INsite asks a range of different stakeholders for their views on which direction the retirement village industry is heading.

Simon Challies, Managing Director, Ryman Healthcare

“The retirement village industry is playing an essential role in the respect that it provides attractive housing options for older New Zealanders. The Government has identified a need for new housing, especially in the established metropolitan centres, and retirement villages are meeting this need by catering for the fastest growing group of our society. By downsizing to a retirement village, a retired person is not only moving to accommodation that meets their needs, but they are also typically freeing up a family home within an established suburb with access to schools, recreation facilities, transport, and established council infrastructure.

“At Ryman our focus is on building and operating retirement villages that offer the full continuum of care, so that we can look after our residents as their needs change. We are building 700 new units and aged care beds per annum in New Zealand, which goes only part way to meeting the growing need for new retirement village units and aged care beds. Our biggest challenge, as always, is executing well and delivering good service to our residents and their families.

“We see more differentiation in the retirement village market developing between villages, which are more focussed on independent residents and those which provide the continuum of care. We see both markets expanding dramatically in the next 20 years.

“On the Australian front, we have planning approval and are about to commence building our first village in Melbourne. We have made no commitments beyond the first site and won’t embark on any further villages until we can prove ourselves on the first one. I’m not imagining many other New Zealand companies following suit as there remain plenty of opportunities in New Zealand, and it’s a big challenge crossing the ditch.”

Margaret Owens, General Manager Independent Living, Bupa

“I think a major direction for the industry at the moment is that potential residents are seeking a retirement village that has a plan for how care will be provided to them when needed. In earlier days, this didn’t appear to be ‘top of mind’ for some prospects enquiring at villages. There appears to be a developing trend that this is a factor to be considered when choosing a retirement village.

“Bupa has plans to grow the size of the retirement village portfolio by building on sites we already own and greenfields sites that we acquire for development. Our retirement village facilities will generally be co-located with Bupa Care Homes so that our retirement village residents can benefit from our extensive expertise in providing all types of care – including our specialty, the provision of dementia services. One of the hurdles we face in moving forward is obtaining suitable land for development and navigating our way through resource consent processes, which are expensive both in time and cost.”

Norah Barlow, Chief Executive Officer, Summerset

“The retirement village industry in New Zealand is in a good place. As a country we are getting better and better at what we do. Summerset is at the front of that; we’ve been named best retirement village operator in Australasia for the past three years. The opportunities are endless and the best part is that our older population is benefitting from that.

“Summerset has always been a fast-moving company, but since listing on the stock exchange in November 2011, its growth rate has accelerated. The company has just announced an intention to be building 300 units per annum by 2015. This means a big year is ahead.

“Three new Summerset villages opened in 2012 – Dunedin, Hamilton, and Nelson. A fourth, in Katikati, will be up and running by June this year. At the end of the 2013, Summerset will have 20 villages under development.

“People may ask how the population can sustain such growth in retirement villages. They acknowledge the population is ageing but ask how we know these extra people will choose to live in a village.

“We have seen the desire for retirement village living increase steadily since we started in the industry more than 15 years ago. There has been a particular rise in the last few years as people’s awareness of villages has increased. A few years ago, 5 per cent of New Zealanders over 75 lived in a village. Today that figure is at nine per cent. Even if that number were to remain the same, the country would need an extra 30,000 retirement village units by 2031. We expect it to keep rising. Really, we can’t grow fast enough.

“It is an interesting and exciting time for the sector. Retirement villages are become more and more involved in the aged care sector, with care facilities and beds becoming a requisite part of any new village development.

“At Summerset, we have been building care centres as part of our villages from the start. This has been driven off the back of a clear need for the services to be provided by one provider in as seamless a manner as possible.

“New Zealand is clearly leading the way in this integrated village model. No one else in the world is doing it nearly as well.

New Zealand is innovative and we find it easy to adapt and change our thinking and not be put off by what many around the world think is simply too hard.”

John Collyns, Executive Director, Retirement Villages Association

“From our perspective, we see the retirement village industry continuing to grow at a dramatic rate. Research undertaken by Jones Lang LaSalle (JLL) and published in December 2012 states that there are 63 registered villages with some degree of development, with around 5000 homes at some stage of the consent process or undergoing construction. This is a 50/50 split between new developments and expanding existing villages. As there are 343 registered retirement villages with the Registrar of Retirement Villages, this means that almost 20 per cent of the industry is actively expanding. Of this development pipeline, JLL calculate that about half are being developed by the major groups.

“Leaving aside any further financial or property crises, there could be an additional demand for 19,300 dwellings if villages are to maintain their current penetration rate. JLL calculate that we currently have around 4.2 per cent of the over 65s and 9.4 per cent of the over 75s resident in retirement villages across the country as a whole. This obviously varies from region to region, with the Bay of Plenty enjoying the highest penetration rate of 6.5 per cent (65+) and 14.4 per cent (75+). This is closely followed by Auckland at 5.3 per cent (65+) and 12.4 per cent (75+). As the availability of land becomes more scarce, we are likely to see more apartment-style buildings rather than the traditional low-density single-story villas. Some operators are taking the opportunity to provide affordable housing for older people, which is an important social policy initiative.

“We also expect to see an increasing demand for care being delivered to residents in their own units. The RVA continues to argue for home-based support service contracts to be available to retirement village operators as a matter of course so they can deliver lower levels of care to their residents, thereby avoiding the need to move them to a rest home sooner than might otherwise be the case. The resistance from DHBs to this logical situation is disappointing.”

Investment Perspectives

Jeremy Simpson, Director – Research, Forsyth Barr

“The retirement village industry in New Zealand is tracking well, with a pick-up in activity over the last 12 months after a number of operators experienced a quiet period post the global financial crisis. In addition to increased sales activity for units and apartments, there has also been increased planning and associated land acquisitions for the development of new retirement villages. A buoyant housing market in Auckland and an improving housing market in other parts of New Zealand have also been very helpful with regard to activity levels generally. Another theme has been planning by some operators to have a level of aged care services integrating into retirement villages or plans to build larger care facilities by operators already offering integrated villages.

“The aged care sector has become increasingly significant from an investment perspective, with around $4 billion of aged care assets now listed on the New Zealand exchange and the sector accounting for around 7 per cent of the NZX 50 index. The sector has been a very strong performer for investors over the 12 months ending 31 December 2012, with Ryman Healthcare up 72 per cent, Summerset Group up 67 per cent, and Metlifecare up 37 per cent. Investors are attracted to the growth opportunity for the sector given the ageing population and because operating cash flows have been relatively resilient during a period of subdued economic activity.”

James Beale – Head of Investment Management, Craigs Investment Partners

“The listed retirement village sector has been vibrant over the last 18 months, with some significant positive additions to the market and strong investment returns.

“The additions include the acquisition by Metlifecare of Vision Senior Living and Private Life Care Holdings Limited – a $200m transaction in mid-2012 – and the $300m initial public offer and listing on the NZSX of Summerset Group Holdings Ltd in late 2011. Meanwhile, market stalwart Ryman Healthcare continues to grow its portfolio of villages, and its share price has performed strongly.

“During 2012, the sector produced stunning returns for investors. The total annual return from an investment in each of Ryman Healthcare, Summerset, and Metlifecare over 2012 was 70.5 per cent, 67.2 per cent, and 36.6 per cent respectively. The size and scale of the retirement village sector can be seen in the combined capitalisations of the three major players, which currently represent close to $3.5 billion of the New Zealand market. This is around six per cent of the entire market capitalisation of New Zealand domiciled listed companies.

“Interestingly, whilst the three entities have enjoyed common strong performance, and each is operating in the same market with the same regulatory structure, the businesses are at different stages of development and have some differentiating strategies. Metlifecare has grown in part via an acquisition strategy and has continued this with the purchase of Vision Senior and Private Life Care. Summerset is internalising its development arm to improve its profitability and is increasing its focus on integrated villages with a greater proportion of care beds. Ryman has stuck to its proven formula of internally developed and managed villages, with no external acquisition. Although it still has significant growth available in New Zealand, it has purchased its first land for development in Melbourne, Australia, and the market will be watching its progress here carefully.

“So why are New Zealand investors, including its very largest institutional investors, so enthusiastic about the sector? There are really two significant factors in our view. Firstly, the retirement village business model is very capital-efficient in New Zealand, and secondly, it offers significant growth over a sustained period of time, in a new economic age when growth in mature western economies is a rare occurrence.

“Retirement village operators build villages then effectively ‘sell’ the right to occupy to residents. This effective sale releases the investment capital used to build the village and other facilities and enables new land and village investments to be made, whilst leaving in place a sustainable ongoing earnings stream. The efficiency of this model can be seen in the fact that Ryman has grown to be a $2.3 billion entity, without needing to raise even a dollar of additional capital. Since listing in 1999, this reinvestment process has seen its net assets grow from $58m to $691m as at 30 September 2012, whilst it has returned steadily growing dividends to shareholders as well.

“New Zealand’s well-known demographics, together with a relatively low penetration rate of elderly in retirement villages, means there is plenty of growth in the sector for years ahead. Provided the businesses operate in a high-quality, socially responsible manner, this means there is room for further villages, residents, and ultimately more revenue and profit growth.

“We expect the investment return for the sector will be considerably more modest in 2013. Nevertheless, the sector is likely to remain popular with investors, and each of Metlifecare, Summerset, and Ryman can look forward to further expansion this year, with good levels of occupancy, more demand for village spaces, and further development opportunities ahead.”

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