Hi, ladies and gentlemen. Thank you for standing by, and welcome to the Ingeno Communities Group FY19 Results Briefing. At this time, all participants are in a listen only mode. There'll be a question and answer session. Please note that today's conference is being recorded Tuesday, 20th August, 2019.
I would now like to hand the conference over to your host Mr. Simon Owen. Thank you, sir. Please go ahead.
Thanks, everybody, and sorry for the couple of technical issues. But today, I'm really excited to be presenting in GMU's results. In the most challenging residential market in a decade, looking back as far as the GSE, Today in January is pleased to announce our strongest results ever. We sold more homes at higher prices at higher margins and higher rents than ever before. Our market capitalization recently exceeded $800,000,000 for the first time, and we are knocking down the door for inclusion in the ASX 200.
Our development model is now largely self funding, as cash flows from new home settlements, fund future projects, and we are creating some truly replaceable long term assets such as Latitude Won Plantations in New South Wales, Lara, Victoria, and Chambers Pines in Brisbane. Just a few highlights. Recorded record revenue
of
$228,700,000 for the year to up 21% on PCP. Our underlying earnings per security was up 18% to $0.21 per security, and our operating cash flow was up 26% to $59,300,000. Engineered business model was uniquely leveraged to Intersection of 3 key thematics. And 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 3000 700 Homesites is larger than our 2 biggest competitors combined.
We had a stable and highly capable leadership team in place. And our development joint venture with some communities, a longstanding global leader in manufactured housing, only strengthens our capability to deliver grow and lead. In recent weeks, we also announced our move into funds management with our acquisition and co investment in the 8th Gate lifestyle and holidays platform. I'm very confident that we're in the initial phases of an extended period of compelling earnings growth for security holes. Before we go into the details of the presentation, I'd really like to focus on 4 key things today: strategy, portfolio construct, market leadership and innovation.
So number 1, strategy. Our business is underpinned by owning land and collecting rent. We presently have over 7700 income yielding homes, cabins, and sites, And this number continues to grow every week as we settle new homes and add new rental and tourism patterns across the portfolio. Every week, we collect more than $2,000,000 in cash rent, with a significant component of these underwritten by government transfer payments including the age pension and commonwealth rent assistance. Our strategy is based around growing an increasingly deep pool of rental income that gives our business a fantastically reliable weekly cash flow.
Number 2, portfolio construct. The residential market is tough. I'm not going to pretend otherwise. And I've been late yesterday called the bottom of the market on the window that private, certainly not getting any worse. We're having to work hard for sales and settlements, but our portfolio is uniquely led risk to the continuing aging population.
Every day, some 700 Australians turn 65. That's 700 people every day. And this will continue for the next 30 years. And Ingenio is firmly focused at the lower and mid quarter private markets in Outer ring Metro and accessible SeaChange locations, where there is genuine resilience in home prices and underlying demand. Our incoming residents are not requiring a mortgage or refinance.
They're downsizing both in terms of property size and financial commitment. And our incoming residents are typically selling to 1st homebuyers or upgraders who can sensibly support a mortgage based on generational low unemployment levels. Number 3, market leadership. This year, in January, remains on track to become a leading developer of lifestyle communities in Australia. With an incredible growth runway in place of over 3 1700 Hindsights.
The end sales value of development pipeline now exceeds $1,200,000,000 and would add over $32,000,000 to our current annual cash rents. The size of the lifestyle community market in Australia is growing, and so is in genius share of the pie. It remains our absolute results with a clear market leader, as measured by settlements, pipeline profitability, and most importantly, resident satisfaction and engagement. And lastly, innovation, We are a genuine leader and innovator in our sector, and this should assist with longer term peer outperformance. We are already a leader in the build to rent sector where we own and manage over 2400 Rental Homes.
And we've developed considerable intellectual property in this space. We also have 1st mover advantage into a compelling high growth So we also have 1st move advantage into a number of compelling high growth sector adjacencies, including importing flat pack times and rental units. Which of themselves could be an entirely new business segment for Ingenia and our security holders. I'm now going to move on to the presentation and joining me on the call today is Scott Noble, our Chief Financial Officer and Nicky Fisher, who's our Chief Operating Officer. We're going to start briefly on Page 3, which is delivering on strategic initiatives.
Over the last 12 months, we acquired another $73,000,000 of assets, including 3 existing communities and a large home site adjacent to our large community in Victoria. And we have tremendous visibility on multiple opportunities, which currently under assessment. Last Thursday, we executed contracts to acquire the Ace Gate Funds Management platform, and made a significant co investment in each of the 6 funds. That's really exciting for Virginia because it diversified our revenue stream and that was asked to monetize the significant platform that we've established over the last 5 years. We also have the last while refusal to acquire all of the assets in each of the funds, even when those funds are wound up.
We're continuing to build on our joint venture with Southern Communities. We already have the first two projects underway. We have another 4 projects that we're looking at very closely. And most importantly, once those communities are built with SUN, Ingenie has the rights to acquire those projects at market price. And lastly, we're continuing to grow our new home settlements.
So over the last 12 months, we settled 336 homes, which adds around $2,700,000 per annum in additional long term recurrent rent and all of those new contracts typically have a rent growth mechanism set at CPI+2 percent.
I've covered on
a lot of the positive things in my opening comments, but there are a couple of things where I do think we can do better. Firstly, in refining our new community launch strategies, by that for me, we're launching a new community, trying to bring it to Mark 2 to 3 months quicker. This would be achieved through standardizing the design of our homes, community facilities and better alignment between our acquisition and development teams during the due diligence process. Improving the consistency and moving experience for our new residents. Generally, I think we do this very well, but in the month of June, we had over 90 new homes settled.
Left around 4 every working day. And I think our internal systems and processes struggled to keep up with our experience for a few residents, So from my perspective, it wasn't as good as it should have been, and that won't be a key area of focus. Competitive landscape on page 4, holding the acquisition of the APA Funds Management platform, in January is now the largest ASX listed lifestyle and holiday group and we are the number one player in this space in Australia. Given that we only acquired our 1st community back in 2013 shows how hard we've been working. You can see from the chart that there's 3 dominant players, as well as discovery in Hometown and then going back, it quickly becomes a rapidly bifurcated market offering some interesting opportunities.
Now just touching it very briefly on to, page 6. So just talking a little bit more about our funds management platform which is the Backstage business. That's the business we've been looking at for the last 2 to 3 years. It gives us tremendous additional asset and capital optionality. So as I was noting before, at the 5 year conclusion of when most funds may be wound up, and Junior has the past life to apply those assets.
We do expect to be generating over $2,000,000 a year in fees, and there's also the opportunity for, Alpha performance fees above that. On day 1, it adds 1600 income producing sites to our portfolio. So again, this is a great opportunity to monetize our platform that we've established. It also exposes us to a new greenfield, fully approved project in Ballarat in Victoria, and it gives us some really interesting opportunities for seeing additional assets into those funds. And over the course of the last 3 or 4 months when I bet all large investors in those funds, they've commenced appetite there for additional origination.
So that's why we are going to be looking that down. I'm now going to hand over to Scott, our CFO business for financial
Thanks, Simon. Good morning everyone and thank you for joining James for the results call. In terms of the financial results, Revenue increased 21% to $29,000,000, a decrease of 25% to 61.5%. This improved results required growth and revenue from our development business was delivered 2.30 with a 19% increase in average sales price.
And the growth in
our rental income from our lifetime holiday business, which increased 10% on prior year. This increase in rental income was driven by annual rental increase process. Additional rental sites being delivered from development new capital investment and annually acquired communities. Underlying profit increased 28 percent to $47,200,000 and underlying EPS increased 19% to $0.21 per share. Sachary profit declined from the prior year by 48%.
This was a result of transaction costs and stamp duty on new acquisitions. A fair value loss on investment property, which was impacted by the realization of development profits on high margin projects and the write down of some noncore assets. Traffic profit was also impacted by the fair value of the property arrangement at Latitude 1 and a mark to market loss on derivatives. Closingly, the group's operating cash flow for the year was up 26% to 59,300,000. Net asset value per security increased 3% $0.65 and a final distribution of $0.05800 per security has been declared, taking the full year distribution for $0.11.02.
Up 4.2% from prior year. Last Mile And Holidays EBIT increased 8 percent to $27,400,000. With the Last Mile And Holidays stabilized margin improving to 39.3 percent. Lifestyle Development Ex grew 59 percent to 33.4000000 with development EBIT margin growing to 28%. This improved result was driven by a combination of increased settlements and new greenfield projects, delivering higher above ground development product.
Consumer Gardens continued to deliver strong cash flows to NVIDIA. On a life flight basis, NIM, excluding the impact of the buyer, Tasmanian villages, we sold last June, engineering guidance delivered marginally improved EBIT for the group. Corporate costs were up in line with expanded asset base. And we're predominantly due to higher insurance premiums and higher business development costs being further compared to prior year. Turning to capital management on Slide 11.
In January ended the year with a strong capital management position. At 30 June, year end was up 23 was 23.7% and LBR was 29.8% compared to our covenant of 50%. Weighted average debt maturity was 3.3 years, and the cost of drawn debt was 3.6%. During the year, we completed $1,000,000 of noncore asset sales, providing funding to further invest into our development pipeline. We entered into a DC joint venture with some communities, which has accelerated the group's development profile and created new asset management revenue streams.
Using the group's existing development platform. And we completed the placements on community communities at 13% premium to the closing share price by the processing of raising $75,000,000. Post 30 churn, we'll sell the acquisition of the 8th gated capital months capital management platform and tax strategic investment in the funds management managed by the group. This will expand the group's assets under management by $140,000,000, utilizing Ingenio's existing operating and development platforms, providing new revenue streams and access to a really strong and the base. We also declared a final distribution of $5..8 per share.
The dividend reinvestment plan is open and a 2% discount will be applied to the DRP you. Thanks,
Scott. I might now just move into operations. So moving to Page 17 around Ingenio Lifestyle and Holidays, our total income from our Lifestyle and Holidays business was 71.7%. For the full year, we're able to borrow our rents on a same store basis by around 3% up to $168 per week. That was really for a combination of inbuilt rent increases, which are embedded in the contracts.
The new communities that we're selling typically have a much higher rents. So junior at land sheet 1 is now around $190 per week and also we're getting strong rate growth when homes turn over, and that was nearly 10% from 12 months to 30 June. So over the course of the last 12 months,
we
added around 1300 income producing sites to the portfolio through a combination of acquisitions, through additional investment in our communities and through new home settlements. Just touching on 2 Ingena holidays, which is over the next page, on Page 18. We acquired the River Shore Resort up on the Sunshine Coast and the Byron Bay Holiday Park in Byron, and that added another 360 additional sites to the portfolio. We've continued to invest in our communities and we added around 17 new cabins which delivered nearly $1,000,000 in extra income, most of which flows through straight to the bottom line. We're able to grow our like for like revenue by 3%, and very positive revenue per available room by around 1%.
We have seen a little bit of a discount by some of our keys in a couple of markets. Which has compressed our ability to really strongly grow rates over the last 12 months. And we've also seen some structural changes in the way that people book holidays and online bookings now represent over 51% of all cabin bookings. Moving forward onto Page 19, which is in Junior Gardens, which we don't spend a lot of time talking about, but that's a great core part of our business. We're now charging, on average, $3.41 per week.
We did only achieve same store rent growth of around 1%. Over the last 12 months that was impacted by pension, the growth in pensions, which for the last 12 months was a little bit lower than CPI. And also, we, across our villages in Western Australia, we had to sacrifice a little bit of rate growth in order to, to maintain our occupancy. In Junior Care has been a great catalyst for our business. It's a key differentiator to our competitors and it also has a meaningful impact on the length of stay that our residents have with us, and we presently have over 650 in gene the gardens residents accessing care through our care assist we are continuing to assess opportunities up in Brisbane to build a brand new seniors rental village, but we're not quite at the threshold return that we would proceed to underwrite that investment.
Moving through into development on Page 21, the EBIT contribution from development was up 59 percent to $33,400,000 for the 12 months, and the EBIT margin was up 400 basis points 28%, which I think is very pleasing. Our average above the ground margin group is now around 40%. And in the next 3 months, we expect to be launching our new communities at Harvey Bay, which is currently coming out of the ground with first residents scheduled to move in later this year or early next year, and Berke and Gary just north of Brisbane where we expect to be brightened ground in the next 4 to 6 weeks. Over the page on Page 22, as I noted in my opening comments, in a very challenging residential year, we had a record year in terms of settlements, margins, gross sales price, and the rents that we're charging. I think the chart in the bottom right hand corner is very interesting, and that shows that Since some 2014, when we started building our 1st homes, we accumulated cumulatively now added 917 new homes to the portfolio.
We've banked that development margin, which is really underwritten new development, and that's adding those 917 built and occupied homes is now adding around $8,000,000 per year to our rental income, which is very pleasing. Just going to jump forward a couple of slides now to our key focus, which is on page. 26. There's really 7 key areas that management really 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 lands, which we want to, install new cabins or new homes, some of our holiday parks as the opportunity to convert lower yielding sites into cabins. So we've got some great organic growth opportunities there. Secondly, we want to continue to work with some communities on executing our joint venture business plan and delivering opportunities for capital light growth. And that will be first starting with our Burpengary community just north of Brisbane and then quickly followed by Fulton Cove near Newcastle. Thirdly, we want to continue asset recycling to fund growth.
So over the last 12 months, we successfully divested a number of assets, including our Ralph Hills site in Western Brisbane and our multi lifestyle parking, the Mid Northwest of New South Wales, but we have an additional around $25,000,000 of noncore assets that we're really focused on divesting over the next 12 months. We're going to continue to focus on executing well in sales and marketing to successfully launch new projects and deliver new rental contracts. Firstly, we're going to continue to capitalize on opportunities to expand our development pipeline against to deliver new rental contracts and support the joint venture growth. 6, we're going to integrate our funds management business and deliver performance for fund investors. So the 8th Cape transaction settles, on Thursday, the small team from 8th gate based in Brisbane will be moving into our Brisbane Cajun office within the week, and we're looking to grow that platform over the next 6 to 12 months.
And lastly, in terms of our guidance,
I'm
pleased to announce that for FY 2020, we are anticipating growth in EBITDA between 10% 15% and underlying EPS growth of between 5% 10%. Will obviously depend on market conditions at the time. But based on the great visibility we've got was currently sitting on around 225 contract or settlements. Now we do have great look through visibility there. So we are confident that we can deliver those numbers based on current market conditions.
That's all it's got. Now we're going to present today, and now we'd be delighted to hand over to Q And
A. Thank
you.
You.
Please press 1.
Just to schedule any questions, if there are any questions on the line?
First question comes from the line of Shane Solley from Harbor Asset Management. Your line is now open. Please go ahead.
Good morning guys. Great results and clearly got some great opportunities coming up. If you look at key things you've got to deliver to get to that 5% to 10% earnings growth in the 10% to 15% EBIT growth, what are they and what are the the, I guess, the opportunities around that? It's been, where to say the call has been a bit garbled at my end as well. If you look at the 10% to 15% EBIT growth you're talking about for FY 'twenty, what are the key components behind that?
Yes. So the key components there will be, Firstly, the number of new homes that we settle and the margin that we achieve there. Secondly, it'll be based on, we've got some noncore assets that we're looking to dispose. So the timing of those disposals will have an impact. We do believe across our Ingenia Gardens portfolio that there's another 200 to 300 base points of rent growth there.
We're looking to install upwards of 40 or 50 additional new rental cabins into our Brisbane rental community. So the timing and the rent that we achieve on those will have a meaningful impact. I do think that we'll we'll be looking at a few, acquisitions over the course of the next 12 months. So when we announce those and integrate, as quickly as we can start feeding new assets into the new development joint venture with SUN and start collecting meaningful fees. And similarly, with 8th date, on day 1, we expect to be collecting around $2,000,000 a year in gross fees, plus potential for outperformance.
So I do think that, fee income from our capital partnering initiatives will have a meaningful input and also across our holidays business. We're looking to put in additional cabins there. So the rate that we can achieve and the level of occupancy across the year, I think they're going to be the key impacts Scott, do you think?
The only other one was we acquired a couple of assets during the year, which only had a part benefit in terms of EBIT. We'll get a full year impact next year for
those. Okay. And in terms of just going back to overall conditions, you said it's been a tough year. In terms of more recent trading, are you seeing, stabilization in inquiry? What's happening in recent weeks?
Yes, in recent weeks, I mean, I guess the ironic thing is that when the, coalition government was reelected, whilst we had a lot more inquiry, people felt that the market was going to pick up. So a lot of people who are in the process of selling their high actually deferred selling and have decided to wait until spring. I mean, certainly the level of inbound inquiry, we're getting the level of people who are attending our open day is materially higher than it was, say, 6 months ago. So we do think that always very well, but there's no doubt that it's still taking residents who they need to sell their own current family home to move in an Ingenia community and you're still looking at the average time on market across most of the markets we operate in is between 60 70 days. So that's probably having the single biggest impact.
So we are seeing some returns in price growth opportunities. The level of inquiry is very strong. But in a lot of the markets we operate in, it's still taking upwards of 60 days for a resident to sell our home, which just slows down the overall cycle time.
Great. Thanks so much guys. Appreciate it.
We'll pause a moment to assemble There appears to be no further questions at this time. I will now hand back to the speakers for closing remarks.
Well, thanks, everybody, for, for dialing in today. I apologize if we've had a few audio or technical issues. Don, and Scott and I will be, available this afternoon if anyone has, you know, would like to have a a chat, otherwise over the next 2 to 3 weeks, we intend to be, coming out and meeting with all of our key investors. Thank you very much for participating today. In summary, I think Ingenia's got a very strong period of growth ahead of us.
This was without exception strongest set of numbers we've ever reported. We've got great look through visibility on what the next 6 to 12 months look like. We've got great visibility on some pending acquisitions with some communities and 8thgate, we have some great capital partnering initiatives in place. And I think the underlying thesis of providing affordable community living for seniors who are downsizing out of the 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 is very strong moving forward.
That does conclude the conference for today. Thank you for your participation. You may all disconnect.