Eco Investor April 2018

Core Securities

A Good Future for Manufactured Housing

The future of manufactured housing looks good with Ingenia Communities Group publishing a chart showing strong growth and outperformance in the US of manufactured housing compared to other commercial property sectors.

The chart shows that since 1999 net operating income (NOI)) for manufactured housing has risen over 220 per cent, outperforming the next highest sector, apartments, which had a rise of nearly 170 per cent. The rises for offices, malls, strip centres and industrial properties were between 160 and just over 140 per cent.

Unfortunately, Ingenia did not give further information about the data, except that it applied to the same community and is based on two of the main manufactured home groups. However, the data is over a long period, includes the GFC, and shows consistent outperformance.

Donna Byrne, Ingenia's Group Investor Relations Manager, told Eco Investor that in Australia Ingenia has a mix of manufactured homes and onsite built homes. States vary in their requirements, which can influence decisions, and some acquired estates already have onsite projects approved or underway. Which type of home to utilize is a project by project decision. Ingenia's NSW estates are more manufactured homes while Victoria and Qld have more onsite constructed homes.

The proportion of manufactured homes construction on Ingenia's balance sheet is significant. In the December half, the cost of manufactured homes sold was $14.5 million. In the December 2016 half it was $16 million. The purchase of manufactured homes cost $22 million and was $21.4 million in the 2016 interim half. The proceeds from the sale of manufactured homes was $28.1 million. In the December 2016 half it was $24.9 million.

At 31 December Ingenia had 80 completed manufactured homes, 11 refurbished/ renovated/ annuals homes that were completed, and 149 manufactured homes under construction including those in demolition and site preparation.

It is unfortunate that Ingenia did not have NOI data for manufactured homes in Australia. But if the trend is similar to the US then Ingenia should continue to enjoy the sort of good income growth shown by its interim results.

Revenue rose 18 per cent to $76 million. Net profit rose from $7.6 million to $17.1 million, and underlying profit rose 37 per cent from $10.6 million to $14.6 million.

The biggest share of the revenue was from rental income: $43.6 million. The sale of manufactured homes generated another $25 million. The equivalent numbers for the December 2016 half were rental revenue of $32.3 million and manufactured home sales revenue of $24.7 million.

So Ingenia's growth is in rental income, which is what net operating income refers to. The biggest rise was in short-term rental income for its Lifestyle and Holidays accommodation which rose from $10.5 million to $17.6 million. The second biggest rise was in residential rental income, from $7 million to $10.6 million.

There was marginal growth in revenue from its Ingenia Gardens Seniors' Rental business, but this utilizes traditional rather than manufactured housing.

Another contributor to Ingenia's revenue growth is more Lifestyle and Holidays rental properties. It had 33, four more than at the end of 2016. Its number of permanent sites rose 37 per cent to 2,478, annual sites rose 19 per cent to 908, and tourism sites rose 23 per cent to 2,161.

Ingenia’s rental properties and rental income. Ingenia also earns income from the sale of manufactured homes and from other on-site sources.

The future looks bright too with the number of development sites rising 23 per cent to 2,846. Ingenia said this is a significant development pipeline that positions it well to continue growing its Lifestyle and Holidays business.

The sale of manufactured homes is also traveling well for Ingenia as sales are steadily increasing and margins are high. In the December half, new lifestyle home settlements grew by 10 per cent from 82 to 90.

On the environmental side, Ingenia told Eco Investor that its traditional manufactured homes are clad with weatherboard made from fibre cement. The new homes at its Latitude One project that are being constructed onsite are using a steel frame with the cladding consisting of NRG Greenboard and Hebel aerated blocks. Greenboard is energy efficient as it has inbuilt insulation and is weather and fire resistant. It is also environmentally friendly as it is made with recyclable and reusable products manufactured without CFCs and poisonous gas. Developed in Germany, it is in wide use in Western Europe and North America where environmental laws require energy efficiency. It also has bush fire resistance.

Hebel aerated blocks are also lightweight and environmentally friendly. They are said to give excellent thermal insulation, have a superior fire rating to concrete, and are faster to lay giving significant cost benefits.

Ingenia's net tangible asset value per security at 31 December was $2.53, up from $2.50 at 30 June. Its recent security price is $2.80.

The half year distribution remained the same at 5.1 cents per security. (ASX: INA)







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