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ASPEN GROUP — Capital/Financing Update 2012
Jul 30, 2012
64404_rns_2012-07-30_127ffc5d-da5f-446b-b2e7-7746d215b8c9.pdf
Capital/Financing Update
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Aspen Group Limited ABN 50 004 160 927
Aspen Property Trust ARSN 104 807 767
Level 8, Septimus Roe Square 256 Adelaide Terrace, Perth Western Australia, 6000
Telephone: 08 9220 8400 Facsimile: 08 9220 8401
Email: [email protected]
ASX / MEDIA RELEASE 31 July 2012
Update on asset carrying values and earnings
Aspen Group (ASX: APZ) advises of changes to the carrying value of certain assets and the future income mix of the Group and also provides an update on FY12 guidance.
Summary
As part of the normal end of year valuation process, and in response to the deteriorating outlook in property development markets, the Group has undertaken a comprehensive review of its development syndicates and non-core inventory, as well as completing independent valuations on its Investment Property Portfolio.
Carrying value of equity interest in and loans to associates - This review has resulted in likely impairments to the Group’s carrying value of its loans to certain development syndicates of $82 million and write-downs related to equity interests in those syndicates of $33 million. This will result in a lower level of interest income being recognised in FY13 compared to FY12.
Investment Property Portfolio - The Group has recorded an uplift in the Investment Property Portfolio of $30 million in the six months to 30 June 2012 resulting from strong rental reversions and leasing.
Carrying value of non-core property inventory – This review has resulted in likely impairments to the carrying value of the non-core land inventory of $10 million.
The net result of the above for statutory reporting purposes, subject to final audit, is an impairment of the balance sheet of approximately $95 million, representing 16.1 cents per security. These are non-cash impairments and have no impact on Aspen Group’s existing debt facilities, with the Group continuing to operate within its banking covenants.
The earnings outlook for FY13 will be provided as part of the annual results to be released at the end of August 2012. However, Aspen anticipates that in FY13 a solid increase in rental income from the Investment Property Portfolio will offset a reduction in interest income from the development syndicates, providing a significant shift in the income mix towards more sustainable rental income.
Further details are provided below.
Development Syndicates
As part of a comprehensive review of Aspen’s loans to, and equity interests in, its development syndicates, the Aspen Board has adopted a more cautious view of the underlying assumptions used to assess the net present value of some of these assets in the syndicates.
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The Board’s approach has been driven at a macro level by the continued uncertainty in the global economy and the flow on impact to Australia where the residential housing industry is currently facing the worst conditions in decades[1] . This has been compounded by some development cost pressures and exacerbated by planning approval delays and increased planning condition costs and statutory infrastructure charges. These factors have resulted in a marked deterioration in the outlook for several of the development syndicates during the last quarter. The Board believes that taking this more cautious view is appropriate in the current circumstances and will assist the Group to move forward on a sounder platform.
Further details on the individual loan and equity movements are provided in Annexure 1.
Investment Property Portfolio
The Board advises that it expects to generate in FY13 an increase in rental income of approximately $8 million, or an increase of 30% on FY12 trading, from its Investment Property Portfolio. This is a result of recent successful leasing initiatives at the Spearwood Industrial Estate and a strong reversion to market rates in the Aspen Karratha Village and Septimus Roe Square properties.
The leasing campaign in respect of the Spearwood Industrial Estate has been particularly successful, with the execution of leases with two tenants now resulting in the complex being 98% leased by income.
Significantly, a new lease has been secured with Leighton Contractors Pty Ltd, a wholly owned subsidiary of ASX listed Leighton Holdings Limited, across 62,014 square metres of warehouse and 75,658 square metres of hardstand. The lease is for a two and a half year term commencing 1 July 2012. The other lease is for 39,485 square metres of warehouse space and 12,445 square metres of hardstand for the sitting tenant, which has renewed its lease for a one year term.
The net rental income secured on the Spearwood property for FY13 represents a 96% increase on the current passing rent for the property.
Due to the strong leasing performance reflecting the underlying strength of the Western Australian markets in which the properties are located, the Investment Property Portfolio has been independently valued at $258.2 million as at 30 June 2012, an increase of $30.1 million or 13.2% on a like for like basis over the past six months.
Details of the individual property revaluations are provided in Annexure 1.
In addition, the Group’s equity interest in the ATO building in Adelaide (currently under construction) is anticipated to increase from its current carrying value of $91.85 million to $97.5 million, based on the current independent valuation of the project on an on-completion basis. This building is on schedule to be completed at the end of October 2012, when any increase in valuation will be recognised.
Inventory
The Board advises that as part of the review of carrying values, an impairment of the non-core land inventory was prudent in line with the approach taken in respect of the development syndicates. The deterioration in market conditions that has impacted development properties has been acutely felt in regional assets in which the Group has an interest.
1 Source: Housing Industry Association: State of the Industry 24/7/2012
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FY12 Earnings Impact
Subject to final audit sign off, Aspen’s statutory result will reflect inclusion of the non-cash impairments, as detailed above, of approximately $95 million in the financial statements for FY12.
The impact on FY12 operating earnings of the decisions taken in relation to the development syndicates is that interest income accrued from certain syndicates in the last quarter of FY12 will not be recognised in the full year result. The resulting underlying net profit before tax guidance is now expected to be in the range of $33 million to $34 million, compared to previous guidance of $35.75 million.
Outlook
The earnings outlook for FY13 will be provided as part of the annual results to be released at the end of August 2012.
The Group’s future earnings will reflect a much stronger rental income component, with lower interest income. In the Board’s view, this will result in a more sustainable and improved quality future earnings profile for the Group.
End
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Annexure 1
- Development Syndicates Impairments
| Loans to syndicates | Loans to syndicates | Equity in | syndicates | |
|---|---|---|---|---|
| Resulting Ci |
Resulting Carrying Value **$M ** |
|||
| Loan | Equity Impairment $M |
|||
| Syndicate | Impairment | arryng Vl |
||
| $M | aue **$M ** |
|||
| Fern BaySeaside Village,NSW | 15.2 | 21.7 | 1.8 | Nil |
| Dunsborough Lakes,WA | 25.2 | 11.1 | - | Nil |
| WhitsundayShores, Qld | 14.6 | - | 2.6 | Nil |
| Aspen Development Fund No 1 | 26.8 | 9.5 | 28.9 | Nil |
| Total | 81.8 | 33.3 |
Investment Property Portfolio – Revaluations
| Current Book Value **$M ** |
June 2012 Movement **$M ** |
Revised Book Value **$M ** |
|
|---|---|---|---|
| Property | |||
| Septimus Roe Square,WA | 96.0 | 9.5 | 105.5 |
| Spearwood Industrial Estate,WA | 58.0 | 15.0 | 73.0 |
| Noble Park,Vic | 22.1 | - | 22.1 |
| Karratha Village,WA | 52.0 | 5.6 | 57.6 |
| Total# | 228.1 | 30.1 | 258.2 |
# excludes 50% share of ATO Building under construction and Ballina Retirement Village
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For further information please contact:
Gavin Hawkins David Tasker Managing Director, Aspen Group Professional Public Relations Phone: (08) 9220 8400 Phone: (+61) 8 9388 0944 Mobile: 0402 148 279 Mobile: (+61) 433 112 936 Email: [email protected] Email: [email protected]
About Aspen Group
Aspen Group is an ASX listed (ASX: APZ) property investment and funds management group, focused on acquiring quality property assets and creating and managing innovative property funds and syndicates.
Formed in 2001, Aspen has progressed to now be a member of the S&P/ASX 300 index with assets under management in excess of A$1.2 billion.
Aspen’s core strength lies within the Group’s broad expertise across property acquisition, development and management enabling the Group to provide leading edge property solutions.
Aspen directly owns and manages a well diversified portfolio of commercial property assets Australia-wide. The portfolio is spread across the office, industrial and retail sectors and has grown through acquisitions and portfolio revaluations of existing properties driven by a strong property management focus.
Aspen also has developed an outstanding reputation for creating unique and successful funds management products and related services. These managed funds have provided investment opportunities across a broad spectrum of property sectors including tourist parks, residential land subdivisions, CBD office developments, private hospital developments and retirement and accommodation villages.
Aspen continues to source acquisition opportunities for both balance sheet and syndication purposes in order to achieve further growth in both assets and earnings for security holders.
Website: www.aspengroup.com.au
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