There comes a point in our lives where we are exposed to the thought or process of retiring. It could come one day when we open our annual superannuation statement. Or it could come when a parent or workplace mentor announces their intentions to hang up the tools and move into the next phase of life…
No matter the journey, a comfortable retirement is a dream and goal of many Australians and something that we all ponder at some point in life. Given the size of the baby boomer demographic in Australia, the question can be posed, is this an investment opportunity?
In our opinion, the short answer is ‘yes’! One of the opportunities we have seen as a way to access the retirement actions of Australians, is through our investment in Ingenia Communities Group (ASX:INA).
Ingenia Communities is a leading operator, owner and developer offering quality residential communities and holiday accommodation. Across Ingenia Lifestyle, Ingenia Gardens, Ingenia Holidays and Ingenia Rentals, the group’s property portfolio is worth approximately $2.5 billion and is spread across 102 sites around Australia.
In their most recent report, Ingenia Communities posted revenue of $472.3 million, an increase of 19.7 per cent on the prior year, and earnings before interest and tax of $125.7 million, an increase of 17 per cent on FY23. The business continues to focus on pivoting from an accumulator of assets (properties) to a developer with a particular focus on the over 50’s and retirement living space.
This raises the question of: how does this allow me to play the baby boomer retirement wave?
The largest sleeve of Ingenia Communities’ investment property portfolio is Ingenia Lifestyle at 47 per cent. This division offers land lease homes, in communities for the over 50’s market. These homes range from a budget offering priced at $340,000 to properties over $1,000,000 in attractive coastal and outer urban locations.
This portfolio meets the needs of a growing demographic of over 50’s who are seeking to unlock their equity through a process of downsizing, while also benefiting from a move to a location that offers significant lifestyle and community activities and benefits.
This part of the business provides an underpinning to Ingenia Communities’ revenue growth over time. The rental income alone last year grew by 7 per cent due to the consumer price index (CPI) linked to the rental review process. This provides a strong inflation hedge for the group’s earnings. This, coupled with the addition of 365 new home settlements over the FY24 year, saw headline revenue growth exceed 12 per cent for the year. Ingenia Communities currently has 4,460 homes that are generating an average of $203 per week in rent, with a development pipeline in excess of 5,000 new sites.
Having outlined the financial strength of Ingenia Communities, and the potential of development opportunities in their pipeline, it is not hard to see how this stock has made its way onto our radar and ultimately as an investment in the Montgomery Small Companies Fund.
The final question to answer is: will there be people to buy these properties? To answer that question, we will also address my opening comment around accessing the Australian retirement market.
The Australian Bureau of Statistics (ABS) released statistics in May 2024 reviewing Australian retirement trends and intentions (for the 2022-2023 period). This research found that there are currently 4.2 million retirees in Australia, with 130,000 people retiring in 2022. It is expected that a further 226,000 Australians will retire in the next two years with 710,000 people intending to retire in the next five years. The single year peak in retirement numbers is expecting in 2027 with approximately 188,700 people expected to retire that year.
With a tailwind of this magnitude, it is not hard to see the ample opportunity that sits before Ingenia Communities, from both the demographic support and the quality of their sites, and the communities they are building for their residents.
The Montgomery Small Companies Fund owns shares in Ingenia Communities. This article was prepared on 17 October 2024 with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade Ingenia Communities, you should seek financial advice.