Ingenia Communities Group (ASX:INA) talks FY16 results and outlook

Interviews

by Carolyn Herbert

Transcription of Finance News Network Interview with Ingenia Communities Group (ASX:INA) Managing Director and CEO, Simon Owen


Carolyn Herbert: Hello I’m Carolyn Herbert from the Finance News Network and joining me from Ingenia Communities Group (ASX:INA) to discuss its FY16 results is Managing Director and CEO, Simon Owen. Simon, welcome back.

Simon Owen: It’s great to be here Carolyn.

Carolyn Herbert: Now you’ve just released your full year results for FY2016. What were the highlights?

Simon Owen: We reported a very strong set of financial results. So our profit from underlying operations was up around 20 per cent to $20.2 million. Our operating cash flow was very strong, up around 130 per cent to $21 million. Our statutory profit was down slightly due to the runoff of some tax benefits, but that was $24 million. And I think most pleasingly, our distribution was up around 15 per cent to 9.3 cents per security. So overall, a very strong financial result.

Carolyn Herbert: Now to the portfolio, how did it perform?

Simon Owen: Across the 66 communities Ingenia now owns and operates in three different segments, the overall portfolio performance was very good. Our garden villages business, which is Australia’s largest seniors rental business occupancy was steady for the year, and closed out at 91.7 per cent. One of the most pleasing parts of that business now is that we’re collecting about half a million in rent every week. And most of that’s underpinned by the Pension and Commonwealth Rent Assistance.

Our Ingenia Lifestyle & Holidays business is performing very strongly. What we’re seeing now in a low Australian dollar environment and where families are taking a lot more shorter, but more frequent holidays, is that’s really underpinning demand for the holidays part of our business. And we also achieved a record sales outcome in our lifestyle business. So we settled 107 homes for the year, which is up over 100 per cent on what we achieved in last year’s record results. So operationally, the business is performing very well.

Carolyn Herbert: What progress are you making with acquisitions following your capital raising?

Simon Owen: In June we raised $60 million through a heavily oversubscribed placement. That was to underpin four acquisitions and the largest of those was in western Sydney, the last family owned institutional grade caravan park. We’re well advanced on that Sydney acquisition and I’d expect in the coming weeks, we’ll be in a position to announce that.

Of the other three transactions, one of those down Lake Bermagui on the New South Wales south coast, we settled two weeks ago. And then the other two, one in Fraser Coast, Hervey Bay in Queensland, we’re well advanced and I’d expect an announcement on that very shortly. And the other one on the New South Wales mid north coast is progressing very well. So all in all, we’re well advanced. On top of that, we also have another three properties that are either under conditional contract or under option. So our acquisition deal flow looks very strong.

Carolyn Herbert: So in this ultra low interest rate environment, what yields are you buying properties on?

Simon Owen: There are two different types of properties we’re buying at the moment, those with existing yields where we’re looking at an ingoing yield, of around the eight to nine per cent. And then we’ve also started moving into acquiring greenfields development sites, to develop brand new communities. And those don’t generate any income on day one, but we’re typically looking at an unlevered internal rate of return of around 25 per cent. So very profitable projects, but a little bit of capital has got to go in the short term, before the profits start to come out.

Carolyn Herbert: Now to a more general question Simon. As seniors accommodation is clearly changing as your business model demonstrates, so what do people like most about your lifestyle parks?

Simon Owen: There are probably three things that attract residents into our communities. I think firstly it’s a sense of community. So our villages have great community centres, lots of activities and lots of things for our residents to do. Secondly it’s security. So not only physical security, most of our communities are gated, but it’s also the financial security that our communities offer.

And then lastly, I think most retiring seniors tend to own their homes. And so what our communities offer is the ability for seniors to downsize into a smaller home, put a couple of hundred thousand dollars into the bank, to fund a more enjoyable retirement. But they’re also getting a brand new home. So they’re the key drivers for people moving into our communities. And I think we’ve got a great 20 years ahead of us with the aging population.

Carolyn Herbert: Finally Simon, what’s your outlook for FY17?

Simon Owen: The outlook is continuing growth, so we’re forecasting significant uplift in sales in our lifestyle business. We see there’re great opportunities for us to grow revenue in our garden villages business. And we’re going to expand into undertaking some new greenfields developments in Sydney and Queensland, and the mid north coast of New South Wales. So continuing growth. We’re going to continue to acquire more businesses and hopefully, meaningfully grow our profits and distribution.

Carolyn Herbert: Simon Owen, thanks for the update.

Simon Owen: Thanks very much.


Ends

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