The political discord has echoed a constant refrain over the last few years. ‘There is a housing affordability crisis!’ The proportion of rentals with rent less than $400 per week is currently less than 6% nationally with the worst cities being Sydney and Canberra. Aspen (ASX:APZ) has latched onto this theme and is doing its best to address it whilst also generating strong profits for shareholders.
Aspen develops, owns and operates affordable housing and temporary accommodation. Its target market is the circa 40% of Australian households with annual incomes less than $90,000, providing accommodation across residential communities, retirement villages and holiday parks.
Their portfolio consists of over 5,100 approved dwellings and land sites with an overall valuation above $550 million. The portfolio is well diversified with properties spread across Australia. Western Australia is their largest market, followed by NSW. 90% of the portfolio is in the highest growth states of WA, NSW, SA and Qld. They also have a mix of metropolitan and regional areas.
Aspen derives revenue from two primary sources: rentals and development. The revenue breakdown is as follows:
- Rental Income - 62%
- Lifestyle home and land sales - 32%
- Food and beverage and other ancillary sales - 6%
They derive a net operating margin of 50% on rental income. The average rent received in FY24 was $317 per week. This is estimated to rise to $390 per week in FY25, still below that $400 threshold. The rental portfolio has very high occupancy rates and very low delinquency rates with a significant portion of renters receiving government rent assistance.
The development side of the business involves selling lifestyle homes as well as residential land lots. The average price for homes in FY24 was $418,000 and for land was $200,000. This segment of the business generates operating margins of 30%. They have a strong development pipeline with ten active development projects consisting of a total of over 1,100 approved sites.
They sell properties where rental yields reach low levels, thus freeing up capital to recycle into higher yielding properties and keeping with their mission of providing affordable accommodation. For example they are currently selling $18 million of town houses on the Gold Coast at yields under 3%.
They try to maintain a split of about 80:20 between operating income and development income so as…
