Ingenia Communities (ASX: INA) today announced Underlying Profit of $17.5 million for the half year ended 31 December 2018, an increase of 20% over the previous corresponding period.
Operating cash flow increased 50% on 1H18, to $17.0 million, driven by increased settlements and rental growth, offset by investment in display homes and inventory.
Revenue increased by 21% to $93.4 million and EBIT increased by 19% (to $22.9 million) over the prior corresponding period, driven by growing rents and accelerated settlements.
In H2, revenue is expected to further increase as a result of: the acquisitions of Rivershore Resort and Aspley Acres (settled in November 2018 and February 2019 respectively); increased new home settlements; and the addition of further infill cabins across the Group’s rental and tourism assets. Ingenia has exchanged contracts for the acquisition of a holiday park in the Byron Bay region which is anticipated to settle in early Q4 and contribute to rental revenue in FY19.
Statutory profit declined 24%, to $13.0 million, largely due to fair value movements on investment properties, including write down on non-core assets, expensing of acquisition costs and realisation of development profits.
Ingenia has declared a half year distribution of 5.4 cents per stapled security, an increase of 6% on the previous corresponding period, with payment to be made on 27 March 2019.
CEO Simon Owen said that the 1H19 result showed that Ingenia’s strategy of growing an increasingly deep growing pool of stable rental returns and accelerating development through both its own pipeline and the newly formed Joint Venture with Sun Communities was delivering for investors.
“The Group is focused on further growing our rental annuity base, divesting non-core assets, maximising the opportunity with Sun Communities and improving efficiencies across the business.”
“We are working against the backdrop of a slowing residential market yet the underlying fundamentals that make this industry so attractive remain strong. These include an ageing population with a desire to downsize in desirable coastal locations and the compelling lifestyle proposition that land lease communities offer. Our markets are generally more resilient than the Sydney and capital city markets and we are seeing ongoing demand from downsizers for the affordable lifestyle our communities offer.”
“Our Joint Venture with Sun Communities (JV) is ahead of expectations, with six development opportunities already being actively progressed. We expect to be commencing the first JV greenfield development this calendar year.”
“We are starting to see more transaction opportunities across the Lifestyle sector and remain well positioned to acquire assets which meet our criteria and can add to the quality of our portfolio and long-term rental streams.”
The Group expects to settle on the acquisition of an established community in the Byron Bay region, and 6.8 hectares of land adjacent to its successful Ingenia Lifestyle Lara development, in the second half. These acquisitions will be funded via debt and the partial underwriting of the Distribution Reinvestment Plan for 1H19.
“Across our Lifestyle and Holidays business we are seeing good growth in rental income, significantly increased development activity, and we are continuing to enhance the portfolio and provide a runway of growth with close to 4,000 potential development home sites now secured,” Mr Owen said.
Group Strategy
With an increasing rental base and continued home settlements, Ingenia is well positioned to deliver on its FY19 strategy.
Ingenia’s focus for 2H19 remains:
- Continue focus on sales and marketing to deliver FY19 settlements
- Integrate recent acquisitions and accelerate rollout of new rental and tourism cabins
- Execute Joint Venture business plan, securing opportunities for capital light growth and additional revenue streams
- Capitalise on opportunities to expand development pipeline to deliver new rental contracts
- Secure approvals on existing and optioned land to further extend development pipeline
- Continue asset recycling to fund growth
- Improve performance of existing assets to drive revenue growth.
Capital Management
As of 31 December 2018, Ingenia’s loan to value ratio (LVR) was 27.8%, below the Group’s target of 30-40% and well below the banking covenant of 50%. Debt facilities remain at $350 million with weighted average term to maturity of 3.8 years.
Ingenia currently has a contract in place for the sale of Rouse Hill ($22.9 million) and the sale of two additional non-core assets is well progressed.
Mr Owen said: “The ability to recycle assets will assist in meeting the Group’s ongoing funding needs, as we continue to identify a range of expansion, acquisition and development opportunities to drive long-term growth.”
Guidance
On the back of strong deposits and contracts in place and a well performing portfolio, the Group is pleased to reaffirm its FY19 guidance.
The Group expects to deliver the 350+ new home settlements outlined in its FY19 guidance and is on track to deliver EBIT growth of 15-20%, driven by increased settlements and growing rental cash flows. Underlying EPS is expected to grow 5-10% on FY18.
Guidance is dependent upon the timing of key projects, notably Plantations, and no significant changes to market conditions. The timing of commencement of formal campaigning for the 2019 Federal Election remains of key interest.
Further details surrounding the Group’s guidance and results are contained in the 1H19 Investor Results Presentation.