27/02/2006 - 15:19

Aspen continues strong earnings growth

27/02/2006 - 15:19

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Perth-based Aspen Group Ltd has posted a net profit after tax of $7.63 million for the half year, an increase of 154 per cent on the corresponding period last year.

Aspen continues strong earnings growth

Perth-based Aspen Group Ltd has posted a net profit after tax of $7.63 million for the half year, an increase of 154 per cent on the corresponding period last year, with the company's board of the belief that Aspen is well placed to achieve its full year forecasts.

The company's total revenue rose 101 per cent to $17.9 million, while earnings per security increased 42 per cent to 6.162 cents per security.

Aspen Group says the results continue it's "excellent track record of delivering strong earnings and distribution growth and was delivered largely on the back of growing property rental and funds management income."

 

The edited ASX announcement is below:

 

Aspen Group (ASX:APZ) is pleased to present a review of the half year performance of Aspen Group to 31 December 2005.
Half Year Highlights

  • Net Profit after tax increased by 154% to $7.63 million
  • Total revenue up 101% to $17.9 million
  • Earnings per security increase of 42% to 6.162 cents per security (cps)
  • Distributions per security increase of 7.8% to 4.5 cps
  • Growth in distributions continues to be supported by current period earnings
  • Assets under management increased from $300 million to $517 million
  • NTA increased 11% to $0.90
  • Significant growth in funds management income
  • Capital raising of $62 million to fund additional property acquisitions and reduce gearing
  • Capital consolidation on a 1 for 5 basis
  • Reduction in Group gearing from 60% to 34%
  • Capital raising of $52 million in Funds Management entities
  • Fund portfolios continue to expand on East Coast
  • All Aspen managed Unlisted Funds achieved forecast distribution returns

Financial Performance

Aspen Group declared a net profit after tax of $7.63 million for the half year. This continues Aspen's excellent track record of delivering strong earnings and distribution growth and was delivered largely on the back of growing property rental and funds management income. Aspen's exposure to the buoyant Western Australian economy has seen both rental and occupancy rates increase throughout the period.

Quarterly distributions for the half year were in line with forecasts and represented an increase over the corresponding period of 7.8%. Aspen Group has announced a further upward revision to its distribution rate with the second half rate increasing from 2.25 cps to 2.625 cps per quarter, a 26% increase over the June 05 quarterly distribution rate.

Property revenue has also risen significantly during the period as a result of a full half year contribution from the $100 million of property acquired post October 2004.

The introduction of Australian equivalents to International Reporting Standards (AIFRS) resulted in the recognition of $0.368 million to account for movement in the value of the Group's hedge book.

Overheads have increased in dollar terms mainly through the addition of several key executives, considered necessary by the Board to support the growth in assets and funds management activities undertaken by the Group.

Borrowing charges have increased in line with the higher debt levels associated with the asset acquisitions as discussed above. The average cost of debt inclusive of margin remains competitive at 6.53%. As interest rates remain historically low the Directors continue to take a prudent approach to the Group's hedging strategy. As at 31 December, some 73% of the total net debt (debt less cash) was hedged through long term interest rate swap arrangements.

Capital Management

Aspen undertook two capital raisings during the half year, both intended to fund the growing funds management division and maintain a prudent gearing level.

$40 million was raised in October via placement to institutional investors to provide both debt and equity support to enable several property acquisitions for the Aspen Parks and Aspen Diversified Funds and to reduce Group debt.

A further $22 equity placement was completed in December 2005 to provide debt and equity support for a further acquisition for the Aspen Diversified Property Fund, and the acquisition of the Dunsborough Lakes golf course estate by the newly created Aspen Dunsborough Lakes Limited.

At the Group's AGM, approval was received for the consolidation of Aspen's issued capital on a one for five basis. The reorganisation of capital was completed on 13 December 2005.

Aspens market capitalisation as at 31 December was $203 million, based on a security price of $1.22.

Investment Portfolio

A combination of Aspen's exposure to the buoyant Western Australian economy and continued focus on its property management activities saw investment property rental income increase during the period. The Group's strong focus on leasing activity, partially undertaken in-house, has contributed to an average occupancy rate across the portfolio of 98% at the end of the period, while the weighted average lease expiry remains healthy at 5.6 years.

There were no significant property acquisitions during the period while two of the Group's smallest assets being Midland Cinemas Complex and Champion Drive Shopping Centre were sold to the Aspen Diversified Property Fund for $6.15 million and $7.6 million respectively. The portfolio remains well diversified across both sectors and geographically.

Aspen's investment in unlisted funds managed by the Group lifted substantially during the half year. The Board believes this commitment to a cornerstone investment of approximately 20% demonstrates Aspen's confidence in its funds management activities while providing further diversification to the investment portfolio. Aspen has lifted its investment from $3.1 million to $11 million as at 31 December 2005. This has increased further subsequent to period end with an $8 million (20%) equity investment into Aspen Dunsborough Lakes Limited and increase of $7.6 million in the Aspen Diversified Property Fund.

Funds Management Growth

Both funds management income and assets under management grew significantly through the period. The Group's strategy of establishing open ended funds with the potential for significant recurring acquisition, management and success fee income continues to underpin the growth of the Group. Funds management income grew by 325% over the comparative period to $6.37. A combination of growth in existing funds as well as the establishment of new funds underpinned the higher revenue streams.

Assets in the Aspen Parks Property Fund grew by $27 million during the period. The total number of resort parks increased from nine to thirteen and Aspen Parks is now represented in all mainland states apart from South Australia. The Fund is well ahead of target to meet its objective of total assets of $150 million within five years of commencement. Total fee income from Aspen Parks for the period was 67% higher than the corresponding period.

The Aspen Diversified Property Fund was established to concentrate on properties in the range of $5m to $30 million. This sector has historically been passed over by institutional investors, and in Aspen's view represented an ideal opportunity to create a distinctive investment fund for predominantly retail investors. Acquisitions during the period saw the fund's total assets increase from $39 million to $142 million. Revenue of $4.6 million was generated from this Fund for the period.

In both of the above funds, management and success fees are positioned to increase through the growth of the fund, while the addition of more properties to the fund will also see additional income from establishment fees.

During the period, Aspen Group agreed to acquire the Dunsborough Lakes golf course estate, a substantial land subdivision project in the south west of Western Australia. Aspen established a special purpose management entity, Aspen Dunsborough Lake Limited, to own the property and continue the development. Aspen Dunsborough Lakes Limited is targeted towards institutional investors. The estate was acquired for $93.7 million and the project is estimated to produce 1447 lots created over a 12.5 year period. Settlement on the property was completed as scheduled on 24 January 2006, with fee income to commence in the second half of FY 2006.

Management are continuing to pursue additional opportunities in the areas of asset acquisition and structuring for private syndication purposes. Aspen expects to derive additional income growth through structuring and management fees from these transactions. These assets will generally remain off balance sheet in line with Aspen's aim to produce quality non-dilutive income to increase return on capital to securityholders while limiting exposure to traditional development risk.

Outlook

Aspen has experienced an exceptional growth period in the six month period to 31 December 2005, in line with the Board's strategy, and underpinning substantial and recurring revenue streams. A stable investment portfolio, growing funds management assets and higher revenues all a result of the foundation established in previous years, provide a sound platform on which the Group will continue to expand and reward its very supportive securityholder base.

Aspen's security price has performed strongly against the ASX property trust index during the period yet remains well priced, reflecting an annualised distribution yield of 8.6% and earnings yield of 9.4% as at 31 December based on the Groups earnings guidance announced in December 2005.

Following a strong first half result the Board believes Aspen is well placed to achieve its full year forecasts. We look forward to providing continued updates on the growth and performance of the Group's investment portfolio and managed funds and to reporting a strong full year result.

 

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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