Property company Aspen Group Ltd has announced a $54 million capital raising and the establishment of a new investment fund after closing the purchase of Futuris Corporation's $239 million property arm.
Property company Aspen Group Ltd has announced a $54 million capital raising and the establishment of a new investment fund after closing the purchase of Futuris Corporation's $239 million property arm.
The company also announced the construciton of a new residential development in NSW, a revaluation of its property portfolio and upgraded earnings forecasts.
The Aspen-acquired Caversham Property Group manages assets in Adelaide worth about $800 million, including the city's new post office, the heritage-listed Electra House and the first two towers of the four-tower City Central project.
The acquisition does not include the Futuris stake in Westralia Property Trust, which owns the Broadwater hotels in Kalgoorlie, Dunsborough and Como.
Aspen will also issue 30.2 million stapled securities at $1.80 to assist with the Caversham acquisition.
According to a company announcement, Aspen's funds management assets will increase to $767 million following these transactions, with total assets under management for the Group now in excess of $1 billion.
The full text of an Aspen announcement is pasted below, followed by an announcement from Futuris
Aspen Group is pleased to inform the market of the following events:
Aspen Development Fund No. 1 ("ADF No1")
Aspen has established ADF No1 as a diversified development fund to acquire the assets of Caversham . Caversham owns or has development rights over some 18 development projects which are at various stages of completion. The projects include residential land, retirement villages, private hospitals, and commercial office development spread across three states of Australia.
ADF No1 will be a closed end fund with an expected term of eight years and a target internal rate of return of 18% per annum over this period. Wholesale and sophisticated investors will be invited to participate in the fund with both Aspen and Futuris to take a cornerstone shareholding of 25% respectively.
Caversham has operated as the property development arm of Futuris. In line with its strategic direction, Futuris has decided to divest its direct ownership of Caversham in order to concentrate on its core business interests. As part of the acquisition key personnel from
Caversham will be retained by Aspen and continue to manage the fund assets with the support of Aspen's own in-house commercial property and development expertise.
Mr Del Borrello stated "the acquisition of the Caversham business including assets and employees enables Aspen to create a diversified property development fund with some projects well advanced and which we believe will have appeal to wholesale investors".
"Further similar style development funds are expected to be created through the combined development experience of both the new and existing Aspen development teams."
Expansion of "Aspen Estates" Business
The residential estate is located in Newcastle, some two hours north of the Sydney CBD. Aspen, via a newly established development fund will enter a develop agreement with the owners of the land. Under the agreement, which is subject to finalisation, the Aspen fund will manage the development of the land and receive a development fee on the lot sales.
Development of the land has already commenced with some 66 lots already sold, while a further 83 titled lots worth an estimated $21.9 million are currently available for sale. In total 881 lots are expected to be produced over the estimated project life of nine years.
"Similar to previous development projects undertaken by Aspen, the estate is already producing income from existing lot sales. This enables Aspen to provide an attractive development fund for investors that will produce dividends within the first year," said Mr Del Borrello.
Within 12 months of entering this sector, Aspen Estates has created 4 development syndicates and secured a pipeline of some 3700 lots over 4 master planned developments with a gross realisable value of $1.19 billion.
Entitlement Issue
To assist with the funding of the Caversham and Aspen Estates transactions, Aspen has announced a 1 for 7 non-renounceable Entitlement Issue of 30.22 million stapled securities at $1.80 to raise $54.4 million.
The issue price represents a 3.23% discount to the 14 day volume weighted average price of $1.86 and is fully underwritten by Euroz Securities Limited.
In determining the appropriate capital structure Mr Del Borrello said the Aspen Board of Directors was conscious of providing all security holders of Aspen Group with the opportunity to increase their participation in the continued growth and success of Aspen.
"Given the size of the capital raising we believe it is justified undertaking an Entitlement Issue and are confident of receiving a high level of acceptance from existing security holders" said Mr Del Borrello.
The record date for entitlement to participate in the Entitlement Issue is 1 March 2007 with an Offer Document expected to be sent to Security holders in the first week of March. Participants in the issue will be entitled to the March quarter distribution in full.
Proceeds from the issue will enable settlement of the above transactions. Upon completion of the equity raisings in the unlisted funds and subsequent repayment of Aspen's initial support, the Group's gearing position will be 23%.
Net tangible assets per security are forecast to increase from $1.09 to $1.32, an increase of 21%.
Earnings Upgrade
The proposed acquisitions will see the establishment of two new funds management vehicles by Aspen. Each fund will be structured along the same style as previous funds providing fee income from both the establishment and ongoing management of each fund.
The forecast fee income has enabled Aspen to announce uplift in both EPS and DPS of 19.23% and 21.7% respectively.
Based on the entitlement issue price of $1.80, the revised FY07 underlying EPS represents an 8.61% yield, with an annualised DPS yield of 7.77%.
Funds management income is now approaching 50% of Aspen's total revenue while its impact on underlying EPS is significant given the efficient use of capital to support this income. Furthermore Aspen benefits from its strategic shareholding in each project, both
of which have targeted internal rate of return of 18%.
Mr Del Borrello commented, "The revised earnings and quarterly distribution demonstrates the capital management benefits of Aspen's strategy to grow its funds management income."
Summary
This announcement represents a significant milestone for Aspen. Following these transactions, Aspen's funds management assets will increase to $767 million, with total assets under management for the Group now in excess of $1 billion.
"The acquisitions are very much in line with the Group's investment strategy of increasing property assets under management through the creation and seed funding of innovative funds management vehicles, whilst maintaining a strong overall balance sheet position. In addition the entitlement issue provides all Security holders with the opportunity to benefit from the forecast increase in earnings and distributions and to participate in the continued growth of Aspen", said Mr Del Borrello.
Aspen continues to demonstrate an impressive track record of asset and earnings growth since inception in 2002, which is reflected in its security price appreciation and a just reward for our loyal security holders.
The full text of a Futuris announcement is pasted below
Futuris Corporation announces that it has entered into a contract for the sale of its property development operations, inclusive of all current work in progress and undeveloped land (including the Adelaide City Central Project), to Aspen Group Ltd, subject to conditions precedent.
The proceeds total approximately $234 million, subject to working capital adjustments and settlements relating to certain projects. Settlement is expected to occur in late March with approximately 70% of the funds being received at that time and the balance over the period to 30 June 2008.
Profit to be realised on the transaction is also subject to working capital adjustments and settlements relating to certain projects but at this stage is anticipated at approximately $20 million pre-tax, divided between the 2007 and 2008 financial years.
To demonstrate its commitment to South Australia and the City Central Project, Futuris will acquire an interest of 25% in Aspen's new development fund, Aspen Development Fund No 1, which will acquire and develop the property assets. This is expected to entail an investment of approximately $22.5 million.
Futuris' interests in Westralia and its associated management entities are not included in the sale.
Futuris CEO Les Wozniczka said that the sale agreements represented a rewarding outcome for shareholders from the Company's efforts to add value to its land interests.
"Over the last few years we have transformed what was a disparate collection of surplus land holdings into a successful and growing property business featuring first rate commercial, residential and retirement village projects.
"The growth of our rural and regional assets in Elders and ITC meant that our Property Development Division held greater value for investors with a greater commitment to property development as a core business. I am confident our property staff will benefit from the new ownership.'
Mr Wozniczka said that the funds would be redeployed into Futuris' rural and regional assets and growth strategies.
"With our core operations performing well and demanding capital for further growth, the sale of this excellent business represents another step in the development of Futuris as a leader in rural and regional Australia."