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Friday
Jan162015

Is aggregation of caravan parks by corporates a good thing?

More and more corporate entities are eyeing the tourist holiday park market and residential park home markets than ever before. Recent activity has seen a number of priviately owned properties change hands. The Australian reports on the trend:

Tim Boreham 12 January 2015

FOR not-so-happy campers of a certain age, just passing a holiday park could conjure up repressed childhood memories of sodden nights under canvas, rusty swings and malodorous communal latrines.

JAMES CROUCHER Rayleen and James Adams, with their son Zac, at the Stockton Beach Holiday Park in Newcastle. They drove four hours from Gulgong in central NSW

In contrast, the slickly run modern parks emulate the comforts of home, with facilities more usually found in up-market resorts. “We now have ensuite sites, deluxe cabins with spa baths, dual head showers and all the facilities you could ask for in a tourist park,’’ says Discovery Holiday Parks chief executive Grant Wilckens.

“All of our tourist parks have Wi-Fi, jumping pillows and play grounds and some also have facilities such as mini-golf, driving ranges, water parks, bikes, trampolines, games rooms, kids clubs, boats (motorised), canoes, fully equipped gyms, cafes and restaurants.’’

Like a growing number of families, the Adams family has been visiting holiday parks for years. Last week, James and Rayleen Adams, with son Zac in tow, drove the four hours from Gulgong, in central NSW, to the Stockton Beach Holiday Park in Newcastle. “This time of year, these parks are busy wherever you go,” James Adams says. “The beach here was completely full just yesterday.”

The trend to improve facilities at caravan parks reflects not just elevated consumer expectations, but the wave of corporatisation sweeping the $1.5 billion sector, historically the domain of family operators and local councils.

Now corporate groups are circling the sector with aggressive acquisition plans, mainly targeting the “trophy” assets in prime seaside locations.

“These caravan parks traditionally are set up in the best locations in Australia,’’ says Caravan Industry Association chief executive Stuart Lamont.

On the other side of the transaction, weary baby-boomer proprietors are more willing to sell, either leaving the industry temporarily or retiring with a plumped-up nest egg.

With buying competition for the best sites intensifying, some industry figures claim some buyers inevitably will pay too much and their fingers will be burnt when interest rates rise.

A decade ago, the Perth-based listed Aspen Group and the private Adelaide-based Discovery Holiday Parks began buying out unsuspecting mum-and-dad proprietors.

Now they are joined by the expansionary listed Ingenia Communities, which shed its deferred-management fee-based retirement village business in favour of cheap-and-cheerful manufactured home estates.

Other active acquirers are the Ingham family-backed Tasman Homes (which pondered an IPO before dumping the idea) and the investment house Alceon, which is run by former Babcock & Brown executives.

“They knock on my door every day,’’ says Caravan Park Brokers NSW director Ken Buckley of the corporates.

At face value, there are still plenty of pickings in the fragmented sector.

According to research house IBISWorld, Australia’s 1427 caravan parks and camping grounds turn over $1.5bn a year.

The Australian Bureau of Statistics cuts the market differently, identifying 1600 parks with 40 sites or more.

In what it dubs a “worrying trend’’, IBISWorld estimates the number of sites has declined 1.5 per cent over the past five years as soaring values (and rates) force owners to sell to developers. Riskaverse councils have also closed some sites because they are vulnerable to a one-in-100-year flood.

“In the past 10 years, as property prices in prime locations have soared, many caravan park owners have been forced to sell to developers,’’ IBISWorld says in a sector report.

“Some states, mainly Victoria and Western Australia, have responded by waiving caravan parks’ obligation to pay land tax, saving operators thousands of dollars each year.’’

At the same time, prohibitive land prices mean few greenfield sites are emerging, especially in prime locations.

“There hasn’t been a new caravan park built on the east coast for the last 20 years,’’ says Ingenia Communities chief executive Simon Owen, who estimates 15-20 sites close each year.

“You will see a considerable reduction in the number of caravan parks over time as developers commit to higher and better use.”

Conspiracy theorists contend that some of the corporate acquirers are more interested in landbanking than facilitating affordable family holidays.

But given that a well-run park produces low-risk, double-digit returns, it is far from a story of an atrophied sector ceding its sundappled sea-facing prime locations to ugly apartments and shopping malls.

Adding to the sector’s investment cred, occupancies are at healthy levels thanks to the rise of the grey nomad, tumbling petrol prices and the falling dollar that makes overseas holidays less financially attractive.

IBIS World estimates that industry revenue grew at an annualised 1.8 per cent over the past five years, but expects 2.3 per cent growth this year “as travellers sideline international trips in favour of more affordable trips in Australia’’.

These tailwinds are not lost on Ingenia, which from a standing start has acquired 19 NSW and Queensland sites — a mix of tourist, residential and development facilities — over the past year.

Funded by an $89 million placement and raising in October last year, Ingenia acquired the White Albatross Holiday Park at Nambucca Heads in NSW, as well as the Canberra South Motor Park and an unnamed and unsettled site in Brisbane dubbed Confidential Park.

Including available debt, Ingenia still sits on a $125m war chest and its newly established acquisitions team has scoured at least 80 opportunities to employ the stash.

“We have 20 live acquisitions at the moment and expect to announce a series of acquisitions in the next four to six weeks,’’ Owen says.

He adds that Ingenia has walked away from numerous proposals due to “a combination of price and the standard of accommodation on offer’’.

Majority-owned by Sunsuper, Discovery is already the biggest tourist park operator, owning or managing 34 sites.

Discovery recently bought the Tanunda Caravan and Tourist Park in the Barossa Valley and is spending $150m on expanding its park in Onslow, gateway to the Ningaloo Reef in Western Australia, to an 880-site mega facility.

Discovery also offered to buy Aspen’s 40 per cent-owned offshoot Aspen Parks, as did Ingenia, with both parties shooed back over the Nullarbor — at least for the time being.

Discovery’s Grant Wilckens says Sunsuper is keen to see Discovery more than double in size over the next three to five years.

“We intend to invest in excess of $300m in development and acquisition funds over this period and we have the capital to do so,’’ Wilckens says.

“We like parks that have development potential that are strategically located close to major cities, tourist attractions or major industry. We are not afraid to invest in regional towns where we see demand and development upside.’’

In October, Aspen Parks bought the Harrington Holiday Park on the NSW north coast for $8.4m.

The Australian understands Aspen has agreed to pay $7.5m for Four Lanterns at Leppington, a manufactured housing estate in Sydney’s outer southwest.

“There are positive trends in the industry both residential and short-stay,’’ says Aspen chief Clem Salwin. “The change in the dollar and the oil price are both positives for short-stay visits.’’

Salwin says Aspen doesn’t have a specific investment target, but has been sizing up a number of eastern seaboard sites.

“Clearly we have a very strong presence in WA, but less in NSW and currently no exposure in Queensland,’’ he says.

The growing price tension inevitably has seen valuations increase — arguably to overstretched levels in some regions.

“I think valuations for the next few years will remain strong,’’ Discovery’s Wilckens says.

“However, I also feel that the corporate market is still relatively young and it wouldn’t surprise me if we see one or two of them falter when interest rates rise and their strategic plans don’t go to plan.

“This will have the reverse effect and valuations will likely then deteriorate.’’

Ingenia’s Owen says coastal trophy assets are transacting at a 10-10.5 per cent capitalisation rate (the ratio of income versus the cost of the property).

“This is a 25 to 50-basis-point tightening over the last six to 12 months,’’ he says. “But valuers are still pretty nervous because of the GFC and it takes a lot of evidence to get them to adjust.’’

Owen says the buying interest is also trickling down to valuations of smaller rundown regional parks — some of which have been on the market for years.

Caravan Park Brokers’ Buckley says the market for manufactured home estates is as “hot as I have seen it” in his 30 years as a property broker.

He estimates the cap rate on a general-mix caravan park in NSW has declined from 10 per cent two years ago, to a “very keen” 8 per cent. Buckley’s Queensland counterpart, Jason Smith, says coastal parks in his state are trading on a net return of 11-12 per cent, compared with 10 per cent before the GFC.

“In the last 12 to 18 months there has been a lot of corporate activity,’’ Smith says.

“In some cases they have paid a bit above the market but it’s a funny old market at the moment.’’

Smaller properties — worth less than $5m — have seen little price appreciation.

Aspen’s Salwin says: “My sense is the market generally is fine. Clearly in the current interest rate environment it’s a very positive spread to yield.’’

Owen says it’s hard to tell when the consolidation will abate, but other property-related sectors provide a clue.

“Look at the nursing home industry, where there are three large listed entities and a couple of large private groups that control 40 per cent of the market,’’ he says.

Salwin compares the holiday park genre to the more mature shopping centre sector, which used to be fragmented but is now dominated by the bigger players.

“There’s absolutely a long way to go,’’ he says.

To the industry association’s Lamont, the corporate interest reflects the “strength and vibrancy’’ of the sector.

He also contends that the degree of consolidation is exaggerated.

“There are still a large number of bush caravan parks and there’s still a market for youth and budget-oriented accommodation,’’ Lamont says.

“While corporates have the high-profile sites it’s still a small per cent of the total. We are seeing a trend but it is not significant.’’

He acknowledges a small amount of attrition with unviable smaller sites. “But this will pick up again with demand as it is.’’

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