Aspen Group (ASX:APZ) – affordable residential and retirement property

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Aspen Group Limited (ASX:APZ) Executive Director and Joint CEO John Carter provides an introduction to the company, discussing target market, the rising interest rate environment, portfolio mix and development pipeline.

Tim McGowen: We're talking today with Aspen Group (ASX:APZ). The company owns and operates properties in the affordable accommodation sector. It's a provider of quality accommodation on competitive terms in the residential retirement and park communities. It's got an ASX code of "APZ" and a market cap of $344m. We're joined by the company Managing Director, John Carter. John, welcome to the studio. Thanks for your time.

John Carter: Thanks, Tim. It's great to be here.

Tim McGowen: And, John, for those investors that don't know Aspen Group, can you give us an introduction?

John Carter: Yeah, so Aspen targets the 40 per cent of Australian households that can only afford $400 or a maximum of $400 a week in rent, or to pay $400,000 for a home.

Tim McGowen: And so there's been major changes in the macro. I just want to talk about that target market. We've had rising interest rates. We've obviously got some inflation and other issues. How's the macro picture affected your target market?

John Carter: Yeah, so, look, I think the pressure on people is even greater, so there's more cost-of-living pressures happening at the moment, so the demand for our product is even greater than normal. We've got, you know, massive, massive interest in our residential and massive queues for that. And in the retirement side, again, people are able to sell their house and get some cash when they buy. And I think, on the holiday side, it's early days, but we still think there's reasonable demand for our sort of affordable holiday product as well.

Tim McGowen: And I was going to ask you about that. You've got 5,000 dwellings. I was going to ask you about your portfolio of assets. You've had a good result, strong revenue and high margins. Is this likely to continue in a rising interest rate environment?

John Carter: Look, we certainly think the residential is very strongly underpinned. There's increased immigration, which is supporting rents. There's no sign of rents, you know, going down. In fact, we believe rents will continue, over the next few years, to be supported and grow. There's very limited ability to add to supply in the short term as well. So, residential, which is the biggest part of our portfolio, looks strong. On the retirement side as well, it's supported by the pension that's being indexed in general to inflation. So, our customers are only paying $180 a week, and so every time their rent goes up, about 75 per cent of that is paid for by the government.

Tim McGowen: And can you talk to your kind of portfolio mix? I think about 36 per cent is in kind of the parks community, 16 per cent or so in the retirement community. Are you happy with that mix?

John Carter: Yeah, we don't really target a mix. What we are looking for is assets which have, you know, great opportunities for us to deliver the product to our customers. Generally that's been by finding brownfield assets that we can add value to. Over the next period of time, we've got 50 per cent in residential. Over the next period of time when we complete those projects, there'll be a lot of growth in the residential side for us.

Tim McGowen: And the motel business, you acquired an asset in Merimbula. Can you talk about how that fits into your portfolio?

John Carter: Yeah, so, look, we haven't acquired a tourism asset for a while. That opportunity was a great one for us because it's right across the road from Tween Waters, which is an existing asset. By combining those two, we think there'll be good synergies, and we think we'll get a stabilised return of over 8 per cent. It's in a location where, longer term, the land value will be very high. There's a lot of, you know, very good water views from both properties.

Tim McGowen: And can you talk through your kind of development pipeline and what role that plays with Aspen?

John Carter: Yeah, so we target roughly 20 per cent of our earnings to come from development. There's two components of that, retirement homes and land that we sell. The retirement side, we're expecting, as we go into '24 and '25, that we'll sell more houses and we'll build up quite a decent pipeline of sites. The residential land we've acquired, typically in larger properties, we see the land as just a good way of recycling capital. And, again, it should be well insulated because our price point is generally sort of lower than 200,000, which is very affordable.

Tim McGowen: John Carter, thanks for your time.

John Carter: Thank you.

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