Ingenia Communities to acquire property funds management business
Ingenia Communities Group Limited Managing Director & CEO Simon Owen talks about the company’s proposed acquisition of Eighth Gate, its complementary portfolio homes and holiday sites and upgraded FY19 guidance.
Jessica Amir: Thanks so much for tuning into the Finance News Network. I’m Jessica Amir. Right now I’m proudly joined by Ingenia Communities Group (ASX:INA) CEO, and Managing Director, Simon Owen. Simon, great to hear from you and welcome back.
Simon Owen: Thanks Jess. It’s great to be talking to you again.
Jessica Amir: First up Simon, you’ve just announced that Ingenia (ASX:INA) is planning to acquire or snap up a funds and asset management business. Just tell us what’s behind this move.
Simon Owen: The acquisition of the Eighth Gate funds management and asset management platform’s been I guess in planning now for over 12 months. There’s really three key reasons why we think it’s such a compelling opportunity. Firstly, it increases the assets under management in our holidays and lifestyle portfolio by upwards of 25 per cent. Secondly, it enables us to amortize the costs of running our business over a broader platform, and the acquisition is immediately earnings accretive, and then lastly, if and when the funds wrap up, Ingenia’s got the last right to acquire the underlying assets in the portfolio. So that’s very compelling as well, and in particular there’s three assets in Melbourne which we’re particularly very focused on.
Jessica Amir: And you mentioned the announcement being earnings accretive. Just tell us how much it’ll add to the bottom line.
Simon Owen: I wouldn’t want to quantify it in terms of what it means of cents per security, but it’s a meaningful transaction for us. It’s a very capital light transaction and we would expect gross fees of around $2 million per annum, and then that would be topped up by if we can achieve some threshold returns and as an additional performance fee, we would expect a significant component of those fees would be flow straight through to the bottom line.
Jessica Amir: Just changing pace back to results, in the market update you advise that you’ll be delivering full year result at the upper end of your guidance range for FY ’19. Just spell out how you’re going to do this.
Simon Owen: In a nutshell, it’s lots of hard work, but specifically we gave guidance back in May, 2017, of 350+ settlements and we’re going to fall a few short at around 336, but the margin we’re making on those homes we’ve settled is higher than we previously anticipated. Our underlying seniors rental business in Ingenia Gardens has continued to enjoy strong year-on-year same store rent growth. Our holidays business is tracking very well, so all aspects of the business at the moment have got strong tailwinds behind them.
I think there’s been no single part on the business that’s over-delivered. I just think every part of our business at the moment is performing well and that’s I guess really been borne out by our ability to deliver at the upper end of our guidance.
Jessica Amir: And just lastly Simon, before we let you go, your business has an increasing focus on development. Has the tough resi or residential development property market impacted you this year?
Simon Owen: Look, it’s probably been the toughest residential market that I’ve personally been involved with for probably 10 years. It’s been very challenging for us, and we’ve had a lot of I guess headwinds for consumer sentiment. In New South Wales, we had the state elections early this year, then in May we had the Commonwealth election, and both of those caused incoming residents to varying degrees, to sit on their hands and wait to see what’s happened.
Probably the biggest impact has been the amount of time it takes for our residents to sell their existing home to fund moving into one of our communities, and what we’ve seen in the last 12 months is that the time on market in the residential areas that we focus on has drifted out from around 30 days to 60 days, so every resident who moves into an Ingenia community needs to sell their existing home.
If that takes them 60 days rather than 30 days to sell their home, then that has a knock-on impact on our business, and that’s meant that we’ve had to put a little bit more money into above the line marketing. We’ve had to, for the first time ever we set up an internal call centre and started being much more progressive on that front. We’ve put in some additional resources in our frontline salespeople, and then lastly we’ve been working with our builder to try and take some costs out of the home so we can lower marginally the cost of the new homes to residents.
I think a convergence of all of those, tweaking of the dials in our business, has mean that we’ve been able to achieve our results at the upper end of guidance. Yeah, it’s been a tough year. We are seeing some green shoots emerging. I think certainly early signs that the banks are beginning to ease up their lending, is going to be very positive. As we articulated in the guidance note yesterday, we now have over 200 deposits or contracts on hand for FY20, and I think that positions us very well for a strong FY20, as well.
Jessica Amir: Wonderful. Well Simon Owen, thank you so much for your time. It’s been a real pleasure.
Simon Owen: Jess, it’s been great to speak to you again. Thank you very much.
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