Ingenia Community Group to sell 3 NZ building assets

Ingenia Community Group (ASX: INA) is taking the next steps to focus its business on retirement home accommodation in Australia by announcing its intention to sell three New Zealand student accommodation buildings, which should net it about $15 million from the proceeds. These funds can be applied to further acquisitions of properties in Australia with development potential.

This followed the sale of its non-core US assets, as well as two capital raisings totalling about $130 million. It has been busy with purchasing various caravan parks and tourist accommodation sites that can be converted into manufactured home estates (MHE). It has just announced that two more community sites are now under contract for purchase and two others under option agreements, and all in the Hunter Valley region in New South Wales.

Should all four be purchased, it will add 82 permanent homes, 241 tourist sites and 175 development sites to the company’s portfolio.

Another change that has driven its share price in recent months was its entry in the ASX 300 index in September. This will open it to more institutional investors and managed funds that may have restrictions on equities that can be purchased according to index membership. Soon after that 6 September announcement, its share price went up from around $0.36 to about $0.48. Currently, it is $0.50.

The market certainly thinks that the future prospects of the company are good because its 2013 earnings per share were 0.64 cents, which puts its price-earnings ratio at 83. It still has to develop many of the sites to unlock their full potential, so the real work is ahead of them.

According to the IBISWorld market research website, the aged accommodation market generates about $6.9 billion in revenue, yet there are no major market players with sizeable market share.

Its competitors are companies like FKP Property Group (ASX: FKP), Aveo Healthcare (ASX: AEH) and Eureka Group Holdings (ASX: EGH). Although not a direct competitor in Australia, Summerset Group Holdings (ASX: SNZ) operates 16 retirement villages in New Zealand.

Foolish takeaway

The aged care industry will be servicing a growing demographic with the Baby Boomer generation entering retirement age over the next 10-20 years. Also, longer lifespans and better quality of life will drive related business like retirement accommodation.

As an investor you have to look at the long run of this sub-industry to see if the earnings potential will be steady and predictable. The current rise in the housing market will also pull up retirement accommodation property, though this is still a cyclical market, so you must compare it with other property asset types to see it if will outperform.

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

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