Increase your income by broadening your property universe Howard Brenchley Executive Director and Chief Investment Officer June 2015
Property is first and foremost an investment in an Income Stream 2
Where property ranks Share of the profit pie Revenue Sales Expenditure Salaries Rent Interest Other expenses Net profit Tax Net profit after tax Paid to landlord Paid to bankers Paid to Shareholders Property Fixed interest Equities 3
Property and Fixed Interest the similarities Fixed Interest investors lend cash, property investors lend buildings Fixed Interest investors are paid in interest, property investors are paid rent Both get paid before business owners Because no or limited real growth in payments to lenders most of the return for risk must be in the income Interest earned tends to move in line with CPI, as do rents Loan conditions are contracted and have defined terms and repayment obligations 4
Property has Growth Elements At loan expiry Fixed Interest lender is paid in cash; landlord has property returned ( reversion ) Nominal value of cash not changed; value of the building could have gone up or down This creates Reversionary risk for landlords which changes the risk profile compared to Fixed Interest It also creates a growth element for property (but not as much as Equities) 5
Income focus What is property? Rents and their cash flows give property its important defensive portfolio characteristics: CPI and fixed increases Rent is paid ahead of dividends to a tenant s shareholders Most rents cannot fall during lease term (ratchets) Leases: terms of contract defined - Predictable cash flows - Similar to interest on debt / finance leases Certain income is superior to uncertain growth 6
Three Stages of Property Investment Analysis 1. Credit Assessment Length of lease(s) and capacity of tenant (borrower) to pay rent for that term 2. Reversionary Risk - what are the prospects for the property upon departure of the tenant? Location, rental market, building quality, competition, market conditions 3. Vehicle Risk Direct, AREIT, Unlisted Trust, Strata 7
APN AREIT Risk Management We Undertake in depth research on AREITs and their properties: 1.Credit Assessment Length of lease(s) and capacity of tenant (borrower) to pay rent for that term 2.Reversionary Risk - what are the prospects for the property upon departure of the tenant? Location, rental market, building quality, competition, market conditions We have limitations on Leverage: 1.Debt Leverage appropriate level of gearing for the security of cash flows 2.Operating Leverage Limit the level of non-rental income 8
Over the long term, the greatest virtue of commercial property as an asset class is the ability to provide sustainable and growing income due to the lease contract 9
The Big Mistakes in Property Investment The value lies in the bricks and mortar. No, value it lies in the leases and rents generated by the bricks and mortar Property is a Growth Asset Class. No, in fact historically property has provided twice as much income as capital growth Most mistakes are made when investors buy property for the wrong reason You cannot lose in Bricks and Mortar. You can. Therefore avoid the other big mistake, don t over-leverage. Forget most of your residential real estate principles 10
APN Property Group is a specialist real estate investment manager APN is an ASX listed company (ASX code: APD) Established in 1996 Manages 2.1 billion* in funds Intimate understanding of commercial property Highly disciplined income focussed investment style * As at 31 December 2014 11
A leading Australian property securities fund Income focussed Monthly distributions Actively managed portfolio Lower than market volatility Daily applications and withdrawals Highly rated: SQM, Morningstar, Lonsec and Zenith Currently yielding above 6.5%pa 1 Total return 17.59 since inception 2 % pa 1. As at 3 June 2015. Current monthly distributions (annualised) divided by the latest entry unit price. Distributions may include a capital gains component. Past performance is not an indicator of future performance. 2. As at 31 May 2015. APN AREIT Fund inception 19 January 2009. Returns are calculated after all fees and expenses are deducted. Assumes distributions are reinvested. Investors' tax rates are not taken into account when calculating returns. Further information about the ratings is available at www.apngroup.com.au. General risks apply. APN Funds Management Limited is the responsible entity and issuer of the Fund. Before making an investment in the Fund you should consider important information about risks, costs and fees in the PDS available at www.apngroup.com.au or by contacting APN on 1800 996 456. Past performance is not an indicator of future returns. 12
Experience the growth story Actively managed On the ground investment team Quarterly income $1000 minimum investment Daily applications and withdrawals SQM Superior rating Total return 20.12 % pa since inception 1 1. As at 31 May 2015 (net of a management expense ratio of 1.20%). Fund inception 19 July 2011. Past performance is not necessarily an indicator of future performance. Assumes distributions are reinvested. Investors tax rates are not taken into account when calculating returns. Further information about the ratings is available at www.apngroup.com.au. General risks apply. APN Funds Management Limited is the responsible entity and issuer of the Fund. Before making an investment in the Fund you should consider important information about risks, costs and fees in the PDS available at www.apngroup.com.au or by contacting APN on 1800 996 456. Past performance is not an indicator of future returns. 13
Contact Howard Brenchley Director, APN Funds Management Ph: 0419 135 460 hbrenchley@apngroup.com.au Investor Services Hotline 1800 996 456 APN Property Group Level 30,101 Collins Street, Melbourne, Vic 3000 www.apngroup.com.au 14
Disclaimer This summary has been prepared by APN Funds Management Limited (APNFM) (ACN 080 674 479 ABN 60 080 674 479, AFSL No 237500) for general information purposes and whilst every care has been taken in relation to its accuracy, no warranty is given or implied. APNFM is a wholly owned subsidiary of APN Property Group Limited ACN 109 845 068. APNFM is the responsible entity and issuer of the APN Property Group products. The information in this document is current only as at 18 March 2014 or as otherwise stated. This document is for information purposes only and only intended for the audience to who it is presented. This document comprises general financial advice only. The information provided does not constitute investment advice and does not purport to contain all relevant information necessary for making an investment decision. It is provided on the basis that the recipient will be responsible for making their own assessment of their financial needs and will seek further advice about the investment as is considered appropriate. Returns shown are for retail investors, net of fees and costs and are annualised for periods greater than one year. Returns and values may rise and fall from one period to another. Past performance is not an indication of future performance. This presentation may contain certain forward-looking statements regarding future events and the future financial performance of APN funds, including statements regarding forecast earnings and distributions, net tangible asset backing, anticipated gearing and property market fundamentals. Actual outcomes may differ materially from these forward-looking statements and no representation or warranty is given in relation to these including as to their completeness or accuracy on the basis on which they were prepared. This presentation contains statements that are subject to risk factors associated with an investment in APN funds and the industry in which APN operates. General risks apply to an investment in APN funds and must be considered before making an investment. In deciding whether to invest or continue to hold an investment in APN funds, a person should obtain a copy of the Product Disclosure Statement for the relevant fund and consider its content. We recommend that a person obtain financial, legal and taxation advice before making any financial investment decision. A copy of the PDS is available from APN Funds Management Limited, at Level 30, 101 Collins Street, Melbourne 3000 or by visiting www.apngroup.com.au. No warranty is made as to the accuracy or reliability of any estimates, opinions, conclusions, recommendations (which may change without notice) or other information contained in this document and, to the maximum extent permitted by law, APNFM disclaims all liability and responsibility for any direct or indirect loss or damage which may be suffered by any recipient through relying on anything contained in or omitted from this document. This material shall not be reproduced or used for any other purpose without the express permission of APNFM. The rating contained in this document is issued by SQM Research Pty Ltd ABN 93 122 592 036. SQM Research is an investment research firm that undertakes research on investment products exclusively for its wholesale clients, utilising a proprietary review and star rating system. The SQM Research star rating system is of a general nature and does not take into account the particular circumstances or needs of any specific person. The rating may be subject to change at any time. Only licensed financial advisers may use the SQM Research star rating system in determining whether an investment is appropriate to a person s particular circumstances or needs. You should read the product disclosure statement and consult a licensed financial adviser before making an investment decision in relation to this investment product. SQM Research receives a fee from the Fund Manager for the research and rating of the managed investment scheme. The Zenith Investment Partners ( Zenith ) ABN 60 322 047 314 rating (assigned July 2013) referred to in this document is limited to General Advice (as defined by section 766B of Corporations Act 2001) and based solely on the assessment of the investment merits of the financial product on this basis. It is not a specific recommendation to purchase, sell or hold the relevant product(s), and Zenith advises that individual investors should seek their own independent financial advice before investing in this product. The rating is subject to change without notice and Zenith has no obligation to update this document following publication. Zenith usually receives a fee for rating the fund manager and product against accepted criteria considered comprehensive and objective. 2013 Morningstar, Inc. All rights reserved. Neither Morningstar, nor its affiliates nor their content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. To the extent that any of this information constitutes advice, it is general advice and has been prepared by Morningstar Australasia Pty Ltd ABN: 95 090 665 544, AFSL: 240892 and/or Morningstar Research Limited (subsidiaries of Morningstar, Inc.) without reference to your objectives, financial situation or needs. You should consider the advice in light of these matters and, if applicable, the relevant Product Disclosure Statement (in respect of Australian products) or Investment Statement (in respect of New Zealand products) before making any decision to invest. Neither Morningstar, nor Morningstar s subsidiaries, nor Morningstar s employees can provide you with personalised financial advice. To obtain advice tailored to your particular circumstances, please contact a professional financial adviser. Please refer to our Financial Services Guide (FSG) for more information www.morningstar.com.au/fsg.asp The Lonsec Limited ( Lonsec ) ABN 56 061 751 102 rating (assigned May 2013) presented in this document is a class service (as defined in the Financial Advisers Act 2008 (NZ)) or is limited to General Advice and based solely on consideration of the investment merits of the financial product(s). It is not a recommendation to purchase, sell or hold the relevant product(s), and you should seek independent financial advice before investing in this product(s). The rating is subject to change without notice and Lonsec assumes no obligation to update the relevant document(s) following publication. Lonsec receives a fee from the Fund Manager for researching the product(s) using comprehensive and objective criteria. APN Property Group Limited 15