Ingenia Communities Group (ASX:INA) FY18 results


by Jessica Amir

Ingenia Communities Group Limited (ASX:INA), CEO & Managing Director, Simon Owen discusses FY18 results, seniors’ living and tourism tailwinds and the outlook for 1H19.

Jessica Amir: Hello Jessica Amir here for the Finance News Network, today I’m with Ingenia Communities Group Limited (ASX:INA) CEO and Managing Director, Simon Owen. Simon thanks for coming in.

Simon Owen: Great to be here Jess.

Jessica Amir: First up for those who aren’t familiar, just give us a very quick introduction to the company.

Simon Owen: Ingenia’s an integrated operator and developer of land lease communities, holiday parks and retirement communities across Australia. All up, we have 61 villages right across the country, we employ a bit over 600 people and we look after over 5,000 seniors in our villages.

Jessica Amir: Now let’s talk the 2018 results, well done. What are the highlights?

Simon Owen: 2018 was really a breakout year for Ingenia. Our revenue was up over 26 per cent to $189.5 million. Our earnings before interest and tax was up over 50 per cent, to $48.8 million. And our core earnings per security was up 36 per cent, to 17.7 cents per security. So a very strong set of numbers.

Jessica Amir: So what drove the results?

Simon Owen: There were a few things Jessica that really drove the result. Firstly, we integrated several large transactions over the course of the year. So we bought the largest holiday park up in Cairns, Cairns Coconut, so that was fully a contribution from that. We also bought two holiday parks up in Brisbane. And then finally, we also saw a record number of settlements of new homes and at record prices, and record margins. So they were the main contributors to our business, to our very strong performance.

Jessica Amir: Now just a quick update on your portfolio starting with the Ingenia Lifestyle Communities?

Simon Owen: Ingenia Lifestyle Communities is a land lease model. So that’s where the senior owns the home and Ingenia continues to own the land, and charge a rent for that business. So key drivers in that business is firstly, new home settlements. So over the course of the year, we settled 287 new homes, which was a record for us, and our margins in that business are continuing to expand. We’re also charging, our rents have gone up, so our average rent in that portfolio’s around $166 per week. And we’ve also been able to extract some further operational efficiencies, as we continue to grow into that business.

The second part of our business is in junior holidays. So Ingenia owns some of the premier coastal holiday parks, or what a lot of people would affectionately remember as caravan parks, on the east coast of Australia. In that business we have over 780,000 room nights per annum. And so that business is performing very strongly, really driven by two key markets. Firstly, young families with kids and secondly, grey nomads. So we see a lot of real potential in that business.

Then the last part of our business, which is I guess the legacy or oldest part of our business, is Ingenia gardens. So Ingenia owns the largest portfolio of senior’s rental communities in Australia, so that’s a great business. We have 26 villages across the country and we’re now looking at some opportunities to actually develop, the first new commercial rental village in Australia for over 10 years. So across all three parts of our business, they’re all performing very strongly and we think with great growth prospects, heading into 2019.

Jessica Amir: Now let’s talk about the strategy and share price. First up you’ve been recycling capital, how’s that strategy playing out?

Simon Owen: That’s going very well to date, so over the last 12 months we’ve identified around $100 million of non-core assets. So to date, we’ve sold or have under contract around $60 million. And over the next 12 months, we would anticipate selling out the balance of that $40 million of non-core assets. All of that capital is recycled into our development pipeline and so from a capital perspective, the business is very well set at the moment. I should also add that our operating cash flow was very strong over the year. So that’s also giving us a lot of internal capacity to continue to fund our development pipeline.

Jessica Amir: Now can you give us a comment about the strong appreciation in your share price, over the past 12 months?

Simon Owen: The share price has performed very strongly, up over 20 per cent over the last 12 months. I think there are a number of factors at play there. Firstly, we’ve made massive inroads in the operational efficiencies in the business. We continue to expand our development numbers, our margins are continuing to grow and I think there was finally some recognition for that. Secondly, we are seeing some corporate consolidation in the sector.

So what you’re seeing is some of the largest global landlords are all looking for land lease communities in Australia, and we’ve recently seen one of our competitors Gateway Lifestyle Group (ASX:GTY) under takeover. So I think that’s provided some support to our share price. And then in June, we upgraded our earnings again, so that provided a lot of momentum.

Jessica Amir: Now let’s talk about the outlook for the first half of 2019?

Simon Owen: In our business at the moment, we’re experiencing some really strong tailwinds, really driven by three key factors. One is the aging of the population. Everyday in Australia, over 700 people turn 65 and that’s really our core market. Secondly, housing affordability remains a real key issue in the Australian economy and our business model addresses that. And finally, we’re seeing record numbers of Australians retiring, but they don’t have a lot of capital outside the value that’s stored in the family home. So all three of those factors are strongly supportive of our business model.

So over the next six months, we expect to see continuing growth in rents, continuing growth in new home sales and continuing expansion in our operating margins. So we’re very pleased with the momentum that’s built up the business.

Jessica Amir: Simon Owen, thank you so much for the update.

Simon Owen: Jess it’s been great to be here, thank you very much.