% Base management fee: 0.75% pa of the Gross Asset Value Acquisition fee: 2.00% of the gross purchase price of the Property (excluding transaction costs). Disposal fee: 1.00% of the gross disposal price of the Property. 20% of the amount by which the Fund s Internal Rate of Return exceeds the Target Rate of Return of 12% pa. Newmark APN Auburn Fund (wound up) In June 2014 APD launched the Newmark APN Auburn Fund in a 50/50 joint venture with Newmark Property Group. The Fund acquired and redeveloped the Lidcombe Power Centre into a full line sub-regional retail centre. APD raised capital of $25.0 million with a target IRR return of 20% per annum. In February 2015 APD announced it had sold the completed development, delivering investors a 50%-60% ROE in about a year. Figure 5: Fund Details 6 years Total Costs: Total Debt: Project initiation fee: Development Mngt fee: To acquire, redevelop and convert the Lidcombe Power Centre into a full line sub-regional retail centre to be known as The Marketplace Auburn. $105,000,000 $80,000,000 $1,630,000 $1,600,000 20% of the amount by which the Fund s Internal Rate of Return exceeds the Target Rate of Return of 12% pa. 6-8 years Coburg North Retail Fund In November 2014 APD launched the APN Coburg North Retail Fund and raised $11.1m from retail investors, to invest in a new neighbourhood shopping centre located in the inner city suburb of Coburg Hill, Melbourne. The centre is leased to Woolworths (58% of rent) on a 20 year lease with the remainder leased to seven specialty tenants. The Fund offered an initial forecast distribution yield of 7.0% pa. The Fund continues to run its course. 3

4 Figure 6: Fund Details Neighbourhood shopping centre located in Coburg Hill, Melbourne Total Assets: $18.9 million Gearing: 50% Base management fee: 0.60% pa of the Gross Asset Value Acquisition fee: 1.50% of the gross purchase price of the Property (excluding transaction costs). Disposal fee: 1.00% of the gross disposal price of the Property. 20% of the amount by which the Fund s Internal Rate of Return exceeds the Target Rate of Return of 10% pa. 6 years Steller Development Fund In July 2015 APD launched the Steller Development Fund in a 50/50 joint venture with residential developer Steller Pty Ltd. The purpose of the Fund was to develop six apartment development sites in Melbourne. APD raised capital of $18.1 million with a target IRR return of 15% per annum. The Fund continues to run its course. Figure 7: Fund Details Total Costs: Total Debt: Base management fee: Project initiation fee: Development Mngt fee: Sales Agencyt fee: Profit Share to Steller: To develop a portfolio of 6 apartment development sites in Melbourne $106,000,000 $80,000,000 $30,000 p/month $506,000 2% of gross relisable va 2% of gross relisable va 50% of Profits 7 years APN Retail Property Fund In December 2016 APD launched the APN Retail Property Fund, which will own a portfolio of 23 Puma Energy Service Stations valued at $106.1 million. APD has received equity commitments in excess of the $70 million required and the Fund is forecast to provide a starting equity distribution yield of 7.40% pa. APN is in continuing discussions regarding a number of additional properties which may be included in the Fund at a future point in time which may take the total portfolio size to approximately $350 million (including approximately $80 million of assets currently managed by APN in the APN Property Plus Portfolio). A potential future listing of the Fund on ASX is also under consideration. Figure 8: Fund Details 23 Puma Service Stations, many with complementary fast food and convenience retailers. Total Assets: $106.1 million Gearing: 42% Base management fee: 0.65% pa of the Gross Asset Value Acquisition fee: Nil Disposal fee: Nil After ASX listing, APN FM will be entitled to a market based performance fee which will be disclosed in the IPO prospectus ASX listing or two years 4

5 Analysis APN Property Group (APD) Year end 30 June MARKET DATA Recommendation BUY Share Price $ 0.41 Price target (12-month) $ week high / low $ 0.32 / 0.54 Market capitalisation $m Shares on issue (basic) no Options / rights no. 0.0 Other equity no. 6.7 Shares on issue (diluted) no MONTH SHARE PRICE PERFORMANCE APD XKO PROFIT AND LOSS FY15 FY16 FY17e FY18e FY19e INTERIM SUMMARY 2H15 1H16 2H16 1H17 2H17 Recurring Fees $m Recurring Fees $m Transactional Fees $m Transactional Fees $m Co-investment & Other $m Co-investment & Other $m Net Income $m Net Income $m Operating Expenses $m (13.6) (14.2) (12.1) (12.7) (13.4) EBITDA $m EBITDA $m EBIT $m Depreciation & amortisation $m (0.1) (0.2) (0.2) (0.2) (0.2) Net interest $m (1.4) (0.6) 0.1 EBIT $m FX Gain/(Loss) $m Net interest $m 0.2 (1.0) (0.4) Pretax Profit $m FX Gain/(Loss) $m Tax expense $m (1.4) (3.3) (1.3) (1.5) (2.0) Pretax Profit $m Minorities/Preference dividend $m (1.0) (3.3) (0.7) Tax expense $m (2.9) (4.6) (3.5) (5.1) (6.0) Operating NPAT $m Minorities/Preference dividend $m (2.0) (4.1) Significant items $m Operating NPAT $m Reported NPAT $m Significant items $m Reported EPS (diluted) Reported NPAT $m Normalised EPS BALANCE SHEET FY15 FY16 FY17e FY18e FY19e PER SHARE DATA FY15 FY16 FY17e FY18e FY19e Cash $m Reported EPS (diluted) Receivables $m Normalised EPS (diluted) Inventory $m Growth % (36.4) Investment Properties $m Investments $m Operating cash flow per share (10.5) Prop, plant & equip $m Free cash flow per share (10.6) Intangibles $m FCF yield % (26.2) Other $m Total assets $m Dividend Payables $m Payout % Borrowings $m Yield % Other $m Franking % Total liabilities $m Net assets $m NTA ($/share) $ Equity $m Minorities $m VALUATION DATA FY15 FY16 FY17e FY18e FY19e Shareholder's equity $m P/E (normalised EPS) x Price to Free cash flow p/share x (3.8) Shares on issue m Price to Book x Price to NTA x CASH FLOW FY15 FY16 FY17e FY18e FY19e Enterprise value $m EBITDA $m EV/EBITDA x Net interest $m 0.2 (1.0) (0.4) EV/EBIT x Tax paid $m (2.9) (4.6) (3.5) (5.1) (6.0) Other $m (41.3) (1.0) (0.9) GROWTH PROFILE FY15 FY16 FY17e FY18e FY19e Operating cash flow $m (32.9) Net Income % (29.1) Capital expenditure $m (1.6) (0.0) (0.4) (0.4) (0.4) EBITDA % (39.3) Acquisitions/divestment/other $m (14.7) (5.1) EBIT % (39.6) Investing cash flow $m (16.3) (5.6) Operating NPAT % (21.6) Equity $m Operating EPS % (36.4) Increase / (decrease) in borrowings $m (5.0) 36.5 (36.4) DPS % (85.1) Other Financing $m Dividends $m (2.8) (9.0) (37.4) (6.7) (8.1) LEVERAGE FY15 FY16 FY17e FY18e FY19e Financing cash flow $m (73.8) (6.7) (8.1) Net debt $m (20.3) (35.6) (0.3) (4.8) (4.6) Net cash flow $m (71.6) 4.5 (0.2) Gearing (net debt / EBITDA) x (1.7) (1.8) (0.0) (0.3) (0.2) Leverage (net debt / (net debt + equity) % (26.7) (35.1) (0.3) (4.5) (4.0) Free cash flow $m (33.3) Interest cover (EBIT / net interest) x n/a n/a n/a n/a n/a DUPONT ANALYSIS FY15 FY16 FY17e FY18e FY19e KEY RATIOS FY15 FY16 FY17e FY18e FY19e Net Profit Margin % 27.2% 30.4% 33.6% 39.9% 42.0% EBITDA margin % Asset Turnover x 0.2x 0.1x 0.2x 0.2x 0.2x EBIT margin % Return on Assets % 6.5% 4.5% 6.7% 9.1% 10.3% NPAT margin % Financial Leverage x 1.1x 1.7x 1.1x 1.2x 1.2x ROE % Return on Equity % 7.2% 7.7% 7.7% 10.5% 11.9% ROA % Source: Petra Capital 5

6 Petra Capital Level 17, 14 Martin Place, Sydney NSW 2000 ABN ACN AFSL Director: George Marias +61 (0) Research (Industrials): Michael Henshaw +61 (0) Research (Industrials): George Kopsiaftis +61 (0) Research (Industrials): Nick Berry +61 (0) Research (Industrials): Killian Murphy +61 (0) Research (Industrials): Daniel Porter +61 (0) Research (Property): Jonathan Kriska +61 (0) Research (Resources): Brett McKay +61 (0) Research (Resources): Matthew Schembri +61 (0) Sales: Frank Barila +61 (0) Sales: Shane Gavegan +61 (0) Sales: Mark Innes +61 (0) Sales: Richard Macphillamy +61 (0) Sales: Vincent Pisani +61 (0) Sales: Michael Vincent +61 (0) Sales: Colin Redmond +61 (0) Sales: Daniel Gardiner +61 (0) Sales: Peter Veldhuizen +61 (0) Corporate (ECM): Conrad Anderson +61 (0) Corporate (ECM): David Wallis +61 (0) Administration: Krystle Garven +61 (0) Administration: Amelia Holland +61 (0) Administration: Samantha Tingley +61 (0) Administration: Silvia Fratta Pasini +61 (0) Administration: Larissa Falvo +61 (0) Legal & Compliance: Stephen Newton +61 (0) Financials: Tony Christelis +61 (0) Disclosure This document has been prepared in Australia by Petra Capital Pty Ltd which holds an Australian Financial Services License AFSL Petra Capital Pty Ltd is an ASX Market Participant. 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