Aspen starts FY27 ahead of plan as development profit nearly doubles

Rental income and development profit lead strong quarter

Aspen Group Limited (ASX:APZ) has opened FY27 ahead of management expectations, powered by a stronger rental pool and a sharp increase in development earnings. Net rental income rose 16% to $12.7 million in the three months to September, while realised development profit climbed 98% to $7.9 million.

The result lifted EBITDA 38% to $17.8 million and pre-tax earnings per security 34% to 7.1 cents. Rental revenue increased 10% to $21.7 million, with the net rental margin expanding from 55% to 58% as Aspen attributed the improvement to operational management, refurbishments, lower costs, marketing and portfolio mix.

Aspen said its long-stay accommodation was essentially full, with rents generally rising 3% to 5% a year and estimated to remain about 10% below market. The company also reported high open-home attendance and rental applications, with negligible arrears. At CoVE Upper Mount Gravatt, occupancy recovered to above 90% after a construction-related 20% rent rebate ended on 1 September.

Development pipeline reaches key FY27 coverage level

Development provided the bigger earnings acceleration. Aspen settled 46 sales in the quarter, compared with 30 a year earlier, while the average lifestyle-house price rose 9% to $520,000. The development profit margin expanded five percentage points to 36%, producing $168,000 of profit per house or lot, up 24%.

There were 123 contracts on hand at quarter-end, taking settlements and contracted sales to 169. Aspen said that total represents about 78% of its FY27 development-profit guidance, comprising 91 lifestyle houses against guidance of 150 and 78 residential land lots against guidance of 90. Lifestyle-house cancellations remain very low, while seven residential-land contracts have been cancelled; six of those lots have since been re-contracted, five at an average price 5% higher.

The Australind project is also progressing, with its residential build-to-rent component on track for completion during the first half of FY27. Aspen said demand was strong and rents were materially above the original feasibility assumption of $400 to $450 a week, with some furnished and serviced two-bedroom houses leased to corporate customers for $1,000 a week. The lifestyle component is expected to begin in FY27.

Guidance holds despite early outperformance

Aspen retained its FY27 targets rather than upgrading them after the better-than-expected quarter. The company is targeting $44 million of net rental income, $33 million of realised development profit, $66 million of EBITDA and pre-tax earnings per security of 26.1 cents, representing 20% growth on FY26. The distribution target is 12 cents per security, up from 11 cents, although Aspen expects a 10% to 15% effective tax rate on total pre-tax underlying earnings after exhausting its historic tax losses.

That restraint reflects the main uncertainty in the update: timing. Aspen cited weaker economic conditions as a risk, particularly for development settlements, and said its guidance assumes no material change in the operating environment. The portfolio is still moving, with the ECH acquisition settled in early September, the Trigg apartment sale completed on 1 October and sales of Barlings Beach and Black Dolphin expected to settle in mid-October.

For shareholders, the immediate question is less whether demand exists than whether Aspen can convert its contracted pipeline into timely settlements while protecting margins. Titles at Mount Barker have been issued and settlements have begun, while Ravenswood titles are expected in November. Those milestones will help determine how much of the quarter's strong start becomes full-year earnings rather than simply an encouraging early snapshot.