INA - Ingenia Communities Group

[Dona Ferentes]

Rights issue under water .... Like a lot of sites.
Disruption ... hither and thither. Market already priced it in to an extent.

INA provides the following update to the Group’s trading activity and FY22 guidance, in light of continuing supply chain challenges and shortages of skilled labour which are causing delays in new home completion. These delays have been exacerbated by the flow on impact of recent unprecedented rainfall.

As a result of these conditions, FY22 settlements are now anticipated to be in the range of 400 to 425. The Group is targeting EBIT growth of 5% to 10% on FY21 and underlying EPS is anticipated to be 1-2 cents below FY21.

Development and sales
Since announcing the Group’s results in February 2022, the impact of significant rain events in late February and March have led to further delays in key projects across Queensland and NSW, with homes scheduled for completion in Q4 FY22 now expected to settle in early FY23. The Group’s
Queensland projects across Hervey Bay, Sunshine Coast, Logan and Gold Coast have experienced significant delays, with rainfall closing sites and limiting access.

 

[Dona Ferentes]

An underwritten 1 for 4.24 accelerated non-renounceable entitlement offer .. to raise approximately $475 million issued at $6.12 per security

and probably another casualty of RBA rate action? The headwind of more expensive money outweighing the tailwind of demography??
..... Ingenia Communities down 5% today, to $4.20. Less sales, less financing, less social mobility? Those participants at $6.12 only six months ago would be nursing losses.

 

[Country Lad]

and probably another casualty of RBA rate action? The headwind of more expensive money outweighing the tailwind of demography??

Their issues likely lay elsewhere because the increased interest rates are by far offset by the inflation which is a significant benefit by the way the site rent agreements are structured.

I posted earlier I bought on the basis of the industry being virtually a government guaranteed cash cow. However, I sold not long after because of their problems with construction of new homes. Significant delays because of material shortages and reported cases of subbies walking off the jobs to get more money elsewhere. A large part of their cash flow was the large profit made on the sale of new homes which has now slowed.

 

[Dona Ferentes]

FY22 results are anticipated to be at the lower end of the Group’s guidance range (EBIT growth of 5-10% and underlying earnings per security of 1-2 cents below FY21), underpinned by achievement of the Group’s settlements target and strong performance across the operating business.

Group CEO, Simon Owen, said that the business delivered a strong outcome, despite industry wide supply chain and labour challenges, that reflected demand for the Group’s developments across the east coast of Australia.

............. probably enough to halt the slump (for now)

 

[Dona Ferentes]

They got there; Ingenia Communities Group reported:

• A 14 per cent jump in profit to $87.9 million for the 12 months to June.
• Revenue also rose 14 per cent to $338.1 million,
• EBIT gained 8 per cent to $101.7 million.
• Underlying EPS dropped 1 per cent to 23.3¢ due to an increase in securities on issue following an equity raising late last year.
• Tourism earnings and reduced settlements due to COVID and weather hurt cash flows.
• Full year distribution is 11¢ per stapled security, a rise of 4.8 per cent on FY21. The 2H22 distribution is 5.8¢ per security

Ingenia achieved 409 new home settlements in FY22 and its development pipeline expanded by over 50 per cent to 6,580 sites.

 

[Dona Ferentes]

INA being hit by a few headwinds

“In the short term, ongoing labour shortages and the impact of inflationary pressures and higher interest rates on consumer sentiment are expected to slow down our customers’ purchase journey.

“Our heightened caution around development in the short term reflects the further impact of recent construction delays, particularly on key start up projects, and a more conservative view of residential market conditions as further interest rate rises and high inflation create uncertainty for consumers and the lead time for settlements is expected to extend. This view is further supported by recent data showing Days on Market across regional locations increasing significantly from last year.

Dividend flat at 5.2c ff

 

[Dona Ferentes]

And then comes the guidance revision

..the Group is targeting EBIT growth of 0-10% on FY22 and underlying EPS of 19.1 cps to 21.5 cps for FY23. This compares to guidance released on 10 November 2022 of EBIT growth of 30% and underlying EPS growth of 5% (24.4 cps).

And the SP falls out of bed.

 

[IvoryWolf]

Has INA turned the corner since February? Anything is possible - find out more from an analysis of the charts within the attached video looking at an analysis of the overall market, sector analysis of the property sector, as well as analysis of INA:

 

[chaoplex]

INA has a capitalisation of $1.655B.Today INA disclosed a 9.9% holding of MQG with 40,433,832 shares worth $6.6B+.How is this possible???Black money???

 

[galumay]

40,433,832 shares are worth about $164,161,358 - or about 9.9% of the market cap!

 

[Dona Ferentes]

I've got a mate who keeps a close eye on INA and LIC. there's quite a bit going on in the sector.
.
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Ingenia gets a glow-up​

An incoming CEO, the exit of a big backer, and the appearance of an investor behind one of the market’s most talked about deals. There’s nothing sedate about Ingenia

The exit of a long-serving chief executive, a sell-down from a major shareholder, and the emergence of an investor who stitched together one of the most talked-about deals of 2023.
What’s going on at Ingenia Communities, the $1.8 billion retirement village and land-lease group?

First, let’s go back a step. The land-lease sector is one where people buy a new or existing house within a community, and pay weekly or fortnightly fees to lease the land rather than own it. On average, the homes can cost about 20 per cent less than traditional house-and-land packages.
The big property companies are piling in, confident that the housing affordability crisis and ageing population will drive growth in the annuity-style sector. In Australia, this sector accounts for just over 2 per cent of housing for people aged between 50 and 84. In the United States, it accounts for more than 6 per cent.
In October, Mirvac teamed up with Pacific Equity Partners’ Secure Assets Fund to buy Serenitas – which owns 6200 sites, about half of which are in Western Australia – in a $1 billion transaction, co-investing with Tasman Capital.

Stockland is also increasing its presence; in December, it bought 12 master-planned communities from LendLease in a $1 billion deal, after its $625 million outlay in 2021 when it bought Halcyon and its 3800 land-lease lots.

And then there are Ingenia Communities (INA) and Lifestyle Communities (LIC), both valued at about $1.8 billion.

Ingenia is one of the largest companies in the sector, both in terms of existing and future land-lease developments. Its listed rival, Lifestyle Communities, has about half the number of land-lease development sites, including those in the pipeline. For investors who have been increasing their Ingenia holdings, that valuation gap is where the business is starting to get interesting. Ingenia had been building up the business with an acquisitive strategy under its departed chief executive before the other big companies became interested.

The group now has a 5778 land-lease lot development pipeline, and in the land-lease space alone owns 35 communities with 11,700 homes, where the average rent is $190 a week. As of May last year, it was among the top four land-lease owners by existing and approved developments within the sector, according to Chadwick Research.

But not everything has been going to plan. Long-standing development partner Sun Communities surprised investors by selling its 10 per cent stake in the company in October last year, although it will remain a development partner until 2030. Ingenia has told investors it is also talking to other parties about co-investment.

Sun Communities’ exit followed a series of earnings downgrades, which the group attributed to rising building costs, labour shortages and a slowing residential market linked to higher interest rates.

Despite Sun Communities’ exit from the Ingenia share register, other funds have emerged or lifted their holdings. These include BlackRock (which raised its holding to 6.6 per cent last October), Cohen and Steers (which increased its stake to 8.7 per cent last April), First Sentier (which emerged with 5 per cent in late November), Canadian Pension Plan Investment Board (March 2023) and HMC Capital.

In particular, the appearance of HMC, which owns 6.5 per cent of the group, is prompting speculation that the fund has been discussing ways to extract more value for investors. David di Pilla’s HMC captured headlines last year after helping broker the $8.8 billion reverse takeover of Chemist Warehouse into Sigma Healthcare, in which it had built a nearly 20 per cent shareholding.
The market is keen to know what its plan with Ingenia might be.
HMC and other investors would certainly have been consulted about the qualities they had sought in the new chief executive. John Carfi, a former Aqualand chief and Mirvac Residential executive, doesn’t start until April 1st. Usually, new CEOs need some time before shifting strategy but perhaps this time it’s been made clear that big change is needed.

A few suggestions are already wafting around the market. Top of the list is a break-up or sell-off of Ingenia’s non-land-lease assets. And there are plenty. By earnings before interest and tax, Ingenia Holidays – which includes 40 east coast caravan parks and camping sites – contributed 37 per cent of earnings.

Private equity could emerge as a buyer for the holidays division. Tasman Capital backs Tasman Holiday Parks, which has 20 in Australia and New Zealand. Australian Retirement Trust and Allegro Capital own G’Day Group, which has the G’Day and Discovery Parks brands. Ingenia Gardens, a type of short-term seniors accommodation, contributed 10 per cent of earnings. Possible buyers for this segment could be groups such as ASX-listed Eureka Aspen, or BaptistCare.

Selling both these segments would leave Ingenia with a pure-play land-lease group, and trigger a re-rating of the stock.

And if we assume sales of the non-core assets are slightly above book value and deliver about $1.1 billion, the business could use some of the proceeds to lower its gearing and still return about $600 million of capital to investors. Paying down $425 million of debt would lower the gearing by about 10 per cent. In turn, that would help Ingenia redirect funds to finance some of its developments, or even to fund acquisitions more effectively.
There’s also a view that there is considerable head-office overlap between the different divisions, inflating costs. Selling the so-called non-core divisions could strip these out. Barrenjoey analyst Ben Brayshaw, who initiated coverage on the group in January, noted that head-office costs were high for the scale of the platform at about $50 million a year. According to one estimate, stripping out different divisions could enable the group to remove about $40 million in head-office costs annually.

Barrenjoey – which explored the benefits of slimming down the group to just its land-lease assets – initiated coverage with a $4.50 share price target, with the potential for further upside up to $5. The $4.50 share price target is based on a sum-of-the-parts valuation. Under this, Ingenia Gardens is worth 43¢ a share, and Ingenia Holidays $1.87 a share. One concern for the broker was the company’s 5.33 per cent capitalisation rate for land lease, higher than its peers Lifestyle Communities (5.14 per cent) and Stockland (4.75 per cent). For Mirvac, the figure is 5.4 per cent. Higher cap rates typically mean higher risk, with the potential for higher returns and volatility. They also signalled that the company could be overstating its recurring cash flow because it does not expense the cost of civil works, clubhouse amenities and capitalised interest. It says this could be as much as $100,000 per lot.

 

[Dona Ferentes]

results already baked in? ... $4.72 and sideways.

5.2c ff dividend

Overview
• Revenue of $211.6 million, up 22% on 1H23
• EBIT of $55.1 million, up 34% on 1H23
• Underlying profit of $43.5 million, up 27% on 1H23
• Underlying EPS of 10.7c, up 27% on 1H23
• Statutory profit of $42.5 million, up 26% on 1H23
• 1762 new homes settled in the first half
• Development pipeline extended – 5,935 potential home sites, including Joint Venture
• LVR at 33.3%
• On track to deliver FY24 guidance - EBIT growth of 10% – 15% on FY23 and underlying EPS of 20.8 cps to 22.3 cps

 

[Dona Ferentes]

AFR saying private equity Warburg Pincus looking at the company.
....
"Ingenia has 37 holiday parks in NSW, Victoria and Queensland. The entire portfolio has 102 sites and is worth $2.4 billion. Nearly half of this – $1.1 billion – is land lease properties for older Australians. This business, dubbed lifestyle rental, had 99 per cent occupancy and average annual rental increases of 9 per cent.

"It operates in “the highly attractive land lease sector and is exposed to strong demographic megatrends including a growing and ageing population,” Di Pilla’s firm told investors in a December update for the HMC Capital High Conviction Fund, which houses its 7 per cent stake in Ingenia

 

[Dona Ferentes]

Trading and Guidance Update

Highlights
• On track to deliver stated FY24 guidance at upper end of the guidance range
• Solid overall performance across the business:
o Occupancy across Ingenia Rental and Ingenia Gardens remains high
o Holidays continues to perform strongly – forward bookings up 5% on pcp
o Settlements on track to deliver guidance with momentum into FY25
• Diverse range of development projects, hitting key milestones despite mixed market conditions
• Additional debt facilities well progressed with lenders
• Continuing to review portfolio to optimise asset mix and returns

Guidance update
The Group is on track to deliver stated FY24 guidance at the upper end of the range, targeting EBIT growth of 10% – 15% on FY23 and underlying EPS of 20.8 cps to 22.3 cps for FY241

.... $4.72 ... and doing better than LIC Lifestyle Communities