Simon - as one of the few APN holders on HC, what are your views...

Simon - as one of the few APN holders on HC, what are your views on the company and why do you rate them ahead of other listed managers?

My perspective, is a few things
1) Company Mgmt own 54% of the business (mostly NE Chairman). Rarely do you see that alignment of interests with shareholders.
(Maybe Beacon Lighting, or 360 Capital are a few that I watch)...

2) Organic Growth. In a Funds Management Sector where M&A is such an easy (lazy?) avenue for growth, I think I prefer APN's organic style, in contrast with say, Centuria, Growthpoint or Cromwell. APN listed funds (Industria and Convenience) were both build by the company over time. Excessive M&A eventually leads to costly mistakes and writedowns.

3) Net cash. Generally a positive, though I would argue that the company could have down something in the way of special div or sharebuybacks following the launch (and sale) of the Nowra property fund.

4) Co-investments and huge non-recurring income. APN has such a large stake in its funds that teh co-investment income makes the business a semi-REIT structure / semi fund manager. Given that I don't mind exposure to their underlying investments I am fine with this position. And thing this will double the upside on an potential exits (like it did on Generation Healthcare, there was a healthy Capital Gain on their holding of GEN shares. I believe that they will exit Industria at some stage (Growthpoint own 20%, must be on their radar).

The less good....
A) Executive options were recently 'reset' that is, CEO and CFO both hold significant options that will vest if the business reaches 2.8c of operating earnings (sorry, this is from memory, so apologies if the figures not 100% accurate). I don't think these guys are 'underpaid' by any measure, so I think this was a bit generous of the board.

B) Company s ridiculous cheap, when considering the slide that they alwasy include their presentations, which shows the underlying value of the business relative to shareprice. And you end up with a Fund Management platform worth 6c per share (or $20M or something equally pathetic). When you look at the multiples that RE fees for platforms generates this is sooo sooooo cheap.
With 10M+ net cash, its time for some agreessive Share buybacks please.

C) Havent quite right sized their cost base. I feel that they would have some pretty high cost divisions (Direct Property) which do not warrant the staff levels relative to the FUM, and the structural shift away from Direct to Listed REITs made my the business. There isn't much commentary of the business around costs / restructuring etc, but this just my view.

D) The AREIT fund (50% of FUM) looks to have reached maturity, "cash cow" status. Fum has been going sideways at $1250M (+/- 20m) for past 2 years. Though there is growth in other areas, so this isn't that drastic. Not unless the Fund faces heavy competition from low fee index funds (in Property). But this is an equal risk for any fund manager.

Oops, long post. But good luck to all.