ASPEN GROUP — Interim / Quarterly Report 2021

Feb 24, 2021

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Aspen Group Limited ABN 50 004 160 927 Aspen Property Trust ARSN 104 807 767 21 Oxford Street Bondi Junction NSW 2022 Telephone: 02 9151 7500 Email: homemail@aspengroup.com.au

ASX A ASX ANNOUNCEMENT 25 February 2021

Aspen Group Financial Results – First Half FY21 Continued Growth in Earnings, Distributions and NAV

Aspen Group (which comprises Aspen Group Limited and the Aspen Property Trust) (ASX: APZ) (“ Aspen ”) is pleased to provide its financial results for the half year ending 31 December 2020.

Key Highlights (compared to 1H FY20)

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Property NOI up 11%
Margin improved from
42% to 47%
Operating Development &
Total Revenue
Driven by diversified Profit Trading Profit up 135%
$17.77m business and $5.29m Margin improved from
32% to 34%
measured exposure
8% to development 45% Net Corporate
Overheads down 15%
MER reduced to 2.0%
annualised
Continuing the
EPS
strong growth in DPS
4.55 cents FY20 of 32% 3.10 cents
notwithstanding a
20% larger equity base and less gearing 13% Distribution over 70% Tax Deferred
Only Aspen Karratha Village externally revalued in 1H
NAV Portfolio attractively valued on a WACR of 8.3% and
$79k per approved site including land and dwellings
$1.20
Gearing of 23% - capacity to fund additional growth
opportunities within the portfolio and through new
5% acquisitions
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• Operating Profit is a non-IFRS measure – refer to definition in financial statements

Over the past 3 years Aspen has materially increased operating EPS and DPS whilst also positioning the business for continued growth over the medium to long term…

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APZ - Half Year EPS and DPS (cents)
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
1HFY18 1HFY19 1HFY20 1HFY21
Operating EPS DPS Retained Operating Profit
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Strong momentum in sales and acquisitions…

• 100 dwellings and land lots sold/contracted across the Group including funds’ projects in the half

• Settled acquisition of a record 3 new properties in the half including Cooks Hill co-living community, Mount Barker development land, and Burleigh Heads build-to-rent townhouses

capital recycling to grow NAV, EPS and DPS

Aspen’s Business Model

Aspen is a leading provider of quality accommodation on competitive terms in the residential, retirement and short stay sectors. We have a fully integrated platform across operations, asset management, development and capital management that provides a broad spectrum of products and services to our customers under different regulatory regimes and ownership schemes: Rentals – Shared Equity – Sales.

Our customers range from single to large family households of all ages. We believe our addressable market is worth over $1 trillion considering about 6.5 million households (70% of total) are either renting or servicing a mortgage and that 1.5 million are considered “stressed”, paying more than 30% of income on housing costs. This is despite 1.3 million households receiving Commonwealth Rent Assistance totaling over $4.4 billion annually.

Our business is all about providing our customers a better lifestyle at a more affordable price, which has become even more desirable in the COVID-19 era. It is diversified in terms of customers, product type, geography and regulatory regime, and we have a very measured exposure to development, which has protected us in this volatile environment. We typically charge weekly rents of $275-400 for dwellings and $140-180 for land sites, which are well supported by household incomes and government subsidies.

We provide one, some or the entire range of our accommodation products and services at each of our properties. We seek to maximise the profitability and value of each of our properties and reduce risk by optimising customer mix based on demand, length of stay, service offering, relative pricing and expenses, regulation, capital costs and other factors. For instance, in some of our properties we have customers staying overnight in fully serviced holiday cabins and other customers with their own dwellings on lifetime land leases.

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Business Update
Four Lanterns Estate, Leppington, NSW (render)
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Business Update

Over the past 12 months the residential and retirement markets in which Aspen operates have generally benefited from continued population growth, a shift in consumer preference for accommodation in “lifestyle” locations, and pent-up demand for lower cost housing. With interest rates now at their lowest levels ever and house prices generally rising, there is even more incentive and need for retirees to fund their living expenses by freeing up capital in their houses and “downsizing” into the types of properties Xodbox and carport/landscaping Aspen provides.

During the COVID-19 event, performance has been very mixed across our different property types and locations. For instance, 28% of Aspen’s portfolio by value is in Western Australia. The state is essentially COVID-free, its economy is benefiting from its export-oriented resources sector which is achieving record revenues, and its population is growing as people return home from overseas and relocate from interstate (traditional fly-in-fly out working arrangements are highly problematic with travel restrictions). Business activity in the Karratha region has been robust and Karratha airport passenger movements have been quickly recovering towards pre-COVID levels which bodes well for our Aspen Karratha Village. Also, our Perth residential portfolio is benefitting from historically low vacancy rates of less than 1% and rapidly escalating market rents. On the other hand, our Tween Waters Holiday Park near the NSW-Victorian border, Adelaide Caravan Park near the Adelaide CBD and Darwin Freespirit Resort with its large component of caravanning customers, are being materially impacted by travel and gathering restrictions. We are hopeful that the short stay tourist segment of our business will become more predictable and rebound over the next 12 months as vaccines are rolled out, state government handling of isolated outbreaks becomes less chaotic, and international travel remains off limits.

The value of Aspen’s property portfolio increased by 16% over the half to $186 million, mainly through the acquisitions of Cooks Hill co-living community ($68k per unit), Burleigh Heads build to rent community ($175k per dwelling) and Mount Barker land ($46k per approved site*). These locations offer attractive lifestyles and are close to major commercial hubs and jobs. Our low entry prices enable us to provide quality accommodation to our customers on competitive terms whilst also generating attractive investment returns for securityholders. Aspen Karratha Village was our only property that was externally revalued in the half, up $5m to $16m (only $89k per room).

We have increased capital improvement and development activity across the portfolio. For instance, the sale of new houses has commenced at Sweetwater Grove at prices of $200-250k at an average profit margin of about $63k (29%); 17 of the 20 units at Treatts Road Lindfield have now been refurbished and re-leased with average rents up about 67% to $324 per week; new hi-tech Xodboxes have been installed at Highway One and have been leased at $275-$325 per week generating a marginal ROCE of above 15%; new entertainment facilities have been installed at Darwin Freespirit Resort which has attracted more customers and materially boosted profitability; new labour and energy saving initiatives continue to be adopted at all of our properties.

• Pre transaction costs

New Xodboxes at Highway 1 – Lifestyle Living at Competitive Rents

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Residential Rentals from $275 to $325 per week (1 & 2 bedrooms)
Xodbox and carport/landscaping Kitchen & living area
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Park amenities
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Gated community
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Our properties offer quality accommodation on competitive terms in their local markets which strongly underpins occupancy, rents, net income and value…

…They also have the potential to be profitably repositioned and developed into higher value uses over time which underpins capital growth into the future.

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Tween Waters Holiday Park, NSW
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Financial Performance

Key Profit				1H FY21 $m 1H FY20 $m % Change	1H FY21 $m 1H FY20 $m % Change	1H FY21 $m 1H FY20 $m % Change	FY20 $m
	and Loss Metrics			1H FY21 $m 1H FY20 $m % Chn
				17.77 16.43 8% 8.02 6.78 18% 45% 41% 14.88 15.13 (2%) (7.83) (8.77) (11%) 7.05 6.36 11% 47% 42% 2.89 1.30 122% (1.92) (0.89) 0.97 0.41 135% 34% 32% (2.05) (2.42) (15%) 5.96 4.36 37% (0.67) (0.71) (5%) - - 5.29 3.66 45% 116.36 96.32 21% 4.55 3.80 20% 3.10 2.75 13%
Total Revenue							30.38
Operating & Development Net Income							12.46
Margin							41%
Operations
Rental and ancillary services revenue							28.13
Direct property expenses							(16.35)
Net operating income							11.78
Margin							42%
Development & Trading
Development & trading revenue							2.25
Cost of sales							(1.57)
Net development income							0.68
Margin							30%
Net corporate overheads							(4.43)
EBITDA							8.03
Net finance expense							(1.39)
Tax							-
Operating Profit							6.64
Securities (weighted)							97.59
EPS (cents)							6.80
DPS (cents)							6.00

Aspen’s insurers agreed to a payout of $686k relating to the bushfires that impacted our Barlings Beach and Tween Waters properties in January 2020. The net payment of $577k after deductibles and other expenses has not been included in Operating Profit.

Balance Sheet

As at 31 December 2020, Aspen had total assets of $205.4 million, gross debt of $53.6 million and net asset value (NAV) of $140.2 million equating to $1.20 per security. Gearing was 23.1% at the end of the period which is below our target range of 30-40%.

The increase in NAV over the half is mainly attributable to the revaluation of Aspen Karratha Village and retained earnings. We have written off all transaction costs relating to property acquisitions this half. The portfolio is attractively valued on a weighted average capitalisation rate (WACR) of 8.3% and an average of about $79k per approved site including land and dwellings.

Balance Sheet					1H FY20 $m % Change	1H FY20 $m % Change	1H FY20 $m % Change	FY20 $m
	Metrics			1H FY21 $m	1H FY20 $m % Chn
Property Assets				185.7 205.4 7.9 53.6 45.7 23.1% 25.0% 6.9x 140.2 116.4m	159.7 16%			167.0
Total Assets					173.3 19%			190.7
- Cash					4.0			8.2
- Gross debt					52.5			42.5
Net Debt					48.5 (6%)			34.3
Gearing1					28.7%			18.8%
Loan to Value Ratio2					31.0%			20.8%
Interest Cover Ratio3					6.2x			5.5x
Net Asset Value (NAV)					109.7			134.0
Securities at period end					96.3m			116.3m
NAV per Security				$1.20	$1.14 5%			$1.15

1. Net Debt divided by Total Assets less Cash

2. Net Debt divided by Property Assets as defined in the debt facility (covenant is 50%)

3. EBITDA divided by debt interest expense as defined in the facility (covenant is 2.0x)

Outlook

We believe Aspen is well positioned to continue to grow profits and the book value of equity over the medium term and we are aiming for growth of at least 10% per annum. However, we expect business conditions and profitability to remain volatile over the short term.

We expect rents to continue to increase steadily across our residential and land lease properties, particularly for our Perth portfolio once Western Australia’s COVID-19 related moratorium on rent increases ends on 28 March 2021. In the Perth metropolitan area, the average residential rent has increased about 13% during the moratorium (source: Domain Rent Report).

The near-term outlook for our short stay business continues to be clouded by the COVID-19 event. International travel is likely to remain off limits for at least the next 12 months which should benefit domestic holiday parks, but only if government-imposed restrictions become less chaotic.

We have pivoted to a short stay operating model at Aspen Karratha Village (AKV) after the expiry of Woodside’s long term accommodation agreement in late January 2021 which will result in reduced income and volatility in the short term as we build our customer base. As is the case for all of our properties, we expect to earn higher profits over the long run under a short stay model given the additional operating intensity and volatility. We expect economic activity to increase in Karratha over the next several years, particularly if Woodside’s various proposals for the Karratha Gas Plant and Perdaman’s Karratha Urea project are greenlighted. AKV’s net operating income (NOI) was $3.9 million in FY20 while the Woodside agreement was in place. The external valuation assumes 17% cap rate and stabilised NOI of $2.9 million based on 52% occupancy and $134 average room rate, after a 12month period of building new short stay patronage.

We have been positioning for strong growth in the years ahead in the development and trading component of our business. Sales of new houses at our land lease communities increased materially in the first half and the pace has continued into the second half – the number of contracts/deposits we currently hold for new houses at our land lease communities are already above the entire 1H

settlements. In Perth, increasing rents and lower interest rates have made it more attractive for our customer base to buy than to rent, which is putting upward pressure on house prices. If this continues, opportunities may arise to sell individual houses and recycle the capital into other areas of our portfolio where we can offer cheaper rents to our customer base and earn higher returns. For instance, there are ample opportunities within the portfolio to add new dwellings at our parks at very attractive yields, such as Xodboxes at Highway 1. We expect to commence development works on our Cooks Hill co-living and Burleigh Heads build to rent projects soon and we believe their values on completion will be well above total cost.

The demand for our type of properties has generally increased during the COVID-19 event as they are typically in “lifestyle” locations close to jobs, and more people are working from home and seeking more space. New technology and shifts in consumer preferences are boosting, not disrupting, demand for our accommodation products. For instance, our new dwellings are efficiently designed and well insulated which reduces their environmental footprint, energy use and operating costs. Also, rapidly improving communication networks and internet services have enabled our customers to spend more time at home, working and living. Our lower rents have become more attractive in the weaker economic environment and they are well supported by government subsidies. We do not provide leasing incentives to our customers which makes rents more affordable (not artificially inflated), reduces credit risk and improves income growth potential.

We continue to seek new opportunities to grow the business and portfolio on a profitable basis in the residential, retirement and short stay sectors through development and acquisitions. Some segments of Australia’s accommodation industry are stressed, and this is presenting opportunities for Aspen.

Announcement authorised by the Board of Aspen Group Limited.

END

For further information, please contact: David Dixon John Carter Joint Chief Executive Officer Joint Chief Executive Officer Phone: (+61) 2 9151 7584 Phone: (+61) 2 9151 7586 Email: davidd@aspengroup.com.au Email: johnc@aspengroup.com.au

Disclaimer

This address has been prepared by Aspen Group Limited on behalf of Aspen Group Limited and Aspen Property Trust (“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 address constitutes investment, legal, tax or other advice. The information in this address 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 address 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 address. 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 address or its contents or otherwise arising in connection with it.

This address contains forward looking information. Indications of, and guidance on, future earnings, distributions and financial position and performance are forward looking statements. Forward looking statements are based on Aspen’s current intentions, plans, expectations, assumptions, and beliefs about future events and are subject to risks, uncertainties and other factors which could cause actual results to differ materially. Aspen and its related bodies corporate and their respective directors, officers, employees, agents, and advisers do not give any assurance or guarantee that the occurrence of any forward-looking information, view or intention referred to in this address will actually occur as contemplated. All references to dollar amounts are in Australian currency.

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Barlings Beach Holiday Park, NSW

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Koala Shores Holiday Park, NSW
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