Aspen Group Limited · ASX:APZ
Aspen — FY2015 Earnings Presentation
51 slides from Aspen's earnings presentation, Aug 24, 2015
Slide 1: Aspen Group 2015 full year results presentation
For personal use only Good morning and welcome to the Aspen Group 2015 full year results presentation. My name is Clem Salwin, the CEO of Aspen and I’m joined here today by Adam Marrs Ekamper, our CFO. As is our usual practice, the speaking notes will be released after the conclusion of this present
Slide 2: Agenda
For personal use only Today I will cover off four items. First, I will speak to the significant progress we’ve been making on our business strategy. Secondly, cover off the financial results for the year. Then give an update on some of our business activities. I will wrap up with our priorities and
Slide 3: Significant progress on strategy
For personal use only The year has been one of continued change for the business, and very significant progress on our strategy to focus on value‐for‐money accommodation; Aspen is well placed for the future. 3
Slide 4: Strategic focus delivered
For personal use only Over this year, we have delivered on the strategic focus for Aspen. We have made substantial progress on the strategic goal that we set ourselves 2 years ago – that is, Aspen is now a focused, pure play accommodation business. This change builds upon the eleven year experience
Slide 5: Cost focus, NAV and capital management
For personal use only We continue to demonstrate our very strong cost focus; Group overheads have been reduced by a further 35% over the year. Disappointingly, NAV declined, down to $1.26, largely reflecting the negative impact of the devaluation of the resources parks, and also of the Spearwood Sou
Slide 6: Strategic change over three years
For personal use only I commenced the presentation today with comments on strategy, and that Aspen is well placed for the future. The last several years have seen us restructure and refocus the business. Our objectives were clear: to simplify the business; to sell non‐core assets; to reduce debt; to
Slide 7: Resources sector downturn
For personal use only The achievement of this strategic transition is all the more noteworthy given it has been undertaken against the backdrop of the severe cyclical downturn in the resources sector. The extent of this downturn on the Australian economy generally and in Western Australia in particu
Slide 8: Acquisitions progress
For personal use only Turning now to a few highlights in implementing our strategy over the FY15 year. At the end of last year, we commenced making acquisitions, and by year end, had settled on five properties. The acquisition momentum is strong, and we have already settled one property post 30 June
Slide 9: Shift toward permanent residential
For personal use only We are also shifting the portfolio exposure more toward permanent residential. The acquisitions have been relatively more weighted to permanent residential, with over 50% of sites being permanent residential – including 2 lifestyle villages which are 100% residential. We have c
Slide 10: Sale of non-core assets
For personal use only Our programme of selling non‐core assets to focus purely on accommodation is now substantially complete. The sales of Noble Park and the Adelaide CBD land site settled during the year, and Spearwood North was sold during FY15 and has since settled. Spearwood South is the only m
Slide 11: Reduction in group overheads
For personal use only An important strategic goal we set ourselves was to significantly reduce Aspen Group’s corporate overhead; as a result, cost discipline has been a key focus. This continued during the last half, with Group overheads being reduced by nearly 25% over the first half, reflecting in
Slide 12: Overview of financial results
For personal use only Turning now to an overview of the financial results. 12
Slide 13: Property-level operating results
For personal use only First, looking at our operating results at a property level. On a like for like basis, income at our core residential/short‐stay parks has been solid. This reflects revenue growth as well as good cost discipline. Income at our parks in the resources sector continues to decline
Slide 14: Group operating earnings
For personal use only Turning to overall Aspen Group operating earnings. As a result of the continuing transition in the business over the year, comparisons of performance reflect both operating results as well as structural change. The reduction in earnings from accommodation properties reflects th
Slide 15: Statutory result and write-downs
For personal use only The statutory result is affected by significant asset write‐downs. The key contributors were the devaluation of the resource properties, as well as the Spearwood devaluation; I will address these shortly. 15
Slide 16: Strong balance sheet
For personal use only The balance sheet is strong. The balance sheet as at 30 June reflects the consolidation of APPF during the year, resulting in the increase in the overall size of the balance sheet. With the consolidation, the more relevant gearing metric is the look‐through gearing, which stood
Slide 17: Changes in valuations
For personal use only Detailing some of the changes in valuations. Reflecting the operating performance, valuations of our core residential/short say parks were up over the half, and the valuations of the resources parks fell, reflecting the resources downturn. At Karratha, the AKV property was inde
Slide 18: Decline in NAV per share
For personal use only These devaluations have resulted in a decline in NAV per share, to $1.26 per share. This is clearly a disappointing outcome. Most of the decline was caused by the decline in the resources parks, and the new independent valuation of Spearwood South. There was also the write off
Slide 19: Business update
For personal use only Turning now to the business update. 19
Slide 20: Areas of focus
For personal use only I will cover off 4 areas of focus: • Operational performance • Our development programme • Acquisitions ; and • Capital management 20
Slide 21: Operational performance
For personal use only Operational performance, to improve returns from our current asset base, is a key priority. One of our competitive strengths is the depth of our experience. Aspen has been in this sector for over 11 years, with the Aspen Parks Property Fund having started in 2004. Our focus is
Slide 22: Capex in selected investment projects
For personal use only Now that the business is less capital constrained we are looking at capex in selected investment projects at our properties, expected to be accretive to earnings and generate strong returns on capital employed. At Dubbo in Central West NSW, we are adding 4 x 3 bedroom cabins ta
Slide 23: Development opportunities
For personal use only There are multiple development opportunities in the business. There is the opportunity to upgrade existing residential sites – securing a development margin, as well as upgrading the property as a whole. There are also opportunities to convert short‐stay sites to residential si
Slide 24: Manufactured housing development programme
For personal use only We commenced our manufactured housing development programme during the year and it is a continuing focus. Development to date has been on a smaller scale (of the upgrade and conversion type) with 3 settlements over FY15; this development activity continues, and is expanding acr
Slide 25: Acquisition themes
For personal use only We have 3 key themes when assessing potential acquisitions. They are • strong recurring income yield, particularly from permanent residential; • locations in metropolitan areas, in major population centres for our customer bases and near to our existing properties to strengthen
Slide 26: Acquisition example: Four Lanterns
For personal use only An example of our acquisition approach is Four Lanterns in Leppington in south west Sydney. This property met our assessment criteria, being a long established lifestyle park, with 100% occupancy, 100% permanent residential and strong demographics in the immediate area. It also
Slide 27: Capital discipline
For personal use only Finally, in everything we do in the business, we are committed to capital discipline. We have previously announced that we are reallocating capital from the weak resources sector to the stronger customer demand for affordable housing in Perth. That process will continue as appr
Slide 28: Outlook and business priorities
For personal use only To wrap up, let me outline our outlook and business priorities. 28
Slide 29: Outlook and FY16 distribution guidance
For personal use only The dynamics of our industry are positive and Aspen is well placed to seize the opportunities available. We are looking to drive operational returns from our existing assets, both revenue and costs. With our manufactured housing developments, we continue to execute, and expand,
Slide 30: Thank you
For personal use only Thank you for taking the time to join our call today. I am conscious that there are many companies reporting today and appreciate your interest. We have set‐up personal meetings over the coming days with many of you already. Should you have any questions or wish to set‐up a per
Slide 31: Appendix A: the Aspen business
aspen Appendix A: the Aspen business 31
Slide 32: Substantially pure play accommodation following strategic refocus
Substantially pure play accommodation <{jaspen following strategic refocus Portfolio composition over time* 30-Jun-13 30-Jun-15? Strategic objective Sale of non-core assets Acquisition of accommodation parks = Accommodation Non-accommodation * Consolidated porttolio (inclusive of APPF) 32 230 June 2
Slide 33: Business structure
Business structure Aspen Group Direct holdings ° 4 accommodation properties! ° APPF management contract ° Established 2004 * Non-core assets * 21 accommodation properties? * Includes Tomago Van Village acquired post 30 June 2015 ® Excludes three WA properties conditionally sold <{jaspen 1 Manager Un
Slide 34: Business activities
Business activities <{jaspen Aspen’s mix of revenue across segments of “value for money” accommodation to diversify and improve earnings quality Aspen Group core revenue sources Short-stay Manufactured Permanen Long-ter e! ent rentals / ong-term residents 5 corporate leases tourism home development
Slide 35: Accommodation portfolio
Accommodation portfoliot? Carrying value split by property type? <{jaspen Carrying value split by state® Value % overall #of sites ($m)? Mixed permanent/short 63.6 44% 3,137 stay 100% short stay 18.9 16% 447 ™ Mixed permanent/short stay MAKV 100% permanent 100% Short stay 100% permanent 18.7 16% 582
Slide 36: Accommodation portfolio by property
Accommodation portfolio? Consolidated accommodation portfolio comprises 25 accommodation parks and MHEs across Australia with over 5,000 cabins and sites Western Australia Property = 1 © Balmoral \o Cooke Point 1© Korratha Village 22.0 © Coogee Beach © Mancurah © Pest vineyards © Woodman Point Total
Slide 37: Aspen Group direct portfolio
Aspen Group direct portfolio <{jaspen Carrying values Segment / Jun-14 Movement Accommodation type Four Lanterns Estate’ 100% permanent 8.0 - - - Mandurah Gardens Estate" 100% permanent 10.7 - - - Tomago Van Village * Mica renee! short 112 2 : : Aspen Karratha Village Resource 22.0 38.5 (16.5) (43%)
Slide 38: APPF portfolio
APPF portfolio Accommodation type Carrying values Jun-15 — Jun-14 $m Ballina Lakeside NSW Residential/short-stay 17.2 - Harrington’ NSW Residential/short-stay 8.3 - Maiden's Inn NSW Residential/short-stay 15.0 145 Shady River NSW Residential/short-stay 5.8 6.0 Twofold Bay NSW Residential/short-stay
Slide 39: Acquisition momentum: Harrington, Australiana
Strong acquisition momentum in east coast markets: Harrington, Australiana Harrington Holiday Park Harrington, New South Wales Acquisition announced: 8 December 2014 Purchase price: $7.8 million Initial yield: 12.9% Harrington Holiday Park is located on the NSW Mid-North Coast, approximately 80km so
Slide 40: Acquisition momentum: Ballina, Tomago
Strong acquisition momentum in east <{jaspen coast markets: Ballina, Tomago Ballina Lakeside Holiday Park Ballina, New South Wales Tomago Van Village Newcastle, New South Wales ‘Acquisition announced: 15 May 2015 Acquisition announced: 3 August 2015 Purchase price: $16.5 million Purchase price: $10.
Slide 41: MHE acquisitions: Mandurah Gardens Estate
MHE acquisitions aligned to focus on <jaspen ‘value-for-money’ accommodation Mandurah Gardens Estate Mandurah, Western Australia Acquisition announced: 22 June 2015 Purchase price: $10.2 million Initial yield: 9.25% Mandurah Gardens Estate is located on the banks of the Serpentine River and is in cl
Slide 42: Appendix B: detailed financials
aspen Appendix B: detailed financials 42
Slide 43: Financial highlights
Financial highlights Key financial metrics ($m) FY15, FY’ Revenue 65.5 110.6 (41.0%) Statutory Loss (31.7) (81.8) 62.2% Operating Profit 10.2 14.7 (30.6%) Operating Profit (cps) 9.0 12.3 (26.8%) Operating Cashflow 3.4 40.5 (113.6%) Gearing 35.1% nil 35.1% Net Asset Value ($ / Security) 1.26 1.50 (16
Slide 44: Debt structure
Debt structure <{jaspen « Simple debt structure > Facility for each of Aspen Group and APPF > Both refinanced during FY15, with an increase in term, and reduction in margin Maturity date Sep 17 Sep 17 Total drawn debt 35.1m 107.4m Senior debt facilities 60.0m 110.0m LVR 32%/ 0%! 48% | 40%? LVR limit
Slide 45: NAV per security composition
NAV per security composition 3.50 3.00 y uo ° $/security N ° Ss a ea) o 0.50 <{jaspen Of the $0.96 per security in assets held for sale, $0.62 has been contracted for sale > $0.26 pertains to the unsold half of Spearwood South | 0.16 4 0.96 (1.26) 0.37 (0.55) (0.08) 1.65 Residential / Resources Asse
Slide 46: APZ operating earnings deconsolidated
APZ operating earnings deconsolidated <{jaspen APPF deconsolidated and reflected as equity accounted investment FY14 $m Profit / (loss) from operations Accommodation -AKV 5.7 5.0 10.7 - Four Lanterns 0.2 0.2 0.0 - APPF management fees / equity 63 5.5 5.0 Commercial / industrial 6.9 61 15.2 Developme
Slide 47: APZ balance sheet deconsolidated
APZ balance sheet deconsolidated APPF deconsolidated and reflected as equity accounted investment <{jaspen 30-Jun-15 30-Jun-14 $m $m] Cash 21.5 44.7 Property, plant and equipment 39.6 1.4 Goodwill 1.6 0.0 Assets held for sale 74.3 115.2 Investment properties / equity investment 45.1 49.2 Other 6.0 1
Slide 48: APPF operating earnings
APPF operating earnings $m Profit / (loss) from operations Residential / short stay 16.1 74 14.1 Resources 44 20 7.0 Non-core assets 3.8 det 46 Total income 24.2 11.2 25.6 Operating expenses (6.6) (2.6) (6.5) Fund management fees (2.1) (1.0) (3.1) Financial expenses (4.9) (2.3) (6.5) Operating profi
Slide 49: APPF profit/loss
APPF profit/loss FY14 $m Operating profit 11.6 5.4 10.7 Residential / short stay revaluations 1.7 0.8 (29.9) Resource property revaluations (12.2) (5.6) (21.7) Non-core revaluations (2.1) (1.0) (20.0) Acquisition cost impairment (2.3) (4.1) 0.0 Administration and relocation costs (1.2) (0.5) 0.0 Fin
Slide 50: APPF balance sheet
APPF balance sheet Cash 3.9 Property, plant and equipment 177.6 Goodwill 10.3 Assets held for sale 12.0 Other 49 Total assets 208.6 Borrowings 110.2 Other 12.2 Total liabilities 122.4 Net assets 86.2 NAV per share 0.5299 Gearing 51.4% LVR 52.0% 50
Slide 51: Disclaimer
Disclaimer <{jaspen This presentation has been prepared by Aspen Group (“Aspen”) and should not be considered in any way to be an offer, invitation, solicitation or recommendation with respect to the subscription for, purchase or sale of any security, and neither this document nor anything in it sha