Aspen Property Group’s significant scope for future earnings
ADRIAN EZQUERROTHE AUSTRALIAN12:00AM MAY 31, 2016
In terms of capital management, APZ management has several options.
After a tumultuous period for investors in Aspen Property Group, value is emerging.
Formed in 2001, APZ is transitioning towards the “value-for-money” accommodation sector.
APZ recently divested interest in the Aspen Parks Property Fund (APPF) and so realised a substantial amount of cash.
APZ was effectively outbid for the unlisted fund by Discovery at a significant premium to book value, while the group received a $5 million payment for the management rights it relinquished.
The silver lining is the fact that APZ now sits on a net cash balance of $61m or 54c a share. Cash accounts for nearly half the group’s market capitalisation.
In addition, APZ owns five holiday and accommodation parks across Australia as well as the Spearwood South industrial property in Western Australia. This is a fully leased, high- yielding property in Perth that is conservatively valued on APZ’s books. If a transaction were to take place on this asset in today’s market, it would arguably add up to 10c a unit to the net asset value of the group.
In terms of capital management, APZ management has several options, including the acquisition of income-producing properties, a buyback and paying out a healthy level of distributions. Indeed, all three appear likely over the coming months.
In what would be an important driver of earnings and distribution growth, APZ management will look to sensibly deploy its substantial cash reserves by way of an acquisition program.
Management also recently announced an “on-market” buyback that might reduce shares on issue by up to 10 per cent. Given the substantial existing discount to per-share net tangible asset backing of $1.31, this a capital management that builds value.
We are also attracted to the high distribution yield on offer. APZ is due to go ex a 4.6c distribution in June, which when annualised equates to a yield of about 7.9 per cent.
Given the interest rate environment, this should begin attracting attention for those seeking to switch low-yielding cash reserves into a solid, higher- yielding option.
Looking ahead, there is significant scope for earnings over the next three years, driven by acquisitive and organic means.
Ultimately, such a strategy will result in APZ having a growing book of recurring rental income.
Adrian Ezquerro is a senior analyst at Clime Investment Management
www. clime.com. au
Aspen Group
ASX code: APZ
Share price: $1.16
Industry: Real Estate
Forecast Distribution: 9.2c per security
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