A few weeks back, a couple of the Eiger team ventured up the M1 to the central coast to visit three of Ingenia Communities’ (INA) retirement community parks. Our aim was to check out a mix of assets of one of our Fund’s larger holdings. Ingenia is the second largest operator in the land lease retirement living sector in Australia with 51 sites.
There is no aged care provided in these parks as the product is geared towards residents still capable of independent retirement living, typically a younger retiree cohort. The parks simply provide residents a lower cost, more retirement-community-oriented alternative to staying in their family home. Our holding in Ingenia when combined with our position in Lifestyle Communities, represents one of the major investment themes for our portfolios.
Why we like the retirement living sector
We like this investment theme as demographic trends in Australia provide it with enduring tailwinds of support. The sector serves a large and growing unmet need for affordable independent retirement living in Australia. Many retirees today will retire with little more than a modest superannuation account balance and the (often significant) equity in their family home. The land lease retirement community model provides them with an elegant retirement funding solution. They can unlock the significant equity in their home to better fund retirement needs whilst also freeing up existing housing stock for other home buyers. All in all, a strong social policy outcome.
How does Ingenia operate?
In simple terms, residents sell their existing family home that often no longer meets their needs in retirement (too large, high maintenance, wrong location etc). They reinvest 60-70% of the sale proceeds into a land lease community house that they will own outright and can resell. The lot of land on which the house is located is owned by the land lease retirement community operator who charges a rent, typically $160-180 per week. An aged pension rental subsidy will often reduce the rent cost by about $65 per week leaving a net weekly rent of $100-120 per week. Rents typically rise by CPI +$2/2% pa, broadly in line with aged pension increases.
The community operator is left with a long term rental annuity largely funded by the government aged pension (lower risk) that grows at or above CPI. In a “low interest rate for longer” world this is an increasingly attractive low risk income stream for shareholders and one which we believe is still being undervalued by investors.
On our trip we saw two parks exclusively focused on retirement living residents: The Grange, an older existing park on the Central Coast; and Latitude One, a brand new, latest version retirement park at Port Stephens. We also visited the Soldier’s Point Holiday Park on Nelson Bay, a mixed tourism and retirement park.
We were very impressed with the evolution of the retirement housing product. This was most evident at The Grange where the difference in style and quality between early versions of the prefab housing and the latest versions was stark. To be sure, the resale price of the early version houses is much more modest ($250-300k) compared to the more recent versions ($400-450k) thus catering to buyers with less equity in their existing home.
The Grange: older community, prefab houses built off site
This product improvement took another significant step up at Latitude One at Port Stephens. Apart from the smaller lot sizes and the significant common user facilities (very large clubhouse, pools, bowling greens, men’s shed, community gardens), it would have been hard to distinguish this retirement community from a modern subdivision housing estate. This is evidence of Ingenia’s continued focus on product enhancement and evolution to better suit the needs of their target retirement customers.
Houses are built slab on ground (great for seniors’ access), typically 2-3 bedrooms, have large modern open plan living areas and are very low maintenance. The price points at Latitude One are also testing the upper bounds of the retirement land lease model in Australia. Prices for houses here range from $450k and up to $900k+ for houses on the lakeside lots. These houses draw residents from outside the catchment area where they may be selling a family home worth more than $1.5m so are prepared to pay almost $1m for a high end house.
Latitude One: latest community – slab on ground houses built on site
The last park visited was Soldiers Point Holiday Park on Nelson Bay. It was mostly a tourist park with about 10 permanent retirement sites, similar in style to those we saw at The Grange. The tourism operations of Ingenia are a unique characteristic not found in other pure play retirement operators. Tourism revenues enhance the returns of those parks more favourably located for tourism accommodation but will always remain a small part of Ingenia’s revenues (approximately 30% in FY19).
Soldier’s Point Holiday Park: mixed tourism and retirement park
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