Ingenia powers up growth on compelling LLC business case

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Ingenia called a halt to the trading of its shares in the ASX yesterday to announce that it had raised $60M from institutional investors to fund the purchase of four Land Lease Communities, including one in metro Sydney. (LLC is the legal term for Manufactured Home Estates).

This takes Ingenia to 30 LLCs with 4,000 residents acquired from a standing start three years ago.

Several points have not been appreciated by the retirement living sector about this business model – or more would be jumping in, especially the Not For Profits who have the balance sheets plus the ‘mission’ to serve this market segment.

Land Lease Communities are caravan parks that have tourist and permanent residents as customers. The business case is compelling:
• Both deliver weekly cash rental income
• Occupancy is controllable
• Tourist cabins are converted to permanent sites as demand allows
• The permanent resident market is ‘affordable housing’ – which is 50%+ of the market and severely undersupplied
• New home construction is to order – guaranteed sale with a non-refundable deposit
• Construction time is say 8 weeks – only medium term capital cost is the civics (roads, water etc.)
• Centrelink subsidises the weekly ‘service fees’, being land rental, for pensioners

The result is that Ingenia has massive weekly cash flow – exceeding $1M – and each acquisition generates an immediate positive yield – in the case of the four acquisitions, around 8%.

Then consider the development income. Ingenia makes about $85,000 development profit from each new home built and sold with very little capital required to fund the build and say a three month turnaround. They now have 1,841 development sites. This equates to a development profit of $156,485,500 sitting there to be realised.

And all of it is desperately needed ‘affordable housing’, which will also release larger homes to the market for young families.

An interesting fact. Ingenia points out that there are 349 retirement villages in Greater Sydney and just 13 LLCs. Of those just 3 LLCs are selling new homes.

One is Antegra Estate, a pure LLC at Leppington (51 Kl from Sydney CBD) which is selling eight homes a month. A 2 bedroom home is priced at about $500,000 and 3 bedroom home at $575,000. These prices are equal to new residential developments but provide the ‘community’ of a gated estate.


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