Aspen fund’s uncertain future

UNCERTAINTY surrounds the future income of Aspen Group's ailing property fund as the Perth-based company seeks to avoid a fire sale of its portfolio of office, retail and industrial complexes.

Major changes to two tenants of the Aspen Diversified Fund - the liquidation of Henderson boat builder Trailcraft and the closure of Holeproof's manufacturing business in Victoria - are weighing on a highly geared portfolio already under stress after breaking its loan covenants.

Researcher Lonsec said it was concerned about the sustainability of the product's future income due to the uncertainty of the tenants, according to a report obtained by WA Business News.

Lonsec also noted that more than half of the fund's tenants had leases that expire within three years, which is above the sector norm for diversified property funds, causing further income uncertainty.

Last month, Aspen issued an entitlement offer to raise a minimum $15 million in order to adhere to a new loan facility with lender National Australia Bank.

The fund breached its loan covenants after getting caught with a highly geared portfolio as the credit crunch took hold.

Aspen Group managing director Angelo Del Borrello said reduced sector inflows, following the problems at Centro Properties Group, and softening valuations meant the product was leveraged more than he would have liked.

"What's occurred in this fund is no different to what's happening in the property sector," Mr Del Borrello told WA Business News.

But Lonsec did list a "comparatively high level of gearing" as a weakness of the fund as early as May 2007. Funds use leverage to obtain returns that an investment would otherwise not be able to produce, albeit with extra risk.

Aspen Group, in its different incarnations, has never shied away from trying to develop business opportunities. The company, under different management, used to be known as Boss Resources, which had a gold project in Nicaragua.

In 1999, the company caught dot.com fever and bought national online business directory aussie.com.au, before shifting focus two years later when it unsuccessfully sought backers to develop a spectator-free racetrack in South Australia designed for online betting.

Aspen is a major cornerstone investor in its suite of products, which promoters say represents a strong alignment of interests between Aspen and unit-holders. Detractors consider it to be proof of investor aversion to the portfolios, claiming Aspen is an unwilling major investor.

Shareholders recently supported the company through a successful $80 million capital raising.

Aspen has ruled out recapitalising the diversified fund on the grounds that shareholders could not be expected to underwrite all risks linked to the product, as Aspen Group was already the single largest investor ($20 million) and a major unsecured financier.

Mr Del Borrello said 70 per cent of the fund's assets would have to be sold if the $15 million wasn't raised, leaving little hope for investors to retrieve their investment.

Unit-holders who do not participate in the offer will have their investment severely diluted. Sydney-based financial adviser Tony Robertson, who has clients exposed to the fund, has approached the Australian Securities and Investments Commission in a bid to have the offer withdrawn, arguing Aspen directors have other options open to them.

A local investor in the diversified fund told WA Business News he was supportive of the entitlement offer and that he would be participating.

Mr Del Borrello said he understood that some unit-holders wouldn't or couldn't take part.

"No-one likes writing another cheque, but most people are pretty pragmatic," he said.

Other property companies to have been caught out by the sour market conditions include the Becton Industrial Fund, which was forced to approach its unit-holders for support.

Aspen's other unlisted retail offering, Aspen Parks Property Fund, has recorded annualised double-digit returns during the past three years.