In this instalment of the From the helm series, Ingenia Communities (ASX:INA) MD & CEO, Simon Owen talks us through how its shares have gained >600% over the past 8 years.
Simon touches on how the business has navigated turbulent COVID-19 waters, what’s in the pipeline with the economy reopening, other business projects, as well as why earnings are likely to continue to grow.
This interview was filmed on Friday 22nd of May 2020.Read Transcript
Jess: Thanks for tuning in to Bell Direct, I’m Jessica Amir a Market Analyst with the firm.
Well investors are increasingly looking for businesses that are profitable, with consistent earnings, headroom to pay dividends and that also have low debt.
With us today is Ingenia (ASX:INA), a company that meets all of that criteria and its shares have gained 690% over the past eight years.
The CEO of Ingenia Simon Owen is joining us now. Simon, thanks so much for your time.
Simon: Jess it’s great to be here.
Jess: So first up, can you give us an introduction to Ingenia?
Simon: Yes Jess, Ingenia really straddles three parts of the domestic property market.
Firstly, we have a large portfolio of seniors lifestyle communities.
So these are effectively landless communities where we sell the incoming resident the home, we retain the freehold ownership of the land and we collect a weekly rent from the resident for the right for them to have their home on our land.
Secondly, we own a large portfolio of seniors rental villages, where we own the land and buildings and we have around 1,300 residents who live in our communities across Australia.
We also have a large portfolio of holiday parks particularly located in coastal markets across New South Wales and Queensland, so predominantly we’re a rent collection business but we also do have a development business where we’re building the new homes to sell to residents and that’s also a very important part of the way we create value for our security holders.
Jess: Ingenia has been growing its rental income and dividends for the past eight years, what else should investors know about your current position?
Simon: Yes Jess, we went into the COVID-19 crisis with a really strong balance sheet, our gearing was well below where the banking covenants are.
We made a decision in late April to raise an additional $150 billion of capital through an institutional placement and that was really strongly received.
That capital in the short-term brings our gearing, our leverage down to below 10%, but it was really the capital was raised to fund future acquisitions because we are in the early stages of seeing some market dislocations.
So Ingenia is predominantly a rent collection business and most of the rent we collect is underpinned by Government pensions and the Commonwealth rent assistance, we also have our development business which is very steady and predictable and creates valuable new rental contracts and our holiday parks I know is highly leveraged to grey nomads and young families with children.
So yet the rent collection side of the business has performed very strongly through COVID-19 and now with the imminent opening of holiday parks in both New South Wales and Queensland, we do think the near to medium-term outlook for Ingenia is very strong.
Jess: COVID-19 has been tough for a lot of people but how’s business been for Ingenia and how have you been affected?
Simon: Yeah look I mean COVID-19 unprecedented, but our business has held up very strongly through this period.
Around 30% of our rental income comes through from our seniors living business and those rents are underpinned by Government pensions and the Commonwealth rent assistance and since COVID-19 we’ve continued to collect 100% of our fortnightly rent roll and I can’t think of another commercial property class in Australia, now whether it’s industrial, office, shopping centres, we’re not being required to offer any rent deferrals or anything like that so we’re continuing to collect that rent and that really underpins the business.
It’s true that our holiday park business we did have to shut that at the orders of Government just before Easter.
And that has had a big impact because during the month of April we missed out on the school holidays and Easter, but fortunately our holiday parks now able to open in New South Wales from 1 June and 2 weeks later than that in Queensland and now based on the bookings that we’ve been inundated with in the last three or four days, we expect that holiday parks business, which is highly leveraged to grey nomads and young families and kids, to bounce back very strongly.
That’s a part of our business which is our development business which we’re building and selling new homes to seniors and then collecting rent because we continue to own the land on the freehold basis.
Now that has slowed down a little bit, but we’re looking at a very strong pipeline of settlements both for the balance of May and June.
And we’ll be holding nearly 200 contracts and deposits moving into the first half of FY21.
So again, we’re seeing real resilience in that market and in our seniors housing model, we’re really aiming at the bottom of the lower end of the market where there’s a lot of resilience.
So now overall, we have had you know a few setbacks, particularly in holidays, but you know I’m very pleased with the way the teams pull together and the overall businesses has performed during COVID-19.
But I think the other key point that I touched on before Jess, that Ingenia entered the crisis with a very strong balance sheet and subsequently raised another $150 million through an institutional placement and that’s brought out our gearing down to below 10% and that’s going to position us very strongly to take advantage of market dislocation, as we move forward over the next six to 12 months.
Jess: And just lastly what should investors know about opportunities for future growth?
Simon: Well firstly, we have an incredibly strong set of organic growth opportunities within the business, so we’re currently developing 12 communities, we have another 2 scheduled to start in the next 6 months.
So even in the absence of M&A our growth pipeline is incredibly strong and we have the latest development pipeline in the Manufactured Housing sector and its actually larger than our 2 biggest peers combined.
In terms of acquisitions, you know we’re really firmly focused on existing stabilized communities, in key coastal and capital city markets.
On the Eastern Seaboard, we’ll be announcing our first new acquisition next week and we’re just finalizing that at the moment.
We’re also looking to acquire some existing holiday parks and potentially option up some additional development land.
What we’re seeing at the moment is a lot of our competitors, the groups that we compete with to purchase either stabilized communities or land, they’re now exiting the market.
You know they’ve got to contend with their own balance sheet issues or their banks are putting them under pressure or they’re just battening down the hatches because of the market.
With the our strong balance sheet, our track record in originating and closing of deals and we do think that the more affordable end of the seniors market is going to rebound very strongly coming out of this, that given the capital we have access to that’s going to position Ingenia very strongly for the next couple of years of really exciting earnings per share growth.
Jess: Simon Owen from Ingenia, thank you so much for the update.
Simon: Jess as always, it’s great to speak to you.
Jess: For more information on Ingenia, please head over to Bell Direct’s website or speak to your advisor.Close Transcript