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Ingenia makes a sea change with $61 million rights issue

Just as it is starting to warm up and everyone is thinking of going off to the beach, senior housing communities owner, operator and developer Ingenia Communities Group (ASX: INA) is making a sea change for itself by announcing its plans to purchase up to eight properties in New South Wales market clusters, with the first being in Kingscliffe, south of the Gold Coast.

The purchase, a tourist park with 114 permanent homes and 68 tourism sites, comes on the heels of an August announcement of two other tourist parks being snapped up.

The eight properties are estimated to cost about $93.3 million in total, and a $61.7 million non-renounceable rights issue has been announced to help fund the acquisitions. The 1-for-3 rights issue is set for a $0.365 per security, an 8.5% discount to the $0.40 price at the beginning of the week when the announcement was made.

The company is expanding its Manufactured Home Estates (MHE), which it sees as the future of its senior living communities development. The villages each offer between 100 and 440 homes/sites, which the company estimates will effectively more than double its current portfolio, from 1,196 homes/sites to 2,667.

As a real estate investment trust (REIT), the group is structured as a triple stapled security, composed of a unit each of its management trust, management fund and communities holdings, traded as one on the ASX.

The company’s growth plans are targeting the ever-growing senior citizen demographic group caused by the Baby Boomer generation entering retirement age.  The “sea change” and now “tree change” housing market trends are both being followed, and initial yields of 10% are being projected with these eight properties.

FKP Property Group (ASX: FKP) is also focusing on its senior living communities development, earlier announcing its intentions to sell off $790 million on non-retirement living properties to concentrate solely on this housing market segment.

Ingenia Communities Group is scooping up tourist and trailer parks that have good geographic settings at what may seem to be moderate prices now, yet have much more development potential.

Foolish takeaway

As retirement age people want to scale dow — some releasing equity they have in their homes to fund their retirement, some just wanting a simpler lifestyle near the ocean or up in the hinterlands — the lucrative potential will attract other development companies.

The trick is to control initial purchase costs, and keep a steady hand on running expenses. Their customers may have some or even enough funds to cover their retirement years, but their earning growth potential from there on out isn’t expanding. As they will be very cost conscious, so the company must be also. Profit margins can get squeezed since ongoing investments to make these retirement communities attractive and maintain the quality of lifestyle can increase faster than incoming cash flow.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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