ASPEN GROUP — Interim / Quarterly Report 2014

Feb 23, 2014

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Welcome to the Aspen Group December 2013 half year results presentation. This is Clem Salwin, chief executive of Aspen. I am joined on this call by our CFO, Adam Marrs Ekamper.

The speaking notes will be released at the conclusion of this presentation.

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Today, I will cover off 4 topics:

• Progress on the business transition and the objectives that we set back in August

• The financial results over the half year

• An update of our accommodation business

• I will conclude with our management priorities

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To commence with a “big picture” view as to where the business is today. Aspen is part way through a major business transition. Back in August we launched an acceleration of change.

The objective is to have the business much more simple, with lower debt, much more focussed, in the accommodation sector, where we have some scale and a relatively strong industry position.

I said at that time that the upcoming period would have challenges, both in our operating environment, and within Aspen itself.

Operationally, our central focus is to manage the impact of the downturn in the resources industry capex cycle, particularly, but not exclusively, in our accommodation business.

Looking back at the past 6 months of business transition, there have been areas of significant progress; but also challenges remain; and financial results continue to be negative.

Clearly as well, returns to the shareowners of the business remain very poor.

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Revisiting our check list from August, of our management priorities:

• We have commenced the disposal process of the commercial property portfolio and this is continuing

• We have progressed the non‐core development asset sale programme, which is now substantially complete, with only $26 million remaining for sale; we have successfully settled $114 million year to date, a particularly noteworthy achievement for these secondary, development assets.

• We have aggressively reduced business overhead costs, with a significant cut in headcount and annualised savings of nearly $4 million achieved

In terms of managing the downturn in the resources capex cycle

• We have successfully re‐leased the Aspen Karratha Village, to 97% occupancy

• But the resources industry weakness is evident in much lower income at both Aspen Karratha Village and the Aspen Parks Property Fund.

Financially

• We met 1H distribution guidance of 7.5 cents per share

• However, NTA per share is down to $1.65. This fall in NTA is a consequence of the impairment we announced last week and reflects pricing of selling assets, and some weakening market conditions

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The impairments we announced last week can be characterised in a number of components.

Firstly, there are impairments related to actual sale prices of assets that have been sold.

Then we have impairments on expected sales prices for assets which have been conditionally sold or where we are in advanced negotiations. These first two categories comprise non‐core development assets.

The third category is the largest component at $25 million. This reflects our current best estimate of sale prices for assets held for sale. This reflects our commitment to finalising our asset sale programme, including the commercial property portfolio. There were impairments on other assets, being our accommodation assets as well as writing‐off the intangible deferred tax‐loss asset.

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Just to outline the major individual elements of these adjustments to carrying values.

The largest single element is that related to the Adelaide CBD land development site, where we are in negotiations for sale. CBD development sites generally tend to have a volatile value ‐ and the significant negative developments for the SA economy, particularly in relation to the motor industry, have been well‐documented. The site is large and complex, with a negative holding yield requiring costly specialist management. And any actual development in the immediate term has low visibility.

The reduction in the independent valuation of Septimus Roe reflects the deterioration in the Perth office market over 2013. Vacancy rates have risen markedly in the Perth office market, almost entirely due to weakness in demand, reflecting the downturn in the resources capex cycle in Western Australia. As a result, the cap rate on the property moved from 8.75% to 9.5%.

The reduction in the independent valuation of Aspen Karratha Village reflects the new lease arrangements with Woodside; where the new lease term is positive but expected income is significantly lower.

We have taken a provision for a potential impairment on the carrying value of our co‐ investment in the Aspen Parks Property Fund – I will detail this element a little later in the presentation.

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The sale process for the commercial property portfolio has been conducted in two parts.

Our prime asset, the 50% interest in the ATO Adelaide, is new and has a long WALE. However, it is held in a jointly owned entity. As a result, the optimal approach, and that required under the joint ownership agreement, was for us to engage with our joint venture partner. Discussions have commenced and are continuing.

For our 3 secondary, shorter WALE, properties, we conducted a public EOI process.

The bifurcated nature of investor appetite in real estate markets, driven by low interest rates, has been clear. Whilst there is good interest for long WALE assets that are surrogate bonds, there is more selected interest for secondary, shorter WALE assets.

We are in discussions with a number of parties with respect to the 3 assets. There has been additional interest shown since the New Year. We are progressing this process.

The industrial property at Noble Park has seen a reduction in carrying value reflecting that a tenant has gone into administration, and some additional capex.

At our industrial estate at Spearwood in Perth, part of the site has been historically utilised as part of a landfill. This is about 5 hectares of the overall 29 hectare site, and it is an area currently used for hard‐stand and car parking. We have implemented a management plan in relation to this historical land use. We have taken a financial provision for our estimate of these works of $2 million.

As I mentioned, we are committed to the sale process as part of our strategy of focussing the business. The impairments to carrying value reflect our focus on effecting a sale. These types of secondary assets typically have management complexities – tenancy, capex and so on; these take time for potential buyers to consider. However, the cap rates of the properties, and indeed, our solid operating profit results generally, illustrate the positive cashflow being

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generated by this portfolio. This income yield gives us optionality on being able to be patient in securing appropriate value for these assets, and not be constrained by an arbitrary deadline.

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Turning now to our non‐core development assets.

We have made good progress in this sale programme. It is now substantially complete.

As at June we had just over $200 million in non‐core assets.

In the half $105 million has settled and since the December balance date, a further $49 million have been sold and has, or is awaiting, settlement.

Thus today, Aspen has exposure to only $26 million of non‐core assets, the largest component being $12 million for the Adelaide CBD land development site. We continue to focus on disposing these remaining assets.

With the exception of the Adelaide CBD land development site, the impairments to carrying value have been net $10 million. Although disappointing, this represents only about 5% of their total asset value.

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Re‐leasing Aspen Karratha Village has been a major achievement. In December, we announced that Woodside had re‐leased 83% of the rooms at the Aspen Karratha Village. We are pleased that since that time, they have agreed to take a further 24 rooms at the same room rate, taking occupancy of the property to 97%.

On this additional leasing, together with restructuring the cost base, we expect the new annualised net income from the property to be approximately $4.9 million.

The reduced income reflects the very weak accommodation market conditions in Karratha, as the resources capex cycle has turned down heavily.

The day rate is slightly less than the rate in 2009 when Aspen first developed the property. It is also noteworthy that the occupants are operating staff related to the ongoing LNG plants operations, not construction workers and the rooms are a superior size of 28m[2] , meeting customer demands.

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In August last year, we set a goal to aggressively reduce overheads.

This is well underway, across both employment and other expenses.

Total overheads are down 21% from the comparable half.

Put another way, as compared to the comparable half, annualised overhead cost savings are running at nearly $4 million.

We expect overheads to reduce further in the current half, with the full period impact of changes already implemented, as well as additional savings as the business simplification process continues.

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Turning now to the financial results in more detail.

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Operating results were solid over the half.

Gross profits in commercial and industrial were up, largely on the back of the full period inclusion of the ATO that was completed in November 2012.

Gross profit from Aspen Parks Property fund reflects lower distributions received over the half, and lower fee revenue.

Development gross profit was down, largely on holding costs and expenses in realising assets.

The largest positive element to operating profit has been the reduction in overhead expenses of $1.9 million I just outlined.

Net interest expense was greater due to lower interest received compared to the December half in 2012.

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Turning to the overall statutory profit.

Operating profit in accommodation and commercial property totalled $13.1 million.

This is equivalent to 10.9 cents per share, as compared to the distribution per share of 7.5 cents in the 1H.

However, the statutory loss reflects below the line carrying value valuation adjustments we announced last week.

The write‐off of deferred tax asset from the balance sheet brings the accounting treatment into line with how we have presented NTA last August and has no impact on NTA per share. Nor does it reflect a change of status of these tax losses.

This brings to a statutory earnings loss of $70 million for the half.

This clearly continues to be a disappointing financial outcome.

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Total assets have fallen, largely reflecting the degree of asset realisations that have been effected so far, though of course, also the carrying value impairments.

Liabilities have reduced as we effected asset sales.

The change in treatment of the commercial property portfolio has also meant that most borrowings have had to be reclassified to liabilities held for sale, being associated with the portfolio.

Look through gearing was up with the impact of the carrying value impairments outweighing the positive of small debt reductions.

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Our usual NTA build slide shows the key components of the NTA per share.

Most noteworthy in this build is that the largest single component of NTA is the commercial property portfolio held for sale, which exceeds the total level of debt.

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The senior debt facility is broadly unchanged over the half.

We remain on track to meet the mandated debt reduction programme with our principal financier, with a further $32 million due to be repaid by June 14, being the final mandated amount. This is due to be largely met from existing contracted sales of non‐ core development assets, as well as cash.

With the changes to the carrying value of the commercial property portfolio, the LVR for the purposes of the senior debt facility has risen from 45% to 49%; this remains well within the covenant level.

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In terms of the overall group, facilities over the half declined slightly, with debt repayments as assets have been sold. The Fern Bay and Dunsborough facilities are due to be repaid with the contracted asset sales in hand for these two funds.

The main other change over the half was the repayment of the convertible note facility. This was funded largely by increasing the existing ATO Adelaide/FSPT facility. This resulted in eliminating expensive 10.5% coupon debt.

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Late last year, we received approval from the shareowners to undertake an on market buy‐back of up to 25% of shares.

This programme has not yet been activated. We will look to commence the programme as soon as practical. Substantive amounts will be reliant on the timing of the commercial property sale process. Once the commercial property portfolio sale is completed, the business will be net debt free and have substantial funds available for capital management initiatives.

As I mentioned, we met guidance for 1H distribution of 7.5 cents per share. It is not possible to provide, at this time, guidance for the 2H distribution. There is currently significant uncertainty as to the timing and extent of any commercial property sales and share buy‐back.

I emphasise that we will take a shareowner value maximising approach to capital management.

The capital management tools available to us include the on‐market share buy‐back, and return of capital. Decisions as to which tools we utilise will be determined by our assessment of shareowner value maximisation at the time.

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Turning now to an update on our accommodation business.

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Our accommodation business is simple.

It has a simple business purpose: to provide affordable, “value for money” accommodation.

Our customers range from major companies to smaller businesses, individual tourists and permanent residents. For all these customers we offer a “value for money” proposition.

And it has simple business economics: we collect rents that produce income yields.

There is no DMF structure reliant on capital gains; no manufacturing of cabin units; and none of the level of incentives that are typically found in non‐residential property such as office markets. This income yield is the foundation for returns in this sector.

Having said that, we do see significant scope over time to generate greater value from development for our permanent residents.

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Re‐leasing Aspen Karratha Village has been a key management focus over the last six months. However, it is important to see this product type in a longer perspective, in which it has produced very strong returns.

The FIFO (fly in – fly out) workforce model is entrenched and workforce facilities provide a ready, high quality and affordable solution to resources and service companies.

The facilities also require management expertise, particularly in their remote locations and high specification contracts with resource companies need to be met.

Karratha Village was developed by Aspen in 2009 – we have both management and development expertise of this product. Using today’s reduced valuation, the property has generated strong IRR’s in the high 30s% per annum.

In fact, even if the residual value today were zero, the IRR would have been well over 20% per annum.

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Aspen Parks Property Fund is the second largest owner of holiday parks in Australia. The fund commenced in 2004, meaning we have a 10 year management track record in this sector.

Our management platform has nearly 500 staff, including various in‐house specialists.

The fund has a diverse holiday parks portfolio with nearly 5,000 sites.

In addition, we have an existing pipeline of potential future development expansion at our existing parks, at varying stages of the approval process. We are focussed on increasing the permanent or residential component of this development pipeline in particular. Aside from the attractive economics of this component in its own right, it also contributes to reducing the overall volatility of returns.

Most of our parks provide a mix of accommodation styles: cabins, caravan/RV sites and permanent residents. Thus, having operational management expertise across all these elements is important.

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I have mentioned a few times, the impact of the downturn in the resources capex cycle. We have seen this impact in the net income of Aspen Karratha Village. We have seen this impact flow through to weakness in the Perth office market.

And we have seen the impact very markedly on Aspen Parks.

The fund holds 4 holiday parks which are oriented toward the resources industry. They have seen very substantial falls in operating income.

The impact of this fall has been very large ‐ more than halving Aspen Park’s income over calendar 2013.

In addition, we have seen some weakness in the fund’s two resort properties. This weakness particularly reflects the AUD impact (with weaker inbound, but particularly stronger outbound, tourism).

More positively, the negative impact has been offset to an extent by more resilient earnings in our tourist and resident parks. We have also been vigilant on overhead costs within the fund, making substantial reductions.

Nevertheless these have not been able to make up for the very large fall in the resources parks. Overall, there has been a very significant fall in income to the fund.

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To get a sense of scale of the impact of the resources sector downturn, one of the major resources parks in the fund is Pilbara Holiday Park, located immediately adjacent to the Aspen Karratha Village.

These charts illustrate the falls in the key operating metrics for the property – occupancy and the average rate.

On the left hand side chart, in Calendar 2011, occupancy averaged 89%. In Calendar 2013, occupancy averaged 43%. Similarly, average room rates in 2011 were about $175. In 2013, about $110. Combining these factors drove income levels down significantly.

But, on the right hand side, we show the annual change, monthly, in these two operating metrics. These data would seem to indicate that these operating metrics are possibly in some form of bottoming phase. Now our sense is that this is still very much a tentative conclusion, that results remain volatile and the outlook remains highly uncertain. However, at the very least, the degree of weakness appears to be tapering significantly.

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There are a number of elements in our response to this significant change in operating environment for Aspen Parks.

Firstly, the operating management platform is a key focus. As I mentioned we have reduced overheads. However we are also looking to invest in the platform. We are currently restructuring our sales and marketing area. We also expect to make other additions to our management depth. As I mentioned, we will also, over time, look to increase our exposure to more stable permanent residents.

The fund continues to pay its monthly distribution. However, the distribution rate has declined from an annualised 9.9 cents per security in June 2013 to 7.4 cents per security for the month of December. The distribution rate will be reviewed with the fund’s financial results in March. Likewise, all the fund’s assets are currently being revalued for the March results.

Aspen Group holds an 11% co‐investment in the fund, up slightly from 9% in June. This increase has been effected by some investor exits.

Aspen Group has made a provision of $7 million for a possible impairment in the value of its co‐ investment of Aspen Parks. This is equivalent to an assumed approximate 25% decline in the overall portfolio asset value in Aspen Parks. There is also potential for reduced distributions and asset management fees. In this regard, as part of our overall management of the fund, we have provided a fee rebate of 50% of the base asset management fee for the 3 months from December.

Aspen Parks continues to be a central management focus to optimise returns and its long term structure.

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Notwithstanding the severe impact of the resources related parks, we remain very positive on the opportunity in “value‐for‐money” accommodation.

The structural supply‐demand dynamic remains positive with positive demographic trends.

And within this favourable industry positioning, Aspen is relatively well placed.

We have a 10 year track record in holiday parks, 6 years in worker accommodation.

Aspen Parks is the second largest owner in the holiday parks industry.

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Turning now to our key priority action points.

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Aspen is in a period of transition to a very much more simple, and transparent, and focussed business model.

We are making progress in the transition of the business. However, there has been negative financial impact, particularly from the resources capex downturn and in the values of assets for sale.

Management priorities for the period ahead are very focussed:

• Finalise asset sales ‐ particularly the commercial property portfolio

• Capital management to maximise value for the shareowners – particularly the share buy‐back

• Optimise accommodation asset returns ‐ with a particular focus on Aspen Parks

• And to maintain discipline on overhead costs.

These areas of priority are the foundation for stronger returns.

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Appendix
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Affordable accommodation
industry overview
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Accommodation supply

Supply has been falling markedly

• From 1991 to 2009, the number of holiday park sites has fallen by over 33%

• Local authority leaseholds / special zoning are important

• Importance of expertise in mixed visitor and permanents / residential parks

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Holiday Park sites ‐ number
300,000
200,000
100,000
‐
1988 1991 1994 1997 2000 2003 2006 2009
Source: ABS
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Accommodation demand

Relatively stable market share

• Holiday park market share of domestic visitor nights is relatively stable at 22-23%

• Average visitor stay is much longer than other forms of accommodation

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Holiday parks ‐ domestic visitor nights ‐ Average visitor stay
market share
24% 6
23% 5
22% 4
21% 3
20% 2
19% 1
18% 0
Hotel, resort, Guest house B&B Rented house Holiday Park
motel
Number of days
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
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Source: TRA, National Visitor Surveys Market share of total commercial accommodation (hotels, motels, resorts, B&B, rented houses, caravan parks)

Source: TRA, National Visitor Surveys

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Accommodation occupancy rate

Structurally higher and less seasonal

Occupancy rate ‐ short term stays

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60%
� Occupancy rates have
moved up significantly, 50%
largely on back of falling
40%
supply 2009
� Better utilisation of capital 30% 1997
1989
� Seasonality of summer 20% 1979
holidays now reduced
10%
0%
Qtr 1 Qtr 2 Qtr 3 Qtr 4
Source: ABS
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Structural change

From “Caravan Park” to “Holiday Park”

• Cabins ‐ number

• � Despite fall in overall sites, 40,000

• cabin numbers at parks have grown rapidly

• � Creates scope for business 30,000 customers at parks

• � Unpowered sites in relative decline. Focus on: 20,000 • ensuite sites

• • technology and power 10,000

• infrastructure

• � Additional facilities for longstay market ‐ 1988 1991 1994 1997 2000 2003 2006 2009

• � Greater capital requirements – more difficult for individual

• owners to compete Source: ABS

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Structural change

Strong community need – change of delivery method

• Public sector is no longer a substantial direct supplier of affordable housing

• Indirect public sector support to individuals for provision by private sector

Dwelling approvals ‐ public sector: total

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12%
10%
8%
6%
4%
2%
0%
Source: ABS; 12 month moving average
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Structural change

Permanent residential demand – an affordable residential option

• Robust, simple, easy to understand financial model, with residents:

• owning the cabin

• renting the land

• Key demographic trend – at start of this bulge

• Mixed (visitor / permanent) and sole purpose (“manufactured housing estates”)

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Net growth in population aged 65+
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
1970 1980 1990 2000 2010 2020 2030 2040 2050
Source: ABS
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Importance of broad product expertise Perth metropolitan cluster: mixed accommodation

• Freehold

• • 120 Tourist Sites • 89 Permanent Sites

• Leasehold

• • 78 Tourist Sites • 118 Permanent Sites • Leasehold • 146 Tourist Sites • 109 Permanent Sites

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Structural change

Technology is more important

• Technology is increasingly important to the holiday parks business

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Online Revenue % (of Tourist Revenue)
30%
important to the holiday parks
business
25%
� Bookings on-line / mobile have
increased markedly
20%
•
Now comprise 25% of
tourism bookings at Aspen 15%
Parks
•
This trend continues 10%
strongly
� Trend to more impulsive, short 5%
term holiday decisions is
conducive to technology (and 0%
Jan‐08 Jan‐09 Jan‐10 Jan‐11 Jan‐12 Jan‐13 Jan‐14
branding)
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• Scale facilitates technology and brand investment

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Accommodation business

Consistent “value‐for‐money” customer proposition

ASPEN GROUP LIMITED

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own manager / 11% co‐investor
KARRATHA ASPEN PARKS PROPERTY FUND
Business
Workforce accommodation Holiday Parks
lines
Customers Corporate Corporate Tourists Residents
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Disclaimer

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 shall form the basis of any contract or commitment. Prospective investors should make their own independent evaluation of an investment in Aspen. Nothing in this presentation constitutes investment, legal, tax or other advice. The information in this presentation does not take into account your investment objectives, financial situation or particular needs. The information does not purport to constitute all of the information that a potential investor may require in making an investment decision.

Aspen has prepared this presentation based on information available to it. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness or correctness of the information, opinions and conclusions contained in this presentation. To the maximum extent permitted by law, none of Aspen , its directors, employees or agents, nor any other person accepts any liability, including, without limitation, any liability arising from fault or negligence on the part of any of them or any other person, for any loss arising from the use of this presentation or its contents or otherwise arising in connection with it.

All references to dollar amounts are in Australian currency unless otherwise stated.

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