Real Estate Players in the Limelight – INA & CHC

  • Jul 01, 2019 AEST
  • Team Kalkine
Real Estate Players in the Limelight – INA & CHC

Amid looming concerns over the housing market in the country, these two stocks have been extending and developing their respective business. In this article, we have discussed two stocks in the S&P/ASX 300 Index, which are classified in the Real Estate sector.

Ingenia Communities Group (ASX: INA)

Ingenia Communities Group (ASX: INA) is engaged in the development of lifestyle & holiday communities in coastal and urban areas. The property group has over 3,500 investors to support and over 500 employees dedicated to achieving organisational goals.

On 01 July 2019, Ingenia Communities Group announced signing of the deal with Eighth Gate Capital Management to obtain their funds and asset management business. Eighth Gate Capital Management was established in 2013 and manages approximately $140 million in assets under management via six unlisted funds, and these funds own ten assets.

As per the release, Ingenia would acquire the business and invest in the funds to align with the fund investors and access the revenue streams generated by asset ownership and development; it expects an investment of ~$17 million to acquire and invest in each of the funds. Also, the acquisition would expand the footprint in key clusters and leverage the established business operations, coupled with an increase in lifestyle income producing sites by 26%. Further, a greenfield development would create a 163-site community in Ballarat (Victoria); Ingenia expects a potential to transform lower-yielding sites to new permanent homes at select communities.

Key Fund Terms (Source: Company’s Announcement)

It was reported that Ingenia would receive funds management, asset management and development management fees, which is estimated at above $2 million per annum. Further, Ingenia will have the last decision to acquire the funds’ assets at market value when the assets are realised. In addition, it would earn performance fees based on the specified performance of the funds.

As mentioned in the release, Eighth Gate Capital manages communities under Allswell Communities brand and communities are in coastal and metro markets. Also, the brand’s communities involve three best in class land lease communities in outer Melbourne, which are actively desired by Ingenia to propel the growth. Further, the acquisition is subject to completion of conditions precedent, and the acquisition & co-investment is anticipated to be concluded by the end of July 2019, which would be funded from existing capital sources. It was also reported that funds management investment would contribute to earnings in FY20, and Ingenia anticipates growth in terms of development within the funds being progressed.

Reportedly, the acquisition would add 759 permanent homes and 844 holiday sites; this represents the 26% increase, as previously mentioned. Also, it would extend the clusters of the group in New South Wales & South East Queensland and presents a market leading entry into Victoria. Further, Ingenia to invest up to 20% in the funds, and the transaction is accretive immediately.

Guidance: Ingenia confirmed that the full-year financial results are anticipated to be at the upper end of the group’s guidance range of 15-20% EBIT growth and underlying growth in EPS of 5-10%. It was reported that strong results are backed by a record year of settlements irrespective of the challenging residential market conditions. Also, 336 new home settlements were closed this year by the group with an average above ground margin per home ahead of forecast.

In addition, Ingenia continues to witness rising demand for new homes with over 200 deposits and contracts in place, which would support sales growth in FY20. On 20 August 2019, Ingenia would provide further information on this result, and outlook for FY20 during the full-year results.

On 01 July 2019, INA’s stock was trading at A$3.235, down by 0.154% (at 3: 23 PM AEST). The performance of the stock in the past year, was a return of +6.23%, and its year-to-date return is +8%. In the past three months and one month, the return of the stock is +7.28% and +3.85%, respectively.

Charter Hall Group (ASX: CHC)

Fully-integrated property group, Charter Hall Group (ASX: CHC) manages and invests in equity in the real estate sectors. The portfolio of the company extends to retail centres, premium office buildings, industrial properties and recently in early learning centres.

On 01 July 2019, Charter Hall Group provided an update related to the group’s guidance for the year FY19, which is subject to fully finalised and audited accounts. Charter Hall anticipates post-tax operating earnings per security growth of ~24% over FY18, and the previous FY19 guidance for post-tax operating earnings per security, was an increase of 14-17% over FY18 period. Charter Hall mentioned, the impact of CHOT performance fee was removed from FY18 and FY19 earnings; the updated guidance implied post-tax operating earnings growth of ~15%.

Revaluations: As per the release, the group expects net revaluations for the six months to 30 June 2019 to be of ~$450 million across funds management platform (1.1 billion for FY19), which implies 1.6% growth in FUM over the $28.4 billion as at 31 December 2018. Further, the FUM increase is over and above the impact of ongoing development expenditure and net acquisitions. Moreover, Charter Hall expects FUM to be $30.2 billion at 30 June 2019, up by 6.3% or 1.8 billion for the six-months, while depicting an increase by 30% or $7 billion for FY19.

CHOT Performance fee: It was reported that the group’s previous FY19 post-tax operating earnings of 14-17% growth was considered $40 million of CHOT Performance fee to be recognised in FY19 earnings. However, guidance mentioned in the announcement considers $50 million of CHOT Performance fee to be recognised in FY19 earnings, and the increased accrual aligns with the expected increase in total performance fee payable in April 2020.

Company’s Collaborations (Source: Charter Hall Development Showcase, June 2019)

David Harrison, Managing Director and Group’s CEO stated that, FY19 had seen strong growth across all facets of the Charter Hall’s business, and the sector-leading performance of the funds had witnessed strong equity inflows from wholesale, listed and private investors. He further mentioned that the above-mentioned guidance depicted growth in funds under management, strong transactional activity and the performance of the company’s funds.

On 01 July 2019, CHC’s stock was trading at A$10.97, up by 1.293% (at AEST 4:09 PM). The performance of the stock in the past one year is +65.34%, and its year-to-date return is +47.35%. In the past three months, and one month, the return of the stock is +5.35% and + 1.98%.


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