Eco Investor October 2016

Core Securities

Divestments and Acquisitions for Ingenia

Property fund Ingenia Communities Group has furthered its growth strategy with the sale of the majority of its traditional retirement villages, as has been planned, and the acquisition of two more lifestyle parks using the funds from its June placement. The sale involves five of the eight Deferred Management Fee (DMF) portfolio assets and will see Ingenia retain a minority stake and management rights. The sale will release net cash of $41 million to grow Ingenia's lifestyle communities business.

Ingenia is a property group with four sides to its business. It is most active in the emerging manufactured homes market where it owns properties that are usually part holiday park and part manufactured homes estate. It sells the manufactured homes as low cost housing to seniors and rents them the land to put the homes on. Alongside these it runs a traditional holiday parks business with cabins, caravans and campsites for families and other holiday makers.

Along with Lifestyle Parks & Holidays, the other key part of Ingenia's business is Garden Villages.

These are housing estates where retirees can rent long term accommodation.

The fourth part of its business is the Settlers branded DMF assets. These are more traditional retirement villages, and for some time Ingenia has been looking to sell these and free the capital to invest in its core businesses.

The buyer is Forum Partners, a global real estate investment manager with US$4.5 billion under management. Forum acquired Ingenia's New Zealand student accommodation portfolio in 2014 and already has significant investments in Australia, New Zealand and Asia Pacific.

The five assets represent 82 per cent of the DMF portfolio by value. The price is an 11.7 per cent discount to their 30 June book value. The assets will be transfered into a new vehicle to be owned jointly by Forum and Ingenia. Ingenia's residual net interest in the new vehicle will be 10 per cent with a value of about $2.2 million. The assets are Ridgewood Rise and Lakeside in WA, Rockhampton and Forest Lake in Qld, and Ridge Estate in NSW. Ingenia will provide management and operating services to the portfolio under its existing Settlers brand.

Consistent with its objective to refocus its business on its Garden Villages and Lifestyle Parks & Holidays portfolios, Ingenia said it expects to exit the new vehicle in the medium term as Forum grows the portfolio and internalizes its management.

The DMF sale is expected to settle by the end of 2016 and the funds to be redeployed within six months. Acquisitions are expected to earn yields of around 8 per cent and development projects are expected to generate internal rates of return of over 20 per cent.

Ingenia's chief executive, Simon Owen, said the sale is a major step in the strategy to divest the remaining non-core assets and refocus the business on rental assets. "We are continuing to work towards divesting the remaining three assets which had a book value at 30 June of $11.3 million and are subject to alternate sales strategies," he said. These remaining assets will comprise about 3 per cent of Ingenia's total portfolio.

The new lifestyle parks are the Avina Van Village in Sydney, and the Happy Wanderer Caravan Park at Hervey Bay in Queensland. The cost for Avina Van Village is $33 million but the price for the Happy Wanderer Caravan Park was not disclosed.

Ingenia said the parks will grow rental cashflows and the development pipeline.

The Avina Van Village is said to be one of the last family owned freehold caravan parks in the tightly held Sydney market. It has 180 income producing sites and the potential to develop about another 150 new homes on land acquired with the existing community. It is seen as offering strong growth in returns through active asset management and development.

Ingenia has an option over an additional four hectares of land that can support another 95 new homes. The option expires in three years and can be exercised for $6.6 million.

The Happy Wanderer Caravan Park is mixed-use with 149 permanent and short-term sites. Ingenia said it establishes a new cluster in a strong tourism and retiree location with opportunities to enhance returns.

Mr Owen said the acquisitions increase Ingenia's Lifestyle & Holidays portfolio to 29 communities with close to 4,300 permanent, annual and short-term income generating sites. They increase Ingenia's investment in the lifestyle portfolio to $350 million.

Ingenia is continuing to progress due diligence for an unnamed park on the NSW coast.
It recently received development approval for 55 manufactured homes at The Grange in Morisset in NSW, said Mr Owen. Across its portfolio, Ingenia has nearly 1,500 development sites for manufactured homes. That should keep it busy for a while. (ASX: INA)






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