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INGENIA COMMUNITIES GROUP Capital/Financing Update 2007
65125_rns_2007-04-22_ac48f7fd-dec5-43da-90b9-75c995578088.pdf
Capital/Financing Update
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ING Real Estate Community Living Group
Non-renounceable Entitlement Offer and Public Offer April 2007
Transaction overview
Value Enhancing Growth
- Acquisition of A\$220m of seniors housing assets in Canada, Australia and the US
- ▶ Acquisition to be partially funded by a \$155m accelerated non-renounceable Entitlement Offer and Public Offer
- ▶ Acquisition involves
-
Entry into attractive Canadian Seniors market with acquisition of a 50% share in the Regency portfolio of 8 Long Term Care assets in Toronto, Canada
-
Expansion of Australian Seniors portfolio with acquisition of Settlers portfolio of 4 lifestyle villages in WA (3) and QLD (1)
- Further investment in the Fund's US Seniors JV which owns US \$1bn in seniors housing $\geq$ communities across 11 US states
- Acquisition continues the Fund's investment into markets with strong demand drivers
Summary of offer
| Accelerated non-renounceable Entitlement Offer and Public Offer | |
|---|---|
| Equity Raising | A\$155m |
| Entitlement ratio | 1 for 2.791 |
| Issue price | \$1.34 |
| FY2008 DPU yield on issue price | 8.5% |
| Discount to 5 day VWAP | 4.0% |
| Tax deferred component | 90% |
| Public Offer amount | A\$5m |
New units entitled to June 2007 quarter distribution
- ▶ Cum-adjusted yield on issue price of 8.6%
- Fully underwritten by JPMorgan
Sources and applications
| Source | Application | |||
|---|---|---|---|---|
| Capital Raising | \$155m | 50% interest in Regency Portfolio (Canada) | \$49m | C\$46m |
| 100% interest in Settlers Portfolio (Australia) | \$50m | |||
| Investment in US Seniors Joint Venture | \$37m | US\$30m | ||
| Working Capital | \$15m | |||
| Issue costs | \$4m | |||
| Total | \$155m |
▶Look-through transaction gearing of 52%
Portfolio summary
▶ Portfolio value C\$255m $(100\%)$ – ILF to acquire 50%
Eight "Class A" Long Term Care (LTC) assets, all built within the last 6 years, providing 1,384 LTC beds
► Located in Greater Toronto Area, Ontario, Canada
▶ 99.4% occupancy with waiting lists
▶ 4 properties have "as of right" development potential for 400 additional units
Managed by Chartwell, leaders in the LTC market in Canada
Portfolio location
LTC market
► LTC facilities provide higher levels of personal care than typically provided by Independent Living or Assisted Living facilities
- ► Long term care market is heavily regulated by Ontario Ministry of Health (MOH)
- MOH substantially subsidises the cost of accommodation and services for the resident
- MOH controls the supply of new beds
- MOH controls the rent charged to residents
- ► Current undersupply, compounded by growing demand
- High degree of income certainty
Financials
| C\$100% $(\$m)$ |
C\$ ILF 50% Share $(*m)$ |
A\$ ILF 50% Share $(m)$ |
|
|---|---|---|---|
| Value of LTC assets | 249 | 125 | 133 |
| Value of development land | 6 | 3 | 3 |
| Total purchase price | 255 | 128 | 136 |
| Acquisition costs | 4 | $\overline{2}$ | 2 |
| Total costs | 259 | 130 | 138 |
| Adjustment for OTM in place debt | (24) | (12) | (13) |
| In place debt | (143) | (72) | (76) |
| Settlement amount | 92 | 46 | 49 |
- ▶ Year 1 yield on total cost of 7.0%
- ▶ Unlevered IRR of 7.8% (excluding development opportunities)
- All-in cost of borrowings of 5.2%
Significant development potential
▶ 4 of the 8 sites have surplus land to develop retirement homes which will allow the offer of a full "continuum of care" (and extend the length of resident stay)
▶ Development of Independent Living (IL) / Assisted Living (AL) units has the potential to add 383-412 units to the portfolio, representing a 25-35% expansion
- All sites are zoned to permit IL/AL development
- The existing buildings were designed in anticipation of future development
- $\triangleright$ Development timing total program 36-39 months
-
Approvals/documentation/tender 3-6 months
- Construction $-15$ months $\geq$
- Stabilization 18 months $\geq$
- ► Expected income return on cost of 9-10%+ and IRR's of circa 13-14%
Development pipeline
The Westmount, Kitchener
The Waterford, Oakville
The Woodhaven, Markham
The WynField, Oshawa
Summary
- ▶ Unique portfolio with excellent fundamentals, locations and market presence
- ▶ Low risk investment
-
Under supply
- Strong and growing demand $\geq$
-
Regulated control of new supply
-
Stable income streams
Existing on site teams will transition to Chartwell, who are recognized market leaders in the LTC sector
Attractive initial yield of 7.0%
Attractive risk adjusted IRR of $\sim$ 380 bps over 10 year C\$ government bonds (excluding development opportunities)
► Significant development potential to provide growth from 2009 onwards
Existing contracts have conservative DMF scales which provide future upside for ILF
Settlers portfolio - Australian Independent Living
Portfolio summary
- ▶ Portfolio value of A\$47m (A\$50m incl. costs), ILF 100% ownership
- ► Four villages, 3 in WA and 1 in QLD the two strongest State economies
- 463 existing units (100% occupied)
- 244 unit development pipeline under construction or to be developed - 70% has development approval
Portfolio location
Portfolio summary
| Summary | Lakeside WA |
Meadow Springs WA |
Noyea QLD |
Ridgewood WA |
Total |
|---|---|---|---|---|---|
| Occupied | 165 | 58 | 149 | 91 | 463 |
| Development pipeline | 49 | 35 | 12 | 148 | 244 |
| Total | 214 | 93 | 161 | 239 | 707 |
A good balance of DMF revenue (circa 25%) and development profits
Market
▶ Villages located in Mandurah and Ridgewood in the northern and southern growth corridors of Perth
► "Seachange phenomenon" drives growth in these coastal corridors - Mandurah's residential market has outperformed Perth residential market for the last 5 years
- ► WA housing market is currently the strongest residential market in Australia
- ▶ OLD village is located in strong growth corridor of the Gold Coast City Council area
- ► Limited competing self-funded retirement villages in the immediate vicinity
Market valuation support
- ▶ Price of \$47m (\$50m incl. costs) supported by external valuation
- ▶ Discount rates for DMF contracts of $13.5\%$ $15.0\%*$
- ▶ IRR on development asset $18\% 33\%$ , profit margins circa $13\% 15\%$ *
- ▶ Price compares well with recent transactions
| Comparable transactions | Purchase Price | Units | \$ per DMF contract |
Development stock |
\$ per development tot |
|---|---|---|---|---|---|
| Settlers Portfolio (ILF) | $$47m^$ | 463 | \$56,000 | 244 | \$77,000 |
| Sakara Living Portfolio | \$90m | 648 | \$75,000 | 168 | \$243,000 |
| Gandel Lifestyle | \$105m | 580 | \$181,000 | $\overline{\phantom{0}}$ | |
| Manor Group | \$70m | 242 | \$289,000 | - |
*INGRE internal valuation
^ Includes approximately \$2.3m of additional development land
Summary
Good blend of annuity and development revenue
Strong locations (growth areas) to underpin development and resale values
► Forecast total return of 19%
► Acquisition is competitively priced compared to recent portfolio transactions
Existing experienced team to continue management and development of portfolio
Fragmented WA market and experienced local team provides potential for future growth
Investment in US Seniors JV
- ▶ US Seniors JV owns US\$1bn in assets, across 11 US states, 26 properties and approx 4,500 units
- ► Chartwell 100% financed the equity requirement for the US Joint Venture's acquisition of Bristal Portfolio Long Island (Settled in Feb 2007)
- ▶ ILF's A\$37m investment increases its economic interest back to 49%. Re-aligns equity interest with Chartwell
- ▶ Increases ILF's exposure to high growth US seniors asset class
- $\triangleright$ Weighted average portfolio occupancy of 92.5%
US Seniors Joint Venture
Bristal portfolio update
▶ Portfolio in affluent market with high barriers to entry
► US\$290.5m at initial cap rate of 7.0%
► Strong occupancy at 97% (stabilised assets)
▶ Development asset leasing well underpinned by demographic drivers
▶ Portfolio expected to deliver attractive long term $IRR > 10%$
Portfolio impact
| Pre Acquisition* | Post Acquisition^ | |
|---|---|---|
| Number of properties | 106 | 118 |
| Market Cap | \$433m | \$591m |
| Total assets (look through) | \$979m | \$1.2bn |
| Number of units on issue | 312.5m | 430.2m |
| Gearing (look through - debt/total assets) | 58% | 55% |
| % portfolio offshore | 76% | 77% |
| % portfolio seniors | 77% | 82% |
* As at 20 April 2007
^ Includes settlement of March DRP
Portfolio impact
Diversification Post the Offer
Geographic
Portfolio impact
$%$ = percentage of ILF portfolio value
ILF portfolio
Units owned or under development
| Seniors | Students | |
|---|---|---|
| Units existing | 8,416 | 1,780 |
| Units in development pipeline | 2,687 | 110 |
| Total units | 11,103 | 1,890 |
| Seniors | Students | ||||||
|---|---|---|---|---|---|---|---|
| Aus | US | Canada | Total | NZ | US | Total | |
| Existing | 2,732 | 4,505 | 1,179 | 8,416 | 362 | 1,418 | 1,780 |
| Development pipeline | 1,774 | 513 | 400 | 2,687 | 0 | 110 | 110 |
| Total | 4,506 | 5,018 | 1,579 | 11,103 | 362 | 1,528 | 1,890 |
| ILF share of total | 3,263 | 2,459 | 774 | 6,496 | 362 | 1,528 | 1,890 |
Financial forecasts
Distributions estimated to be 90% tax deferred
Forecast financial performance
| Forecast Performance | Year Ending 30 June 2008 \$m |
|---|---|
| INCOME | |
| Net property income: | |
| - Australian Seniors | 22.6 |
| - Students | 14.6 |
| - US Seniors | 22.4 |
| - Canadian Seniors | 6.6 |
| Total income | 66.2 |
| EXPENSES | |
| Interest expense | 12.3 |
| Other fund expenses | 4.4 |
| Total expenses | 16.7 |
| NET PROFIT | 49.5 |
| Distributions payable per Unit | 11.45 cents |
| Annualised distribution yield per New Unit | 8.5% |
| Estimated tax deferred portion of distribution paid | 90% |
Forecast financial position
| Pro-forma balance sheet post issue | As at 13 June 2007 \$m\$ |
|---|---|
| ASSETS | |
| Working capital | 46.0 |
| Property investments: | |
| - Australian Seniors | 237.1 |
| - US Students | 186.3 |
| Investments in associates: | |
| - US Seniors | 215.5 |
| - Canadian Seniors | 49.2 |
| - New Zealand Students | 10.7 |
| - Australian Seniors | 25.3 |
| Total assets | 770.1 |
| LIABILITIES | |
| Payables | 11.5 |
| Borrowings | 222.1 |
| Deferred Taxation | 12.8 |
| Total liabilities | 246.4 |
| NET ASSETS | 523.7 |
| Number of Units on issue (million) | 430.2 |
| NTA per unit | \$1.22 |
| C\$ converted at a rate of A\$1=C\$0.938 |
US\$ converted at a rate of A\$1=US\$0.831
Borrowings and interest expense
| Australian | NZ Students | US Seniors1 | Canadian | US Students1 | |
|---|---|---|---|---|---|
| Amount 2 | A\$116m | NZ\$19m | US\$291m | C\$72m | US\$97m |
| Term | 2.5 years | 3 years | 12 years | 20 years | 8 years |
| Rate | 6.8% | Floating | 6.0% | $5.2\%$ 3 | 5.6% |
| Security | Mortgages over Australian assets including equity interests in offshore entities |
Mortgages over NZ Students assets |
Mortgages over US Seniors assets |
Mortgages over Canadian seniors assets |
Mortgages over US Students assets |
Minimal interest rate exposure
▶ 97% fixed for an average term of 11 years
1 US Seniors and US Students borrowings comprise a number of loans from different counterparties. Figures shown are the average of these facilities.
2 Fund's proportionate interest
3 Interest rate is shown after accounting adjustment for the mark to market value of the inherited debt.
Capital hedges
| Item | NZ students (NZ\$m) |
US Seniors (US\$m) |
CAN Seniors (C\$m) |
US students (US\$m) |
|---|---|---|---|---|
| Assets | 33.0 | 470.1 | 117.7 | 154.7 |
| Debt | (18.7) | (291.1) | (71.6) | (96.7) |
| Net investment | 14.3 | 179.0 | 46.1 | 58.0 |
| Capital hedges | 11.7 | 179.0 | 46.1 | 58.0 |
| Unhedged | 2.6 | 0.0 | 0.0 | 0.0 |
Balance sheet ~100% protected
Income hedges
Foreign denominated earnings substantially protected
▶ ILF is now a significant owner of community housing $-$ over 10,000 units in 4 countries
► ILF has broad exposure to a number of asset types, with strong demographics to underpin earnings growth
► Strong organic growth opportunities with a development pipeline of over 2,700 units
► Key relationships with experienced developers and operators
► Active management and the realisation of development potential within the existing portfolio will be the focus for FY2008
Peer comparisons
ILF has outperformed its peers over the past 12 months on a total return basis ₩
■ 12 month total return*
Source: IRESS as at 19 April 2007
* Total return for the 12 months to 19 April 2007. Assumes distributions are reinvested on the ex-date.
Peer comparisons
ILF offers a forecast total return well above other comparable Australian LPTs $\blacksquare$
Source: JPMorgan estimates, IRESS as at 19 April 2007 Note: ILF figures shown based on Offer price
Summary of offer
| Accelerated non-renounceable Entitlement Offer and Public Offer | |
|---|---|
| Equity Raising | A\$155m |
| Entitlement ratio | 1 for 2.791 |
| Issue price | \$1.34 |
| FY2008 DPU yield on issue price | 8.5% |
| Discount to 5 day VWAP | 4.0% |
| Tax deferred component | 90% |
| Public Offer amount | A\$5m |
New units entitled to June 2007 quarter distribution
- ▶ Cum-adjusted yield on issue price of 8.6%
- Fully underwritten by JPMorgan
Timetable
| Institutional Entitlement Offer Opening Date | Monday 23 April 2007 |
|---|---|
| Institutional Entitlement Offer Closing Date | 2.00pm Tuesday 24 April 2007 |
| Record date for determining entitlement to New Units | 7.00pm Friday 27 April 2007 |
| Retail Entitlement Offer Opening Date | Tuesday 1 May 2007 |
| Initial Retail Entitlement Offer Closing Date | Monday 7 May 2007 |
| Settlement of Institutional Entitlement and Initial Retail Entitlement | Friday 11 May 2007 |
| Allotment under Institutional Entitlement and Initial Retail Entitlement | Monday 14 May 2007 |
| Retail Entitlement Offer and Public Offer Closing Date | Tuesday 5 June 2007 |
| Settlement of Retail Entitlement and Public Offer | Tuesday 12 June 2007 |
| Allotment under Retail Entitlement and Public Offer | Wednesday 13 June 2007 |
Appendices
Team update
- Expanded team from 5 to 11 in 12 months
- Growing capabilities across the fund
- ▶ Actively recruiting from within industry
Lakeside
| Location | Ravenswood, WΔ |
|---|---|
| Facility type | Independent Living |
| Acquisition price | A\$17.0m |
| Year opened | 1999 |
| Site area | 14.6 ha |
| Completed units# | 194 |
| Development stock | 49 |
| Total units | 243 |
| Discount rate (DMF) | 14.5% |
| Development IRR | 31.8% |
| Tenure | Loan Lease |
- Facilities feature an indoor swimming pool, lawn bowls, tennis court, and extensive gardens
- Lakeside is an easy 12 km commute into Mandurah, and an hour to Perth
Meadow Springs
| Location | Meadow Springs, WA |
|---|---|
| Facility type | Independent Living |
| Acquisition price | \$8.7m |
| Year opened | 2003 |
| Site area | 3.15 ha |
| Completed units | 58 |
| Development stock | 35 |
| Total units | 93 |
| Discount rate (DMF) | 14.75% |
| Development IRR | 23.4% |
| Tenure | Loan Lease |
- Resort motel conversion with adjoining 1.5ha parcel of land to be developed, including 37 residential lots
- ▶ Within close proximity to Meadow Springs Shopping Centre and Meadow Springs Golf Course
Ridgewood Rise
| Location | Ridgewood, W۵ |
|---|---|
| Facility type | Independent Living |
| Acquisition price | A\$14.3m |
| Year opened | 2003 |
| Site area | 10.8 ha |
| Completed units | 91 |
| Development stock | 148 |
| Total units | 239 |
| Discount rate (DMF) | 15.0% |
| Development IRR | 18.7% |
| Tenure | Loan Lease |
- Upon completion will include a clubhouse, workshops, indoor lap pool, bowling green and dining room
- Located close to Perth CBD in a rapidly growing neighbourhood with significant residential and infrastructure development
Noyea Park
| Location | Mt. Warren Park, QLD |
|---|---|
| Facility type | Independent Living |
| Acquisition price | A\$7.0 |
| Year opened | 1987 |
| Site area | 8.82 ha |
| Completed units | 149 |
| Development stock | 12 |
| Total units | 161 |
| Discount rate (DMF) | $13.5\%$ |
| Development IRR | 33.3% |
| Tenure | Strata Title |
- Within walking distance to convenience shopping centre and medical centre/day surgery hospital
- Facilities include clubhouse, swimming pool and spa, bowling green, tennis court, barbeque and extensive gardens
The Westmount
| Location | Kitchener, Ontario |
|---|---|
| Facility type | Class A LTC |
| Acquisition price | C\$30.3m |
| Valuation | C\$29.2m |
| Year opened | 2002 |
| Site area | 4.21 acres |
| Licenced beds | 160 |
| Undeveloped units | 87-107 |
| Initial yield | 7.0% |
| Current Occupancy* | 100% |
ING.
REAL ESTATE
- Proposal to build 4 storey retirement home on adjoining land comprising 87-107 retirement homes or assisted living communities
- Easy commute to Toronto and neighbourhood well serviced with 2 hospitals and 2 golf courses
The Willowgrove
| Location | Ancaster, Ontario |
|---|---|
| Facility type | Class A LTC |
| Acquisition price | C\$30.4m |
| Valuation | C\$30.9m |
| Year opened | 2004 |
| Site area | 2.93 acres |
| Licenced beds | 169 |
| Undeveloped units | n/a |
| Initial yield | $7.0\%$ |
| Current Occupancy* | 100% |
- Willowgrove is situated near Hamilton Golf and Country Club, well serviced by major roads and transport offering easy access to local shopping, churches, and amenities
- Onsite facilities include hair salon, chapel and recreation facilities
The Brant Centre
| Location | Burlington, Ontario |
|---|---|
| Facility type | Class A LTC |
| Acquisition price | C\$31.5m |
| Valuation | C\$30.6m |
| Year opened | 2003 |
| Site area | 3.7 acres |
| Licenced beds | 175 |
| Undeveloped units | n/a |
| Initial yield | $7.0\%$ |
| Current Occupancy* | 100% |
- Facilities include café, therapy rooms, library, hair salon, chapel and reception area
- Located adjacent to the Joseph Brant Memorial Hospital and within easy reach of established commercial and dining precincts
The Waterford
| Location | Oakville, Ontario |
|---|---|
| Facility type | Class A LTC |
| Acquisition price | C\$32.2m |
| Valuation | C\$30.3m |
| Year opened | 2003 |
| Site area | 4.4 acres |
| Licenced beds | 168 |
| Undeveloped units | 100 |
| Initial yield | 7.0% |
| Current Occupancy* | 98.8% |
Facilities include café, therapy rooms, library, hair salon, chapel and reception area
The Wenleigh
| Location | Mississauga, Ontario |
|---|---|
| Facility type | Class A LTC |
| Acquisition price | C\$29.0m |
| Valuation | C\$29.2m |
| Year opened | 2001 |
| Site area | 2.7 acres |
| Licenced beds | 161 |
| Undeveloped units | n/a |
| Initial yield | 7.0% |
| Current Occupancy* | 99.4% |
- Generous common areas, gardens and open courtyard areas for outdoor recreation and indoor facilities include guest café, library, hair salon and lounge areas
- Easy access to shopping centres and dining precincts
The Westbury
| Location | Toronto, Ontario |
|---|---|
| Facility type | Class A LTC |
| Acquisition price | \$C33.7m |
| Valuation | C\$33.0m |
| Year opened | 2004 |
| Site area | $1.21$ acres |
| Licenced beds | 187 |
| Undeveloped units | n/a |
| Initial yield | $7.0\%$ |
| Current Occupancy* | 97.9% |
REAL ESTATE
- Located in the west of the city of Toronto, The Westbury is close to public amenities including hospitals, medical centres, golf courses, shopping and dining precincts
- Onsite facilities include café, music room, hair salon, art centre, chapel and large reception areas
The Woodhaven
| Location | Markham, Ontario |
|---|---|
| Facility type | Class A LTC |
| Acquisition price | \$C35.6m |
| Valuation | C\$34.5m |
| Year opened | 2003 |
| Site area | 3.95 acres |
| Licenced beds | 192 |
| Undeveloped units | 93-102 |
| Initial yield | $7.0\%$ |
| Current Occupancy* | 100% |
- Close to Toronto and well serviced by major roads and transport, providing easy access to a wide range of public amenities
- Onsite facilities include cafe, library, hair salon, chapel, courtyards and extensive gardens
The Wynfield
| Location | Oshawa, Ontario |
|---|---|
| Facility type | Class A LTC |
| Acquisition price | C\$32.5m |
| Valuation | C\$31.6m |
| Year opened | 2003 |
| Site area | 4.0 acres |
| Licenced beds | 172 |
| Undeveloped units | 103 |
| Initial yield | $7.0\%$ |
| Current Occupancy* | 99.4% |
- Situated on the shore of Lake Ontario, The Wynfield is only 50kms from downtown Toronto
- Onsite facilities include cafe, library, hair salon, chapel, courtyards and terraced balconies
ING Real Estate Community Living Group
This presentation was prepared by ING Management Limited (ABN 15 006 065 032) (the "Responsible Entity") in respect of ING Real Estate Community Living Group (comprising ING Real Estate Community Living Fund (ARSN 107 459 576) and ING Real Estate Community Living Management Trust (ARSN 122 928 410)) ("ILF"). This presentation is provided for information purposes only and does not constitute an offer, invitation, solicitation or recommendation with respect to the subscription for, purchase or sale of any security, and neither this document nor anything in it shall form the basis of any contract or commitment. Accordingly, no action should be taken on the basis of, or in reliance on, this presentation.
Except as required by law, no representation or warranty, express or implied, is made as to the fairness, accuracy, completeness or correctness of the information, opinions and conclusions, or as to the reasonableness of any assumption, contained in this presentation. By receiving this presentation and to the extent permitted by law, the Recipient releases the Responsible Entity its affiliates or any of their respective directors, officers, employees, representatives or advisers from any liability (including, without limitation, in respect of direct, indirect or consequential loss or damage or loss or damage arising by negligence) arising in relation to any recipient relying on anything contained in or omitted from this presentation.
The forward looking statements included in this presentation involve subjective judgment and analysis and are subject to significant uncertainties, risks and contingencies, many of which are outside the control of, and are unknown to, the Responsible Entity. In particular, they speak only as of the date of these materials, they assume the success of ILF's business strategies, any they are subject to significant regulatory, business, competitive and economic uncertainties and risks. Actual future events may vary materially from forward looking statements and the assumptions on which those statements are based. Given these uncertainties, readers are cautioned not to place undue reliance on such forward looking statements.
The distribution of this presentation in jurisdictions outside Australia may be restricted by law and you should observe any such restrictions. Without limiting the above, this document may not be distributed in the United States or to any US Persons.
A Product Disclosure Statement (PDS) for the Offer of units in ILF will be made available when the units are offered. Anyone who wishes to acquire such units will need to complete the application form that will be in, or accompany, the PDS,
This presentation is provided to you as a "wholesale client", being a person to whom disclosure is not required under Part 7.9 section 708(8) or(10) (Sophisticated Investor) or (11) (Professional Investor) of the Corporations Act. You have represented to the Company and in accepting this presentation you confirm, that you are a wholesale client within the meaning of section 761G of the Corporations Act and a person to whom disclosure is not required under Part 7.9 section 708(8) or (10) (Sophisticated Investor) or (11) (Professional Investor) of the Corporations Act 2001 and that you accept this presentation on the basis set out in this notice. If you are not such an investor, please do not consider the contents and return it.
