INGENIA COMMUNITIES GROUP — Annual Report 2016

Oct 6, 2016

Investor Update 2016

FINANCIAL SUMMARY

PERFORMANCE HIGHLIGHTS

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8 Queensland 34 New South Wales 10 Victoria 66 quality 5 Australian communities and still growing

Chairman’s Letter JIM HAZEL

The achievements of financial year 2016 form a strong base for the coming year as we seek to deliver long-term stable securityholder returns.

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The full year distribution for the 2016 financial year, of 9.3 cents per security, represented an increase of 15%, building on similar growth in 2014 and 2015. We remain committed to distribution growth while maximising value through prudent reinvestment to deliver ongoing growth in returns.

Dear Securityholders

I am pleased to report on a further year of progress in delivering Ingenia’s strategy as Ingenia rapidly expanded in the fast growing lifestyle communities segment of the Australian seniors living market and delivered growth in investor returns.

The growth in returns achieved in the 2016 financial year demonstrated the results from our strategy to increase our investment in the lifestyle and holidays portfolio and to grow development returns from this business. Having entered this market with an initial investment in 2013, we have now established a portfolio of 27 communities with further growth secured, including Ingenia’s first Greenfield development sites.

Much of this growth was due to a significant increase in the contribution from new home sales in our lifestyle communities and increased revenue from rents as we optimised performance and saw the benefit of acquisitions in key metropolitan and coastal markets. Our enhanced scale and established platform in this market segment positions the Group well for further growth in sales, rental returns and distributions.

Over the last financial year, underlying profit increased and our revenue, of $107.1 million, demonstrated 41% growth on the prior year.

The security price closed the year at $2.87, above the $2.67 security price at the beginning of the 2016 financial year.

INA Security Price ($)

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3.1
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1 Jul 15 1 Aug 15 1 Sep 15 1 Oct 15 1 Nov 15 1 Dec 15 1 Jan 16 1 Feb 16 1 Mar 16 1 Apr 16 1 May 16 1 Jun 16 30 Jun 16
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Ingenia South West Rocks

Driving performance and organic growth within our Garden Villages rental portfolio and continuing to expand in the lifestyle and holidays business through acquisitions and development remain the focus of the Group’s strategy.

While underperforming the S&P/ASX Property 300 Accumulation Index over the 1 and 3 years to June 2016, Ingenia’s returns over the past 1, 3 and 5 years have been strong, with the Group significantly outperforming the ASX All Ordinaries Accumulation Index over each period. We remain focussed on continuing to deliver results from the business, supporting further price growth as our earnings grow and our business model benefits from further scale.

The achievements of financial year 2016 form a strong base for the coming year as we seek to deliver long-term stable securityholder returns.

I would like to thank Ingenia’s dedicated directors and management team for their hard work over the past 12 months and their ongoing commitment to Ingenia’s performance and strategic goals.

We raised $60 million through a capital raising in June in order to acquire four additional lifestyle and holiday communities. The Security Purchase Plan announced in June raised a further $8.5 million and allowed existing securityholders to participate in Ingenia’s growth.

As your Chairman I would like to thank all securityholders for your continued support and I look forward to meeting with you and providing a further update on the business at our upcoming Annual General Meeting to be held in Sydney on 15 November 2016.

With an increase in funding capacity secured, progress on the divestment of the noncore Deferred Management Fee (Settlers) portfolio and an active Distribution Reinvestment Plan, we will continue to pursue opportunities which meet our return requirements.

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Jim Hazel Chairman

SIMON OWEN

CEO Update

Over the year Ingenia’s business has continued to evolve, enhancing the Group’s exposure to lifestyle and holiday communities and extending the pipeline for future growth.

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Over the 2016 financial year we made significant progress on the Group’s key objectives – further expanding our Australian lifestyle business, continuing to drive performance from the existing asset base and securing longer term growth through the expansion of the Group’s development pipeline.

We also launched several new developments, exceeded our sales target and saw the benefits of our strategy with substantial increases in revenue and cashflows supporting growth in distributions.

Financial Performance

While Statutory Profit of $24.3 million was down 6% on the 2015 result, due to a reduced tax benefit in line with growing profits, Underlying Profit from continuing operations of $20.2 million, was up 20% on the prior comparative period.

Operating cashflow for the year of $21.0 million was up 133% on the prior year driven by rental and tourism earnings growth and an increase in home settlements.

Net Asset Value per security (NAV) increased by 5%, to $2.45.

Capital management

Over the year, six new lifestyle communities were acquired and a further six acquisitions secured, supported by capital recycling from divested assets, the proceeds of a successful placement and Security Purchase Plan and additional debt.

At 30 June 2016, Ingenia’s LVR of 24.9% was below the Group’s policy range of 30-35% and well below the Group’s covenant of 50%. Following completion of pending acquisitions, Ingenia’s LVR is expected to be at the lower end of the Group’s policy range.

Consistent with our focus on maintaining funding capacity, Ingenia increased its debt capacity to $224 million with an increase of $24 million in its debt facility. Ingenia’s current all in cost of debt is now 4.0%.

Across the Settlers Villages, income fell as the development and conversion program, which has delivered significant value since commencement, nears completion.

Outlook

We remain focussed on the growth of the Group’s lifestyle and holidays portfolio and continue to refine our strategy as the market for affordable seniors housing matures and evolves.

The Ingenia lifestyle and holidays portfolio continued to expand with acquisitions in Queensland and NSW extending our presence in key markets. This business provides strong recurrent cash earnings, attractive development returns, and above all is affordable for a growing number of seniors.

In addition to acquiring and repositioning tourism and mixed-use parks we secured our first, high quality Greenfield opportunities to extend our pipeline in markets with strong demand.

Acquisitions

Over the last financial year we have rapidly expanded, securing growth in an emerging asset class with strong longterm industry fundamentals underpinned by a growing demand for quality affordable housing from an ageing population.

With additional assets secured in metropolitan and coastal markets and a forecast of more than 150 home settlements in the 2017 financial year, we remain confident of continuing growth from our lifestyle and holidays business.

The portfolio continued to build returns with rental revenue of $33 million reflecting the benefit of acquisitions and development and strong growth in revenue from tourism (up 10% on a like for like basis).

We continue to access off market acquisitions in the increasingly competitive lifestyle communities market, investing $70 million, adding over 900 income generating sites and 300 approved development sites. This acquisition strategy has seen Ingenia’s lifestyle and holiday communities become the key earnings driver across the Group.

The potential to release additional capital for investment through the planned divestment of the DMF portfolio will provide future growth capital for this portfolio.

Development

Significant progress was made in development, with 13 communities now under development, expansion of the future potential pipeline to over 2,000 sites and 107 home settlements. In addition we secured our first Greenfield developments, supplementing our pipeline in key growth corridors where existing communities are not available at appropriate returns.

In closing, I would like to thank the Board for their support and our management team and all employees for their continuing commitment and contribution to the business.

Recently announced acquisitions are shown in the table below.

Portfolio performance

Across the 31 Ingenia Garden Villages, occupancy closed the year at 90.7%, with rent increases also achieved. The portfolio’s return was stable despite the sale of three noncore villages in June 2015.

The remainder of this Update contains greater detail on Ingenia’s business.

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Simon Owen Chief Executive Officer and Managing Director

					Simon Owen Chief Executive Ofcer and Managing Director
		Purchase price ($m)	Existing sites	Develop- ment sites	Summary
	Avina Van Village, Sydney (NSW)	33.0	180	150	Mixed-use park with substantial land for development (subject to approvals)
	Happy Wanderer, Fraser Coast (QLD)	9.5	149	–	Mixed-use park located in popular retiree market
					Mixed-use park dominated by annuals
	Confdential Park,				with approved sites for development
	NSW Coast (NSW)	7.5			(total 200 sites)
	Greenfeld Site, Upper Coomera (QLD)	7.0	–	180	Site optioned – acquisition subject to approval of proposed development
					DA approved site for new
	Latitude One,				masterplanned community
	Port Stephens (NSW)	7.0	–	229	(conditional contract)

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Portfolio Location
(by value)
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Coastal 52%
Metropolitan 36%
Regional 12%
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• Includes Ocean Lake (acquired August 2016).

Ingenia has rapidly expanded this business focussed on rental cashflows complemented by development returns

Ingenia acquired its first lifestyle community in March 2013, and has since grown the portfolio to 27 communities.

The Ingenia Lifestyle portfolio provides exposure to a growing demand from Australia’s ageing population for affordable ageappropriate housing.

Reflecting ongoing growth in the portfolio, which is located in predominantly coastal and metropolitan markets, rental revenue increased to $33.0 million in the 2016 financial year (up from $19.8 million the prior year). The Portfolio’s EBIT contribution of $16.5 million, was up by close to 100% on prior year, driven by a growing rental base and increasing development profits.

The core of this portfolio is permanent site revenue generated from residents who generally fund their rental payments by government pension and rental assistance. Residents own their home, but pay a land lease rent to locate it on Ingenia’s land.

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	Key data Total properties Total permanent sites		30 June 20161 26 1,620	30 June 2015 20 1,468
	Total annual sites Total tourism sites		640 1,449	306 1,033
	Development sites2		1,484	1,135
	Portfolio value		$299.7m	$204.2m

• 1 Excludes Ocean Lake (acquired post year end).

• 2 Includes new and recycled permanent and tourism sites. Excludes sites under contract or option.

This stable cashflow is now generated from over 1,600 sites.

The ongoing growth of this portfolio through acquisition and development is at the core of Ingenia’s strategy.

In addition to strong rental cashflows from permanent homes this portfolio provides exposure to complementary tourism and development returns.

Development

Development provides the opportunity to improve returns through the sale of new homes, expand cash yields through additional ground lease rents, and improve the amenity of existing communities as new homes are delivered.

Ingenia’s development pipeline offers attractive returns while growing permanent rental income.

With a development and sales platform in place to support accelerated growth, new projects were launched and 107 new home settlements were achieved over the 2016 financial year. Gross development profit increased to $9.4 million (up over 80%).

This represented significant growth on the 52 new home settlements achieved in the prior year.

Recent acquisitions and secured sites, which include a DA approved Greenfield site in Port Stephens (NSW), and contracted or optioned Greenfield sites in greater Sydney and Upper Coomera (QLD) have increased the scale and quality of the pipeline to over 2,100 potential development sites. These sites are located primarily in metropolitan and coastal markets where sales velocity and price is expected to be strong.

The launch of Ingenia’s first Queensland and Melbourne projects (Bethania, Chambers Pines and Lara) and ongoing demand at Stoney Creek in Marsden Park (NSW) is expected to support an increase in new home settlements, with over 150 settlements forecast for the 2017 financial year.

	Key data		30 June 2016	30 June 2015
	Total active development projects Sales projects ‘in market’ Deposited/contracted New home settlements Gross new home development proft		13 10 85 FY16 107 $9.4m	8 8 39 FY15 52 $5.2m
	Average new home price ($’000)		$274	$275

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Key data		30 June 2016	30 June 2015
Total properties		31	31
Total units		1,628	1,628
Occupancy		90.7%	90.7%
Portfolio value		$134.6m	$125.7m

These results, combined with margin improvement, contributed to relatively stable revenue from the portfolio despite the sale of three assets in June 2015. Total revenue of $27.5 million was down only $0.7 million on the prior year and EBIT was stable, at $11.0 million.

Ingenia is the largest owner-operator of seniors’ rental accommodation in Australia. Stable recurring cashflows are underpinned by government payments (pension and rent assistance)

‘Ingenia Care’, a free service that acts as a ‘care concierge’, to assist residents find a pathway through the maze of accessing care, was launched in October 2013 and has continued to grow its reach. Over 400 residents now access this service.

a new extended care program will be trialled in low occupancy villages.

through the maze of accessing Through referrals and regular care, was launched in October dialogue the program is 2013 and has continued to grow increasing the awareness of its reach. Over 400 residents health professionals to the now access this service. benefits of Garden Villages for seniors in need of supported Ingenia Care extends Ingenia’s accommodation. These commitment to resident health professionals are increasingly and well being, enabling referring residents to Ingenia’s residents to access primary villages. health services, social support, transport and government With Ingenia Care now funded care packages, assisting operating in a number of them to age in place. Ingenia’s lifestyle communities,

Further occupancy and rent growth remain a focus in the 2017 financial year. Combined with ongoing community engagement, operational efficiencies and the growing benefit of Ingenia Care, the portfolio is positioned to continue to improve occupancy and grow earnings.

The Ingenia Garden Villages portfolio consists of 31 rental communities with over 1,600 units across Australia.

The portfolio closed the year with strong occupancy (90.7%) and also increased rent. The average weekly rent across the portfolio of $321 was up $10 (from $311 at June 2015).

With Ingenia Care now operating in a number of Ingenia’s lifestyle communities,

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Ingenia Settlers communities provide traditional retirement living for selffunded retirees

Ingenia’s focus is on maximising returns while seeking to exit the portfolio at an appropriate value.

Key data		30 June 2016	30 June 2015
Total properties		8	8
Total units		838	838
Occupancy		97%	93%
Portfolio value		$62.5m	$62.9m

The Ingenia Settlers portfolio consists of eight Deferred Management Fee (DMF) communities with over 830 homes across WA, QLD and NSW.

With the conversion program (which has seen the sale of 215 converted units for over $38 million over the past five and a half years) also nearing completion and no new capital committed to future development, development profits will continue to moderate.

The overall returns from the portfolio reduced in the 2016 financial year as the development program moved closer to completion.

Ingenia is progressing the divestment of these assets in line with the Group’s strategy to focus on Ingenia’s lifestyle and holiday communities.

Development income across the portfolio was down 38% on the prior year as stock levels have reduced, and lower priced one bedroom and studio apartments largely remain.

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Ingenia Holidays provide tourism accommodation including tourism villas, cabins, caravan and camping sites which target the affordable tourism market and are attractive to grey nomads and families alike.

Portfolio Location (by site numbers)*

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Ingenia’s assets include a number of iconic coastal communities and have the potential to provide significant growth and generate compelling returns.

Coastal Metropolitan Regional	74% 8% 18%

While a number of tourism sites will be converted to permanent home sites through development, tourism accommodation provides a number of benefits, including:

• Includes Ocean Lake (acquired August 2016).

• Diversifying and increasing cashflows

• Providing potential residents with their first exposure to an Ingenia community

Tourism provides complementary strong cashflows with significant cross selling potential and preserves longer term land redevelopment optionality

• Access to Australia’s growing grey nomad caravanning market

• Preserving longer term redevelopment optionality

• Significant cross selling opportunities (through resident discounts and the ability to market permanent homes to visitors).

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25%
OFF ALL
PARKS
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	Key data		30 June 2016	30 June 2015
	Total properties Total self contained units		17 495	14 376
	Average daily rate		$130	$113
	Occupancy		53%	47%
	Caravan and camping sites		954	657
	Average daily rate Occupancy		$42 45%	$33 44%

Over the 2016 financial year revenue grew by 10% (on a like for like basis). In addition to leveraging Ingenia’s own database of over 100,000 members, partnerships with online travel agents have been extended, and bookings

through these agents are now on average over $240,000 in site revenue monthly.

Increasing returns are anticipated as Ingenia’s scale and brand recognition continue to expand.

Thinking about a holiday?

Perhaps a weekend winery getaway or a family coastal escape is in order? Remember, as a valued Investor of Ingenia Communities you’re entitled to 25% off at all of our Ingenia Holidays parks to make taking a break just a little easier.

Simply mention your Family & Friends Discount Voucher when booking over the phone and present the voucher on arrival to receive your investor discount. With an ever expanding list of great locations throughout NSW and south east Queensland you’re bound to find the perfect spot for your next holiday at www.ingeniaholidays.com.au*

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*Terms and Conditions Apply. Phone bookings only. Subject to availability, cannot be used in peak periods or in conjunction with any other offer.

View our parks online at www.ingeniaholidays.com.au

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Ingenia Communities Group

Level 9, 115 Pitt Street, Sydney, NSW 2000 T. 1300 132 946 E. investor@ingeniacommunities.com.au W. www.ingeniacommunities.com.au

Note:

This Update provides a summary of performance for the 2016 financial year. Further details can be found in the Group’s Annual Report.