The beginnings of baby boom retirement along with increased life spans are statistical realities. This is an unquestioned long term trend. One would assume seniors downsizing to smaller living accommodations is another long term trend. However, there are dissenting voices on this issue.
In 2011 the Australian Housing and Urban Research Institute released the results of a study entitled “What Older People Want”, conducted between 2007 and 2009. The study found that “what most older people want is to remain in their homes for as long as possible.”
In early June of this year a report from the Bankwest Curtin Economics Centre (BCEC) added a new variable to the discussion – available housing supply. The report is entitled “Keeping a Roof over Our Heads” surveying more than 4,300 people across New South Wales, Western Australia and Queensland. The principal focus of the BCEC study was conditions in Western Australia, with respondents from other states included for comparison purposes.
Seniors 55 and above were asked a series of questions about downsizing. The most commonly cited reasons in support of downsizing were easier home maintenance and reduced cost. Less than half of the respondents had already downsized yet more than 80% of those who hadn’t stated they would downsize in the future. When that group was asked about barriers to downsizing, more than 40% cited the lack of “suitable or affordable housing options in the areas where they would choose to downsize.”
While the affordability issue is complicated by tax issues, the suitability issue supports the study’s overall conclusion that Australia has a mismatch between demand and existing housing stock that is likely to get worse. The BCEC study and others found that seniors want more than smaller apartments or homes. That conclusion favors the idea that seniors would be interested in downsizing if they could find living accommodations to suit their particular senior lifestyle at an affordable price. The “Vertical Villages” now appearing in urban centres provide a model of suitability. These offer a variety of lifestyle choices, such as shopping, restaurants, athletic facilities, and communal meeting rooms, in confined spaces. There are four “pure play” senior living stocks on the ASX that appear to offer the kind of housing supply seniors want at a variety of price points.
The following table includes some price performance and future growth estimates for these four providers of senior residential living, listed alphabetically.
Back in 2013 FKP Property Group changed its name and its business model. The new company, AVEO Group Limited (AOG), embarked on a course of shedding its non-retirement assets in order to focus exclusively on the retirement living sector. Investors appear to have applauded that decision as the stock price has been marching ever northward since the change in strategy was announced. Here is a price movement chart showing the move.
It took the company less than a year to sell-off its residential development sites. Shortly thereafter AVEO announced the acquisition of two sites for construction of new retirement living villages, with more acquisitions to follow. By early 2015 the company announced acquisitions to add services to its existing 75 retirement villages. The “in-home care” services were part of AVEO’s strategy of offering the widest variety of senior living arrangements.
The latest acquisition expanded the total retirement villages in operation to 89. AVEO now offers independent living units, assisted living units, and short and long term aged care, available in assisted living units as well as in residential aged care centres. Half Year 2016 financial results showed an 89% increase in profit. AVEO operates villages in Queensland, New South Wales, South Australia, Tasmania, and Victoria. Each village offers amenities suitable for the lifestyle of the residents.
Eureka Group Holdings (EGH) differs from the pack by focusing strictly on rental accommodations with an emphasis on affordability. The company’s strategy is to concentrate on a growing market segment – seniors on limited pensions and government rental assistance. Eureka both operates its own retirement villages and provides complete management services for other retirement village providers. The company’s villages are located in close proximity to the kind of senior amenities other providers offer onsite, providing additional savings for Eureka renters.
Eureka has been aggressively pursuing acquisitions of properties the company was managing. This strategy began in earnest at the close of 2013, with capital raises along the way to fund the acquisitions. On 10 May Eureka announced its ninth acquisition of 2016. The share price has gone up dramatically since the aggressive pursuit of acquisitions began. Here is the price movement chart.
The share price has increased about 500% over two years and close to 800% over five years. On 19 February the company released Half Year 2016 results with an impressive 69% increase in rental income and an astonishing 404% rise in net profit. Full Year profit went from $700,000 in FY 2014 to $3.1 million in FY 2015.
Ingenia Communities Group (INA) follows a similar business model but groups its 65 retirement villages into three distinct categories.
Active Lifestyle Estates are for those seniors interested in regular activities in picturesque settings offering caravan, camping, and cabin accommodations. These estates consist of more affordable manufactured homes.
Garden Villages consist of affordable rental units with a complete range of amenities for senior lifestyles.
Settlers Lifestyle communities are for seniors capable of independent living with available activities and amenities. Ingenia’s profit more than doubled profit between FY 2014 and FY 2015; rising from $11.5 million to $25.7 million. Half Year 2016 results showed a 40% year over year profit increase
Lifestyle Communities Limited (LIC) operates exclusively in Victoria with twelve retirement communities. Lifestyle also claims to offer affordable housing, but the claim is supported by the business model which calls for the retiree to buy the home but lease the land for a period of 90 years. This leasing arrangement provides the company with an ongoing and stable revenue stream. Deferred Management Fees, payable at the time the home is sold, are typical of the industry, but Lifestyle’s fee is capped at 20% of the sale price, lower than other retirement village operators. The DMF allows retirement village providers to offer customers lower prices at entry while still recouping development, maintenance, and management costs when the retirement home is sold.
The share price is up about 120% over two years and more than 500% over five years. Here is a five year chart, comparing LIC’s price performance to the ASX 200 and the US Dow Jones Industrial Average (DJIA).
Lifestyle’s Half Year Results reported in February were impressive. Revenue from Deferred Management Fees increased 52%; rental revenues increased 22%; and NPAT was up 24%. Lifestyle has a substantial pipeline of housing units coming in the next two years which is expected to increase earnings per share from the 2015 reported $0.016 per share to $0.185 in FY 2016 and $0.225 in FY 2017.
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