Last Wednesday land lease community, rental village and tourism park operator Ingenia announced that it had achieved a strategic partnership plus placement of 9.99% of new stock with America’s Sun Communities, the world’s largest operator of manufactured home parks and recreational vehicle communities.
Sun, who own and operate 370 communities with a current market capitalisation of $12.5 billion and 127,000 home sites, describe the Australian market opportunity as being similar to the US 20 years ago.
They approached Ingenia about five months ago.
Their CEO of 40 years, Gary Shiffman, has joined the Ingenia board and acknowledges this is their first activity outside of North America. It’s a significant commitment.
Sun paid $3.22 per security, a total of $74.6 million, which was a premium of 8.75% over Ingenia’s 30 day average price to get on its registry.
Shiffman says: “We look forward to contributing the skills and expertise we have built over more than 40 years”. This includes cash for growth.
Ingenia CEO Simon Owen describes Sun’s desire to fund new opportunities as “insatiable”.
And here is the crux of the deal.
Simon Owen has been driving Ingenia to create innovation in affordable retirement living.
This has included pioneering ‘flat pack’ homes manufactured in China, researching new concepts in resident finance, new ‘build to rent’ communities and All Age communities with retirement as a component.
“In the past 18 months we have imported 43 flat packed rental cabins from China and have another 32 currently under construction”.
He talks of a new, high-standard home for less than $200,000 in a significant retirement location. Selling a family home even at $350,000 leaves significant cash on the table for later life.
Sun brings all this ‘affordable housing’ expertise to the table.
Ingenia has already made great headway on its own. In six years Owen has built the company up to 63 communities (37 lifestyle and holiday communities plus 26 rental villages). Their development pipeline of 3,244 homes is bigger than the next three LLC operators combined.
Owen says: “we have been building our business for volume and now we can execute quickly”.
He rates the top three points of the strategic partnership as:
- “We have a capital partner with deep pockets and as the Australian property market hardens, we can go out hard (for the best deals)”.
- “Five trips to investigate the American market and I have just touched the surface. Now with Sun I can pull our business model apart with the benefit of their 40 years’ experience through many market cycles”.
- “Raising capital at an 8.75% premium is compelling. It all contributes to building the market (for Ingenia). They are a 10 out of 10 capital partner who has chosen us”.
Under the strategic partnership both parties will contribute equal capital to acquire and develop assets, with Ingenia holding a right to require each development on completion. Ingenia will generate income as manager.
“Our target is to originate five projects for the strategic partnership within the first 18 months,” says Owen.
At yesterday’s AGM Owen summarised their position:
“Our vision at Ingenia is to create Australia’s best lifestyle and holiday communities. Today we have over 5,500 residents who pay us rent. In our holidays business we have over 780,000 ‘room nights’ per annum. Combined with our Ingenia Gardens business, our annual revenues are now tracking at over $200 million. We generate rent inflows of approximately $2 million per week”.
“All of our key financial metrics were up strongly on the previous year: revenue up 26%, EBIT up 52%, earnings per security up 36% and operating cash flow up 56%”.
“But what excites me most is being able to access Sun’s considerable experience and knowledge in the highly competitive US market”.
“Not only across core elements such as marketing, sales and operations but more specifically across four specific opportunities which have the potential to deliver Ingenia a unique competitive advantage:
- Lowering home and tourism cabin costs through utilizing Sun’s existing supply chain and home designs;
- Providing a funding solution for incoming residents – a huge and profitable market in the US that doesn’t presently exist in Australia;
- Advancing our existing build to rent communities; and
- Creating all-age communities – what a great stepping stone into the residential property market for first home buyers”.
So why will this partnership reshape retirement living in Australia? The answer is cash, land, entry price and sales and marketing.
The land lease community model generates cash fast and this has attracted big investors with deep cash pockets. Singapore’s GIC has bought into National Lifestyle Villages in WA, Singapore’s Thakral Group has bought into Living Gems in QLD, America’s Hometown has taken out Gateway, dominating the Eastern Seaboard and now Sun Communities has teamed up with Ingenia.
This is on top of the homegrown Palm Lakes Resorts and Halcyon who are also developing at speed.
They are buying land on the fringes and regional areas that retirement villages were buying 30 years ago and targeting the sub $600,000 net asset affordable market – 50% of retirees.
And with the target of building quality homes and selling out around a 150-home development in 18 months means they will all be pumping the marketing dollars into local catchments. Looking forward, land lease communities will drown out all other retirement living messaging.
This will include their mantra – you own your own home and keep all the capital gain.
Retirement villages will have a major repositioning challenge to stay relevant.