Ladies and gentlemen, thank you for standing by and welcome to the Ingenia Communities Group First Half Twenty 20 Results Presentation.
Please
note at this conference is being recorded today, Tuesday, 18th February, 2020. I would now like to hand conference over to your speaker today, Mr. Simon Owen, Chief Executive Officer and Managing Director. Thank you, sir. Please go ahead.
Good morning, everyone, and thanks to your attendance today. I'm really excited to be presenting another strong result underpinned by doing the basics well, growing our rents, increasing occupancy, seamlessly integrating the acquisitions, focusing on our margins and being vigilant on costs. For a first half at higher prices, at higher margins and higher rents than ever before. Our development model is now largely self funding as cash flows from new home settlements, fund future projects. And we are creating some truly irreplaceable long term assets such as Harvey Bay in freshwater and Queensland, Lantue-one in Plantations in New South Wales and Lara in Victoria.
There are some great highlights which we announced today. Record revenue of $116,900,000 for the first half, which is up 25% on 12 months ago. And to put this in perspective, full year revenue for 2017 only 3 years ago was only $149,000,000. Our underlying earnings per security was up 32% to $0.10.7. Our EBIT margin expanded by a further 300 basis points to 27.5%.
And my personal favorite operating cash flow was up 60 percent to $27,200,000. Our business model is uniquely leveraged to the intersection of 3 key thematics: an aging population, a continuing housing affordability crisis, and several generations of people retiring with limited savings beyond the family home. We have an incredible growth runway in place, and our sector leading development pipeline of over 4200 Homesites is larger than our 2 biggest competitors combined. We have a stable and highly capable leadership team in place, and our development joint venture with some communities only strengthens our capability to deliver, grow and lead. I remain very confident that we're in the initial phases of an extended period of compelling earnings growth.
Our shareholders. Before we go into the details of the presentation, I'd really like to make a couple of opening comments on our strategy in sector leadership and the bottlenecks that we experience within our business. So number 1 on strategy in sector leadership. Our business is underpinned by owning land and collecting rent. We presently have 8290 income yielding homes, cabins, and sites, which is up 13% on the prior year, and this number continues to grow every week as we settle new homes integrate acquisitions and add new rental and tours and cabins across the portfolio.
Every week, we collect more than $2,500,000 in rent with a significant complete underwritten by the government. Our strategy is based around growing an increasingly deep pool of rental income that gives our business fantastically reliable weekly cash flow. Sector leadership is a constant theme today and it's important to put some context around this. Being the sector leader brings the best deals. It enables you to recruit and retain the best talent.
You can charge a premium for your product or service, and you can expand your margins. And it lowers your cost of doing business and your cost of capital. And it's a virtuous circle. This is our unrelenting focus. So put simply our strategies to create Australia's best lifestyle and holiday communities to position for scale and sector leadership.
To deliver exceptional customer and resident experience, to attract retain and develop the best talent in our market to deliver compelling outperformance for our security holders and to be a valued stakeholder in the communities in which we operate. Just a few comments on bottleneck. 10 years ago, our bottleneck was shared survival. 5 years ago, as we started ramping up M and A and accelerating the creation of new communities, it was access to capital, building consumer awareness and growing our development capabilities. Today, our core bottleneck is finding the land and accessing the necessary approvals.
Our sector is supply constrained. The demand is escalated. Every day, some 700 Australians turn 65. That seven hundred people every day and this will continue for the next 30 years. Now let me provide some context around this.
Last weekend, just go on, we had 2 open dates. One at Harvey Bay on the Queensland Fraser Coast has our first unveiling to the public of our display home village and a second open day at our Wooga Freshwater Community on the New South Wales Mid North Coast, which was a formal opening of our new residence club house. At Harvey Bay, population 52,388 people We had over 600 people attend the open day on Saturday, and we took 11 deposits. At UGGuga, population, 5290 people. We had over 300 people attend, and we took 7 deposits.
Demographics and careful site selection is absolutely critical, but executed well, demand for lifestyle communities exceeds supply. A great place to be. I'm now going to move on to the presentation and joining me on the call today are a number of the Ingenior executive team including Scott Noble, our CFO, Nicky Fisher, our Chief Operating Officer and Donna Byrne, who tried to keep me on track. Tough to keep that. We're going to start briefly on Page 2, which is our highlights.
I've already touched on a few of the key financial metrics, However, particularly pleasing is the 110 basis point expansion in our lifestyle margin to 40.4% and a 16% increase in the average selling price of our new homes to $420,000, This clearly demonstrates the market acceptance of the communities we are creating. I've covered a lot of positive things in my opening comments. But there are a couple of areas where I think we can continue to focus and do better. First, as I noted above, the single biggest bottleneck in our business is finding land obtaining the necessary development approvals. I think there is a lot we can do here to improve the timeliness of this process.
Putting in additional internal resources, particularly with respect to planning, upgrading our advocacy with key community stakeholders, and engaging earlier with local councils and state government. And secondly, as a business, I think we are now getting pretty good at building and selling homes. But there is more we can do to refine and enhance the moving and settlement process for our residents, especially if we want them to be raving advocate for Ingenia. I know we've come a long way in recent years, but there are certainly a lot more we can do. I'm now going to move on to page 3 of the presentation, and we are delighted today to announce the acquisition of the Lake Momora residential resort on the New South Wales Central Coast, about 100 Kilometers North of Sydney.
This high quality community on the shores of the ta the title Lake Momura comprises 230 homes and was acquired for $24,000,000 at an ongoing yield of above 6.5%. This was an off market negotiation directly with the vendor. And I'm now going to hand over to Scott, our CFO, who's going to talk through the financials.
Thank you, Simon. Good morning, everyone. Thank you for joining our call. I'm very pleased to be presenting these results with all key metrics delivering strong $16,900,000 and EBIT increased 40 percent to $32,200,000. These improved results were driven by the growth in rental income, our lifestyle and holidays business, which increased 17%.
This growth was a result of additional rental sites being delivered from development, the impact of our newly acquired communities, rental increases across the lifestyle portfolio and a growth in occupancy and holidays. Our development business also delivered good revenue growth, delivering a 140 turnkey settlements, 22% up on the prior corresponding period, with a 16% in our average sales price. Underlying profit increased 52 percent to $26,500,000 and underlying EPS increased 32 percent to $0.10.7 per security for the half. With statutory profit increasing 81%. Pleasingly, the group's operating cash flow was up 60% to $27,200,000 for the half.
Net asset value per security increased 7 percent from 30 June to $2.83 per security. Interim distribution of $0.056 per security has been declared, up 3.7% on the prior corresponding period. The group's distribution reinvestment plan will be opened and fully underwritten to assist with the funding of our new on strategy acquisition at Lake Munmora that Simon just mentioned this morning. Turning to Slide 7, Ingenia delivered a 40% growth in EBIT, from the prior corresponding period, with growth in margins across all business segments, reflecting continuing scale improvements. Lifestyle and holidays EBIT increased 19 percent to $16,100,000, with lifestyle and holidays stabilize margin improving to 40.4%.
Lifestyle Development EBIT grew 72 percent to $15,100,000, with development EBIT margin growing 490 basis points to 27.2 percent. This improved result was driven by a combination of increased settlements and our greenfield projects at Latitude 1 and plantations delivering high aboveground development profit. Ingenia Gardens continue to deliver strong cash flow for the business, with occupancy up on the prior corresponding half. Turning to Slide 8, our capital management position has strengthened. We continue to receive strong support from our lenders.
Having just agreed terms for a new 7 year $100,000,000 debt facility from existing lender. This facility increases the group's debt maturity, while providing the flexibility of bank debt At 31 December, gearing was 19.3% and LBR was 24.9% compared to our covenant of 50%. Debt average debt maturity was 2.8 years. This will increase to 3.8 years with the new debt facility, and the cost of drawn debt was 3.2%. During the period, we successfully completed $131,000,000 capital raise, providing funding to acquire additional lifestyle communities, and further invest in our development pipeline.
And we completed the acquisition of the 8 gate capital management platform, which expanded the group's assets under management by $140,000,000. Providing Ingenia with new revenue streams and access to a strong investor base. Turning now to Slide 9. During the half, we externally valued revalued 22 assets. Over the last six months, we've seen the average capitalization rate of the lifestyle and holidays portfolio sharpened by approximately 15 basis points on a like for like basis.
Pleasingly, pleasingly, Ingenia Gardens capitalization rates have improved on average by 28 basis points and now sit on average of 9.72%. Providing some market recognition for this strong cash flow business. Average cap rates continue to remain high when compared to other real estate classes. And they continue to track behind recent transactions in the market. As such, there is further potential valuation upside to our portfolio.
I'll now hand back to Simon. Thanks, Scott.
We might now move into operation. So Moving to Page Number 11 around Ingenia Lifestyle And Holidays. Ingenia today owns outright 37 lifestyle and holiday communities, including 367 permanent sites, Through a combination of acquisitions and developments, we've been able to grow our permanent site numbers, which is where residents pay us rent every fortnight, We've been able to grow that by over Total income from our lifestyle and holidays business was $40,800,000 for the half, up 17% on the prior year. And EBIT for the half grew by 19 percent to $16,100,000 and we've been able to further improve the operating margin by another 110 basis point out to 40.4% with further growth to come. The margin expansion is really been driven by a combination of rent growth, and scale leverage as our revenues grow at a faster rate than our costs.
We're able to grow our rents on a same store base by around 5.5 percent, up to $180 per week, and that was through a combination of contractual rent increases rolling market reviews, and res resets when homes turn over. Over the course of the last 12 months, We've added another 5.20 income producing sites to the portfolio through a combination of acquisitions additional investment in our communities Page, Page 13. I would like to call out to all of the Ingenia team members, the rural fire service and the many residents and community volunteers, who assisted minimize what could have been a truly catastrophic event on the New South Wales South Coast over Christmas and the New Year. We were truly blessed that no one was injured or killed. We are now back to normal operations.
And whilst there was some minor property damage, and January heavy January holiday revenues were heavily impacted. We do expect that a majority of this will be covered by insurance. Pleasingly, our April bookings across our holiday portfolio are up 15% on where they were this time last year. So we are expecting strong trading conditions for the upcoming Easter and school holidays period. Over the past 12 months, we've grown Our revenue per available room night RevPAR by around 4% and occupancy was up 8% This is in a market environment where we've seen a little bit of discounting by some of our peers, which has compressed our ability to really push rates.
Moving on to Page 14, which is in Junior Gardens, which we don't spend a lot of time talking about, but it's a great core part of our business. We're now charging an average of $3.42 per week, which retraced slightly over the past 12 months. This was a direct result of market weakness over in Western Australia, and we made a conscious decision to trade rent growth for occupancy. Notwithstanding this, we were able to improve both our earnings before interest and tax and our margin over the past 12 months in our Ingenio Gardens business. I'll now make a couple of remarks on our new funds management platform, which is covered on Page 15 of the presentation.
We acquired the Eightgate business in August 2019 and for the period to the 1st for the period to December, it generated $800,000 in fees. 8 days is highly accretive to our earnings and return on equity, and we do anticipate launching a new $100,000,000 fund later this year. Funds management provides in junior with additional capital flexibility in terms of how we fund our growth. And we also retain a last rider refusal over communities within each of the funds should the funds that be wound up. Moving through to development on Page 17.
Home settlements were up 22% on the prior year to 140 new homes, and above ground margins are now running at 45%. The EBIT contribution from development was up 72 percent to $15,100,000 for the half, and the EBIT margin was up by almost 490 basis points to 27.2 percent, which is very pleasing. The margin expansion is being driven principally by sales volumes, higher home sales prices and margins, and scale leverage. The chart at the bottom of the page demonstrates the strong year on year sales volume growth, we've been able to achieve since we entered the development business back in 2014. In January remains firmly on track to be the largest developer of new manufactured homes in Australia in 2020.
Our development JV with SUN is outlined on Page 18 and is progressing well. Residents are scheduled to start moving into our 1st community fresh water from April. And I expect to be breaking ground at the 2nd project just north of Newcastle called Fools and Cove within the next six months. We're on the home run now. On Page 24, we have outlined our 4 key strategic pillars for Ingenia in 2020.
Firstly, we're going to continue to acquire quality communities, such as Lake Memorial when we see value. Competition for good communities remains strong. Especially from groups in the U. S. However, we have a significant pipeline of communities under exclusivity or advanced due diligence at the moment.
Capital Management will remain a core focus. Especially with the optionality now offered by Thirdly, we will continue to execute upon the considerable organic growth opportunities And lastly, we will continue to accelerate the build out of our development pipeline. Upon completion of our current development pipeline of 4260 homes, this would add around $40,000,000 to our annual cash rent articulates the size of the market opportunity in Australia for Ingenia. Our current research suggests that some 1500 to 2000 new manufactured homes are currently delivered each year in Australia. Including 3 36 from Ingenia.
In order to maintain the current penetration rate of 2.1% for over 65s. This supply must increase to 2700 Homes per annum by 2025. Which represents an increase in over 50% in terms of new supply. And if the penetration rate of new manufactured homes increased to say 3%, which is still well below that of traditional DMS villages, and supply would need to increase to 7800 Homes per annum. But our industry is heavily supply constrained with an estimated 16,000 total home sites available, and many of these are not approved or build ready.
We know the demand is there. That's what our customers are telling us every day. It's just about bringing on the supply. And with the largest pipeline in the sector, in junior is very well positioned to grow significantly into this compelling opportunity. Slide 27 shows a sector landscape with many larger corporations and private equity entering the space.
If you combine our long term and tourism business along with our sector leading development pipeline, that Ingenia has the biggest portfolio in the country, although we do have some very well funded, peers But this chart continues to evolve and change, and we are seeing new entrants coming in every all the time. I think there's a few Ingenia maintains a strong competitive position and we remain confident in our ability to maintain our number one position. Firstly, through, we have one of the largest portfolios with significant embedded growth. We've got a sector leading development pipeline, got a proven ability to acquire, manage and develop lifestyle tourism and mixed use assets. We've got a dedicated acquisition team driving M and A.
And we have the ability to access capital through existing funding capacity and establish capital partnerships. I'll now close on Page 28. There's really 6 key areas that management wants to focus on moving forward. Firstly, it's about driving improved performance from our existing assets. So across a lot of our assets there's vacant land, we want to install new cabins or put in new homes.
And in our holiday parks, there's the opportunity to convert lower yielding sites into cabins. We've got some great organic growth opportunities there. Secondly, we want to move to clear sector leadership through acquisitions and development. Thirdly, we want to continue to focus on executing well and deliver new long term rental contracts. And you can see the progress we're making here through the success of our recent open days at Harvey Bay and at Will Guga.
Fourthly, we're going to continue to capitalize on opportunities to expand our development pipeline. Again to deliver new rental contracts. 5thly, we want to continue to work with some communities on executing our joint venture business plan, and delivering opportunities for capital light growth, which is starting firstly without Burken Gary project just north of Brisbane, where our residents move in from April. And lastly, we want to integrate our funds management business and deliver performance for our fund investors. Lastly, in terms of guidance, I'm pleased to announce that for FY 2020, we are anticipating growth in earnings before interest and tax, of between 15% 20% and in underlying EPS growth of between 5% 10%.
Following the bush fires in January, which impacted our New South Wales communities, we announced that we expected guidance to be at the lower end of that range. But we'll continue to monitor that closely, and that doesn't change at this point in time. That's all that Scott and I were going to present today. So now we're delighted hand over to please.
Your first question is from the line of Michael Pete from Goldman Sachs. Please go ahead, sir.
Good morning, Simon and team. Congratulations on the result. Just you mentioned obviously that bottleneck now is sort of a land availability and approvals. Can you just give us a sense of of how many opportunities you think you've got in the short term there or medium term and whether they're sort of greenfield or existing communities?
Yes, so good question, Michael. So at this point in time, we would have, approximately 20 sites majority of those would be greenfield sites that we have either under conditional contracts subject to getting a development approval or where we have an exclusivity where we're doing our, risk assessment and talking to local council and town planners to assess the pathway to getting an approval. I think holistically, in the past, we've really been train by capital in our ability to accelerate development. I think through our development JV with SUN through our funds management platform, we've 8th day through the $450,000,000 of debt capacity we have now. Ingenia's got multiple sources of capital to fund and accelerate development.
And we do expect to have absolute growth in real terms in settlement numbers. This financial year, but to really step change that up, it's going to take a couple of years to really take a lot of those sites through the approval process. And in some markets like Southeast Queensland, the approval process is very streamlined and it's unambiguous and then you can move through pretty quickly. In Sydney, it's extremely challenging. And in coastal markets and New South Wales, it really depends on where we are.
And broadly, Victoria is is generally, supportive of these land lease communities. So now we do think we could be building a lot more homes. It just takes time to sequence, all the projects and to get all the necessary approvals in place.
And just on the Lake Memorial acquisition, What was the actual price? And, I think in the Texas, it's over 6% in ongoing yield, but I thought maybe I heard you say 6 point 5 on when in your commentary there?
Yes. So the purchase price was $24,000,000. And the in going yield, so on 1st day when we settle the project, the yield is a little bit above 6.5%.
Above 6.5%, right?
I guess when we wrote the presentation, we're being a little bit conservative.
Fair enough. And just lastly, the average price is pretty impressive there for 'twenty. Obviously, probably that one's really helping that a lot and you've got some others still which high value, but I'm just trying to think about the mix going forward and that average price and maybe that gross margin, how that's going to move going forward?
Yes, certainly, Michael, we are getting benefit from Latitude 1. So in the next 6 months, we will be selling some homes priced between $800,001,000,000. So these are a bespoke release of, waterfront homes. But we are seeing at our Plantations project on the New South Wales Mid North Coast at Wilgua, we are absolutely seeing demand for homes in the high 500s. And I would expect that we'll be at that price point in the not too distant future.
At our fresh water projects, just north of Brisbane. Again, we are seeing demand for the larger three bedroom double bar, a double garage homes. That is offset to an extent by in projects like Harvey Bay, up on the Queensland Fraser Coast, that is a very price focused market and the sweet spot for demand is sort of in the $300,000 to $340,000. But over time, I do expect that we'll be able to continue to maintain that growth, that gross sales price. And I don't really see any pressure on our margins coming through.
We may not be able to continue to grow the margin or the gross sales price at the same rate, but I don't see any pressure on that it would start to come back.
Your next question is from the line of Ashane Sully from Harbor Asset Management. Please go ahead.
Morning guys and thank you for your presentation. Just two quick questions from me. First one, could you just talk about how many years of approved development sites you think the business needs relative to the rate of development? What's the pipeline of approved communities do you need to see? Yes, look, I would think that, it's taken us, we really started focusing on our pipeline shame back in 2015.
And it has taken us 5 years to put together by a long way, the largest pipeline in the sector. I would think that longer term, and we're certainly not there yet. We're still in a very high growth trajectory But longer term, I think having a land inventory of somewhere maybe between 5 7 years would be appropriate. We don't own a lot of the land that we have in our pipeline. A lot of it's under long dated options or conditional contracts where we don't have to pay for the lands until we to get the, until we get the appropriate approval.
So we're trying to, I guess, build our land bank within a very capital disciplined manner that Now I do see absolute growth in the home settlement volumes this year into future years. I would say that we continue to be looking to to grow settlement volumes. I guess that rate of growth really depends on access to capital and I guess finding the right markets to launch new communities. Okay. Thank you, Simon.
Second question, just in terms of the mix of where though that pipeline is likely to roll balance sheet versus funds management versus development partnership, do you have an approximate idea where we could see that mix setting? Yes, I think in terms of our funds management, business, which is the 8th gate platform that we acquired in August last year. We would predominantly see that as a vehicle to hold complete or largely complete tourism and mixed use assets of a smaller size. So something like Lake Memorial, which is a $24,000,000, you know, absolute a grade community that goes straight into the headstock and it will every day of the week. I don't think that we would use 8 k as a vehicle for undertaking development in future.
The preference, the overwhelming preference for investors in those funds is for yield, not being exposed to development. In terms of our development joint venture with SUN Communities through to 2023, any new greenfields development that we commence, goes into that joint venture or gets offered to that joint venture. And if Sun chooses not to participate, then in January would undertake that development in our own right. All of the commenced projects that we already have underway, so as the chambers pines, the basenias, the plantations, and the hardy base, they'll continue in the Ingenia hedge book and Should we source any partially commenced communities and we're working on a couple at the moment, then they would most likely go straight into the headstock. So I guess smaller, mature tourism or mixed use communities would go into 8th gate, new greenfields, would go into the sun, the development JV with sun and everything else would more than likely go straight into being 100% owned by Ingenia.
Thanks very much, Simon.
Thank you very much. We have a follow-up question from the line of Michael Pete from Goldman Sachs. Please go ahead.
Hi, Simon. Maybe on for Scott, but just thinking about the second half and into 'twenty one for cash flow, I'm thinking about what, can you remind us what sort of equity contribution are acquired, if any, into the JV, the CapEx for the 2nd half both maintenance and the expansionary growth CapEx? And then any settlements still to come through on acquisitions that have already been announced?
Thank you for, Michael. In terms of the CapEx for the second half, we expect we did have a higher CapEx spend in the first half, really driven by, finalizing clubhouses at, Latitude 1 and Plantations. We are expecting around $25,000,000 of CapEx, maybe a little bit either side of that, for the second half of this year. And of that, expecting about $3,000,000 for, sort of maintenance CapEx and a couple more probably another $2,000,000 for new cabins. The rest is also is development CapEx.
In terms of your other question in relation to the JV, currently we are forecasting another $12,000,000 of equity to go into the joint venture over the next sort of 18 months at the moment. But as they acquire more sites, that may increase, But that's basically on sites that we have optioned up and committed. We have just actually received from one of our major lenders is a $20,000,000 accordion facility into the joint venture. So that is, that's really pleasing at at a really good rate. So that's, getting some development funding in there.
And in terms of your last, there's another question there. Sorry, Michael.
Any settlements still coming through from announced acquisitions?
Yes. We did announce another one on the Sunshine Coast. As part of our equity raise. So that is still to come in the second half. And then in terms of, we do have earmarked a couple of other assets that we would like to divest because they're a little bit lower margin projects and in regional areas.
So that's about $20,000,000 of of assets that we would potentially divest over the next 18 months.
Great. Thank you.
Thank you very There are no further questions Please go ahead, sir.
Well, thanks, everyone, for dialing in today. Donna and Scott and I'll be available to have a chat, if anyone would like to follow-up. Otherwise, over the next month, we'll be coming out a meeting with our key investors. Thank you for your participation today. In summary, I think Virginia's got a really strong period of growth ahead of us.
There's considerable momentum established within the business. Demographics remain very supportive, and we have an incredible acquisition and development pipeline in front of us. With some communities in APAC, we have great capital partnering initiatives in place. And I think the underlying thesis of providing affordable community living for seniors who are downsizing our family home who are looking to top up the pension remains a very attractive market space to be in. So we see the outlook for the business has been very strong moving forward.
Thank you very much.
Ladies and gentlemen, that does conclude our teleconference for today. Thank you for participating. You may all disconnect. Thank