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Why Ingenia Communities Group is up 2.89% today?

Jordan Baird

Jordan Baird is the head ASR Wealth Advisers client services desk and has been with the organisation since 2017. He first started investing in his early years. While he believes that investors should leave no stone unturned he has a particular interest in trading based on broad macroeconomic trends along with specific analysis of innovative up-and-coming companies.

 

Ingenia Communities Group (ASX: INA) rallied almost 3% today on the back of full-year results that exceeded previous guidance. The REIT recorded EBIT of $61.5m, up 26% on FY18, along with 21% revenue growth. This was substantially better than comparable REITs such as Villa World (ASX: VLW), which saw revenue and profit falls. Commercial REIT’s such as Dexus (ASX: DXS) also saw large profit declines on the back of adverse revaluation changes, highlighting that the challenging industry fundamentals in real estate are not just confined to one segment of the REIT market.

Ingenia-Communities-Lara-Community-Clubhouse

Ingenia Lifestyle Communities (Credit: Ingenia)

Unlike most other REITs on the ASX, Ingenia focusses on lifestyle and holiday properties. The bulk of the properties are in NSW and Queensland, with a small share in Victoria. The company’s concentration on capital city and coastal markets increases the quality of the REIT but does expose it to increased recession risk. In a downturn, coastal markets have previously sold off heavily as people cut back on holiday expenditure, exposing the REIT to unrecoverable rent as they struggle to source new tenants, under a worst-case scenario. Most of these assets are priced on capitalization rates of over 6%, as compared with 4.63% for Governor Phillip Tower, a more stable, premium asset with blue-chip tenants like Goldman Sachs. While there are additional risks that emerge when an investor migrates away from A grade assets, the additional yield is a worthwhile argument in favour of investing in slightly riskier assets.

The business also has a development division which posted a strong margin. Unlike most development businesses, Ingenia focusses on lifestyle communities and targets retirees, which reduces their earnings cyclicality. This is because most retirees have a large share of their money invested in conservative investments by default leading into retirement, which means that their buying power is not heavily affected by changes in the economic cycle. Additionally, Ingenia concentrates on building master-planned communities outside of cities where retirements are cheaper, further reducing the cyclicality of that part of the business.

 


 

Disclaimer:

This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978) (“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).

This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.

ASR has no position in any of the stocks mentioned.

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