This Christmas, my wife Fiona and I are taking our three pint-sized back seat drivers (Lulu, 7, Max, 5, and Monty, two and a half) around New Zealand’s South Island in a campervan. This probably isn’t everyone’s idea of relaxation but I’m really looking forward to it!
The summer break is a unique time of year, an opportunity to disconnect from the daily information deluge and reflect on the laundry list of concerns that seem at least as long as in previous years. There’s Bitcoin; the overheated/depressed housing market, depending on whom you read; Amazon supposedly ringing retail’s death knell; low wages growth; and the future direction of interest rates.
Trying to think more long term (hopefully from a couch mid-way through the afternoon session of the cricket), I’m confident these concerns are overdone and that our business and your investments with us remain in an excellent position.
Of course, markets will go up and down and risk is ever-present. Part of the value APN is being paid for is to keep a close eye on these risks, to manage them accordingly but most of all, to look beyond short-term concerns towards the bigger picture.
The bigger picture suggests that high quality commercial property delivering a reliable income stream remains a great investment. Despite a strong run in property asset values this has not changed, nor is it likely to if there’s further movement in those prices – up or down.
One of the great things about our business is its simple, income-driven philosophy. If our investors are getting 6-7% a year as a rental income yield that’s an excellent first step towards a satisfying total return over the long term. This is a big part of how we think about the world and investing in it, one I think worth sharing with you.
That brings me to one of the biggest apparent threats investors will be thinking about this Christmas – Amazon. I recall Costco heralding the demise of Coles and Woolworths in Australia. The threat certainly materialised but the demise of the big two supermarket chains did not. The same could be said of Aldi’s arrival more than 15 years ago.
Without wishing to sound complacent, I think there’s a good chance a lot of the concerns regarding Amazon are also overdone (see Property trusts: what could go wrong (Part 3 – The Amazon threat) for our take on the issue). The sort of pragmatic, long term view expressed in this research doesn’t make for eye-catching headlines but it has contributed to APN’s long history of outperformance.
At the heart of this is our team of highly experienced, capable people that live and breathe our property-for-income strategy. Their cautious, risk-averse mentality is reflected not just in our investments but also our modest levels of debt across our funds and a net cash position in our management company.
Our focus on investing in property for its income has and continues to serve investors well. Owning good quality commercial property delivering a reliable cash income stream might be a simple idea but it’s one that works. In an environment which appears to offer ever more uncertainty, APN has delivered strong income returns over the medium to long term. I believe we are as well placed as we have ever been to continue to deliver those returns into the future.
One final point; in conversations with overseas investors recently, I have been reminded that despite our politics, bureaucracy and the abundance of sore points mentioned above, the average Australian enjoys a very good lifestyle with a fantastic environment, a respect for the rule of law and access to high quality healthcare and education. This is a great place to live, to raise a family and to enjoy a fulfilling retirement.
Of course, a lot of Aussies are doing it tough and we can’t look past them, particularly at this time of the year. Shaun Oliver’s family, for example (Shaun died in September while rescuing four children caught in a rip) face a very difficult Christmas. His bravery and selflessness was extraordinary and I’m pleased that one of the things our team was able to do during the year was to come together to support Shaun’s family.
We are tremendously grateful for the support and confidence our investors and partners place in us. I also very much appreciate the efforts of our team, which has worked diligently through 2017 to meet or exceed our performance objectives and the service expectations you have of us.
We all hope you have a fantastic and safe Christmas and holiday period and we look forward to working with you in 2018.