ASX code: APZ
Share price: $1.16
Industry: Real Estate
Forecast Distribution: 9.2 cents per security
After a tumultuous period for investors in Aspen Property Group (ASX code: APZ), we are starting to see value emerge in what we perceive to be a simpler, cleaner structure. Formed back in 2001, APZ is today steadily transitioning its strategic focus towards the “value for money” accommodation sector.
APZ recently divested its interest in the Aspen Parks Property Fund (APPF) and in doing so realised a substantial amount of cash. APZ was effectively outbid for the unlisted fund by Discovery at a significant premium to book value, while the Group also received a $5m payment for the management rights it relinquished.
The silver lining of this event is the fact that APZ now sits on a net cash balance of $61m, or 54c per share. Cash in fact accounts for nearly half of the group’s market capitalisation. In addition to this, APZ owns 5 holiday and accommodation parks across Australia as well as the Spearwood South industrial property. This is a fully leased, high yielding property in Perth that we believe is quite conservatively valued on APZ’s books. If a transaction were to take place on this asset in today’s market, we suspect it would arguably add up to 10 cents per unit to the net asset value of the group.
In terms of capital management, APZ management has several options at its disposal. These options include acquisitions of income producing properties, a buyback and paying out a healthy level of distributions. Indeed, all three appear likely over the coming months.
In what would be an important driver of future earnings and distribution growth, we believe APZ management will look to sensibly deploy its substantial cash reserves by way of an active acquisition program. Management have also recently announced an on market buyback that may potentially reduce shares on issue by up to 10%. Given the substantial existing discount to per share net tangible asset backing of $1.31, we view this as sensible capital management that builds value.
Beyond the strong financial position of the group, as is often the case with the Dividend Detective, we are also attracted to the high distribution yield on offer. APZ is due to go ex a 4.6c distribution in June, which when annualised equates to a yield of about 7.9 per cent. Given the interest rate environment that currently prevails, we believe this will begin attracting attention for those seeking to switch low yielding cash reserves into a solid, higher yielding option.
Looking ahead, we see significant scope for growth in earnings over the coming 3 years, driven by acquisitive and organic means. Ultimately such a strategy will result in APZ having a growing book of recurring rental income, potentially augmented by development income.
Adrian Ezquerro is a senior analyst at Clime Investment Management.