Q&A with Ingenia Communities' chief executive officer Simon Owen

Zoe FieldingDecember 9, 20140 min read

Ingenia Communities is an Australian stock exchange-listed property group that owns, operates and develops seniors’ communities across Australia.

Its chief executive officer Simon Owen talked to Property Observer about the company’s new direction. 

  • What is the outlook for demand in the segment of the property market that you target?

We are firmly focused on the more affordable segment of the property market for seniors’ living. We all know about the aging population but the segment we are focusing on is seniors’ accommodation and manufactured homes under $300,000 – there’s a limited supply of that type of property so the level of demand we are experiencing is quite strong.

We expect demand from seniors to continue to be very strong over the next five years. Some of our challenge is that there is limited awareness of the markets we operate in, the lifestyle parks and manufactured homes, so we have to build up that awareness that you own the home but not the land. That means you can maintain a comfortable retirement while usually maintaining your full pension with rent assistance.

Bringing a product to the market that’s affordable means seniors can sell their home and don’t have to spend more than 60 to 70% of the proceeds to buy a manufactured home.

In Sydney for instance, in the local government areas in which Ingenia has lifestyle parks, average property prices are $450,000, while a senior can buy a manufactured home for $300,000. They have the surplus from the sale plus the full pension of $900 a fortnight, which means they have that $150,000 surplus to spend on other things.

  • Your business concentrates on retirement living but you have been branching into tourism properties too, why is that?

There were 1779 tourism parks in Australia in 2003-04, according to IbisWorld but over the last 10 years that number has reduced to around 1600. These have been closed for a variety of reasons such as flooding or being converted to other land uses but at the same time revenue from the remaining parks has increased.

Cash flow from lifestyle parks is strong and they are highly complementary to our seniors business with the highest users of the parks being grey nomad. That provides an opportunity for us to cross sell to people. The number of registered caravans is rising. When a senior buys into a manufactured home park, they receive a 25% discount at our 19 parks along the east coast.

When we started our manufactured home strategy four years ago we identified tourism as a business where long term we would want to turn the tourism component of the lifestyle parks that we invest in into permanent living.

But we realised that in many parts of the country, the highest and best use of the land was tourism. Tourism generates very strong cash flow which supports our roll out of developments.

A best in class manufactured home community that has been purpose build with no tourism is going to deliver a cap rate of about 9%. We can buy mixed use parks at cap rates of 10% or more. The opportunity for us to buy those parks on attractive terms is quite compelling.

I don’t think we would ever be looking to be a tourism operator but we are comfortable using it where it’s the highest and best use of the land.

  • How competitive is the market for buying lifestyle parks?

Over the last six to 12 months there are more participants out there but we are ahead of the competition. We have seven people out there concentrating on acquisitions. We don’t rely on agents for deal flow. We have two people out door knocking having informal discussions with prospective sellers.

  • You have started to move out of investing in deferred management fee (DMF) retirement villages, where seniors buy the right to occupy a home, then pay annual fees and an exit charge. Why?

DMF is a great model. There are three reasons we are looking to exit that over time, and we are only going to exit if we can get appropriate values for the properties.

We want to focus on the affordable segment and DMF is no longer affordable because we can’t build a DMF home for under $350,000 and get a return. We want to focus on the affordable market and we are building manufactured homes and rental villages in some markets for $180,000. We don’t want to be all things to all people and we have identified that DMF is not consistent with affordability.

There are other pure-play DMF operators out there and this is also about differentiating our business.

Lastly, while we have about $70 million worth of DMF properties that are earning attractive development returns, if we strip out the development returns, it is a return of less than 3% per annum. Yields will grow over time but I can put that capital to work better now and buy a lifestyle park and get an immediate 10% yield. It’s about more efficient utilisation of capital.

  • What assets do you own and where does your revenue come from?

Ingenia’s portfolio includes about $120 million worth of Garden Villages (our rental properties for seniors), $70 million in DMF, and with acquisitions made and announced, about $170 million in lifestyle parks.

I would expect that over the next two to three years as we divest out of DMF and move into lifestyle parks we will be at a split of 75% in lifestyle parks to 25% in Garden Villages.

In the current financial year about a third of our revenue will be rental villages, 5-10% from DMF, 10-15% from tourism and the balance from manufactured homes, both rent and development.

  • What are the biggest challenges to your business?

The biggest risks and challenges to our business are around planning. We have to deal with a myriad of councils. Some are supportive and some are obstructive. That’s the single biggest challenge. 

Zoe Fielding

I am a freelance journalist and editor with more than 15 years experience specialising in personal finance, property, financial services and financial technology. A skilled writer and researcher, I have extensive experience producing high quality content for corporate and media clients. I am used to working to tight deadlines and tailoring the pieces I produce to suit a variety of audiences and formats.
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