APN Property Group (APD) provides a unique leverage play on the REIT sector given just over half of its FUM sits in unlisted property securities funds. In this note we consider the mark-to-market impacts to APD from market movements in the REIT sector and share prices for Generation Healthcare REIT (GHC) and Industria RET (IDR). We maintain our BUY recommendation.
Investment Highlights
Price target – $0.54 per share (based on our NAV).
FY17 P/E of 13.3x
FY17 EPS growth of -3.4% assumes no future performance fees for Generation Healthcare REIT.
Unlisted Property Securities Funds
Since 31 Dec, REITs have delivered strong relative share price performance, delivering 11% compared to only 1% for the broader ASX200 market.
APD’s website shows its flagship A-REIT Fund currently has $1.13bn in FUM, +13% since 31 Dec.
This implies fund flows have slowed to ~$6m p/month, from ~$13m p/month in 1H16. Although, this appears to be due to a particularly weak start to the year given stronger market volatility, and since then net flows have returned closer to their previous levels.
We estimate that a 5% movement in the REIT sector broadly has a 2% impact on APD’s earnings.
Listed REIT Funds – IDR/GHC
While Generation Healthcare REIT (GHC) continues to be a market darling, at present APD looks unlikely to receive a performance fee in 2H16.
Generally, a 10c movement in GHC’s share price will lead to a 1c movement in our NAV valuation for APD.
We also note a 10c movement in the Industria REIT (IDR) share price will lead to a 1c movement in our NAV valuation for APD.
Earnings Revisions and Valuation
We revise our EPS estimates by 1% in FY16 and 2% in FY17, reflecting new FUM levels for property securities funds and the new $50m wholesale mandate recently announced.
Our NAV valuation for APD increases to $0.54 (was $0.51) based on recent increases in GHC share price.
APD Price at posting:
45.0¢ Sentiment: Buy Disclosure: Held
