Ingenia Communities Is Up After Announcing A Strategic Partnership

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On 7 November 2018, Ingenia Communities Group (ASX: INA) announced that the NSW Land and Environment Court has ruled against Ingenia’s appeal application regarding its proposed development at Ingenia Holidays Avina, Vineyard. Ingenia’s CEO Mr. Simon Owen said the management of the company is very disappointed with the Court’s decision. He further confirmed that the company’s target for over 350 new home settlements in FY 2019 remains unchanged and it is expecting to deliver further growth in settlements in FY 2020. The company also announced that it has entered into a partnership with Sun Communities which is a leader in the North American Manufactured Housing and Recreational Vehicle (MH and RV) markets. Following the release of this news, the share price of the company increased by 3.521 percent as on 7 November 2018.  

Through the partnership, Ingenia will access additional development scale which will support further rental cash flow growth. Both the parties will contribute equal capital to acquire and develop assets, with Ingenia holding a right to acquire each development on completion. The Strategic Partnership will be governed by a separate Board, with Ingenia and Sun each appointing two Directors.

Ingenia has entered into a subscription agreement with Sun, under which Sun will acquire approximately 23.2m new fully paid ordinary securities in Ingenia at $3.2172 per security for a total consideration of approximately $74.6m. The issue price of the securities under the Placement represents an 8.75% premium to Ingenia’s 30-day VWAP up to and including 5 November 2018.

The subscription agreement also proposes that Sun nominates one Director to the Ingenia Communities Group Board. Mr. Gary Shiffman, Chairman and Chief Executive Officer of Sun, is expected to join the Board in November 2018 and he will be subject to re-election by security holders at Ingenia’s Annual General Meeting in November 2019.

From the Placement proceeds, Ingenia is planning to invest around $53 million to acquire two established communities in South East Queensland which will increase the Ingenia’s lifestyle and holidays portfolio to 37 communities with a total of over 6,200 income producing sites. Ingenia will also invest an additional $10.1 million to accelerate the planned rollout of new rental cabins at Ingenia’s Durack and Eight Mile Plains communities and the addition of 22 new tourism cabins. The remaining $22.3 million of Placement proceeds will fund Ingenia’s equity investment in the initial greenfield projects to be undertaken by the Strategic Partnership.

The placement and subsequent use of proceeds will be marginally accretive to earnings in FY 2019. Ingenia’s FY 2019 underlying EPS guidance of 5-10% growth on FY18 is reaffirmed and the company is on track to deliver more than 350 new home settlements in FY 2019. The EBIT of the company is expected to increase by 15-20% on FY18.

In the last six months, the share price of the company increased by 7.58 percent as on 6 November 2018, and traded at a PE level of 17.210x. INA’s shares traded at $2.940 with a market capitalization of $593.06 million as on 7 November 2018.


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