$2.1b market darling Ingenia Communities in Warburg Pincus’ sights

Sources said Warburg Pincus went as far as engaging advisors – Jefferies Australia and Corrs Chambers Westgarth – and made its informal interest known to Ingenia. At the time, the board was preparing for the exit of long-serving chief executive Simon Owen, and getting its head around a 10 per cent sell-down from major shareholder Sun Communities, and the emergence of Di Pilla on the register.

Sources said a formal approach was not made – although Warburg Pincus’ presence was sufficient for Ingenia, owner of the largest portfolio of land lease lots in the country, to dust off its Goldman Sachs and UBS-run defence strategy.

The share price has spiked some 25 per cent higher since November when Warburg’s deliberations were live. Alongside the share price increase, the biggest factor in whether a deal will get off the ground is shaping up as Di Pilla. He’s already flagged his interest in turning his asset management group into a “mini-Blackstone”.

Hot property

Ingenia has 37 holiday parks in NSW, Victoria and Queensland. The entire portfolio has 102 sites and is worth $2.4 billion. Nearly half of this – $1.1 billion – is land lease properties for older Australians. This business, dubbed lifestyle rental, had 99 per cent occupancy and average annual rental increases of 9 per cent.

It operates in “the highly attractive land lease sector and is exposed to strong demographic megatrends including a growing and ageing population,” Di Pilla’s firm told investors in a December update for the HMC Capital High Conviction Fund, which houses its 7 per cent stake in Ingenia.

In the update, HMC Capital said there was “significant” embedded value in Ingenia that had not been “reflected in the current share price”.

Warburg Pincus is one of the oldest private equity investors in the world, with a history stretching back 55 years and a $US83 billion ($126 billion) portfolio. While its recent property bets in this region have gravitated towards Asian industrial assets, housing has been a lucrative bet for the firm in the past.

In 2006, Warburg Pincus dealmakers paid $US150 million to acquire New Jersey-based Brandywine Senior Care. Five year later, it sold Brandywine’s assisted-living facilities to a real estate trust for $US600 million and leased them back to the management-owned operating company. The firm is also flush with dry power after raising a $US17.3 billion buyout fund in October.

Ingenia posted $211.6 million revenue and $43.5 million underlying profit for the December half, up 22 per cent and 27 per cent respectively over the previous corresponding period. Management has guided earnings growth of between 10 per cent and 15 per cent this year along, pushing shares higher. They are up some 34.5 per cent over the last 12 months.

Warburg Pincus’ interest comes as former Mirvac executive John Carfi prepares to take the top job on April 1, succeeding Owen, who spent 14-years at Ingenia. Owen, considered a pioneer of the land lease sector in Australia, left Ingenia in February.