Old business is good business

by Linda Sanders / 12 November, 2013
Investors – including Dan Carter and Richie McCaw – are piling into the elder-care sector.
An artist's impression of Katikati's new $80million retirement village - Summerset by the Sea.


Strong growth in the retirement village industry has made it a sharemarket favourite, with investment company Infratil and the NZ Superannuation Fund having recently each bought 20% of Metlifecare.

Analysts say Metlifecare is trading at a significant discount to market leader Ryman Healthcare and has significant room on its balance sheet to grow. Both new shareholders have expertise to help that happen.

Local institutions have also bought Summerset shares from its previous major shareholder.

The three listed retirement village operators – Ryman, Summerset and Metlifecare – jointly own about a third of New Zealand’s retirement units. Ryman ranks among New Zealand’s largest companies, with a market value of about $3.7 billion, and the other two are in the $700 million to $800 million range.

Ryman’s consistently strong growth caused the company’s chief executive at the start of the year to predict it would ultimately become New Zealand’s largest listed entity.

At about that time, when Ryman’s shares were trading at about $4.80, an analyst mused it was a “sell”. Now, with its shares at about $7.50, the company is showing no signs of weakness. (Meanwhile, it has been overtaken by Xero, whose market value has doubled since July to about $4.2 billion, roughly what Telecom is worth.)

I’ve followed Ryman for years, my interest pricked by family members who’ve been variously staff and a patient in one of the hospital facilities. I also have a wider interest in aged care as a trustee of a community health facility and through another community project that is looking at how our rural community manages the transition to old age over the next two decades.

Vision Papamoa retirement village.


The elderly population is growing: New Zealand will have more than one million people aged 65-plus by 2031, double 2011’s number.

In New Zealand’s retirement “capital” of Tauranga, Summerset estimates, 17% of over-75s now live in retirement villages, compared with about 9% of that age group elsewhere. The 75-plus population is growing by 12,000 a year and will reach 730,000 by 2043.

New Zealand has nearly 26,000 retirement units and the number could double in 20 years. It is estimated the country will need 52,000 rest-home beds by 2026, up from 34,500 now.

The numbers indicate why Ryman and its ilk are aiming for aggressive growth. Ryman, which makes $100 million in underlying profit, plans to open 700 beds and units a year in New Zealand and sees even bigger opportunities in Victoria, its Australian focus.

The industry is a mix of large and small players. Alongside the NZX-listed operators, another five provide about half the market’s apartments and villas. The rest have 60 or fewer units and are mostly not-for-profit or privately owned.

The rich and famous are being drawn in. Dan Carter, Richie McCaw and other All Blacks bought 10% of Christchurch’s Park Lane Retirement Village earlier in the year, showing their faith in the industry’s continued growth.

The main listed players operate on a similar model. Their income comes from sales and re-sales of occupation rights (long-term agreements to live in villas or apartments), management fees, residential levies and fees for providing aged-care services – including hospital care.

Companies vary in their proportions of villa/apartment accommodation versus intensive care. Ryman provides significantly more higher-level care than Summerset or Metlifecare but Oceania and Bupa are the largest operators in that category.

Most profit comes from building villages and selling units. Providing intensive nursing care, some paid for through the public health system, is not a money-spinner and relies on often low-paid staff. There have been suggestions that profits from building operations could be used to subsidise wages of high-care service workers.

An artist's impression of The Poynton, one of the retirement village projects on the North Shore.


Questions have also been raised about care levels: a Ryman village was criticised for poor treatment of an elderly resident, although with 3500 employees and 6000 residents, being incident-free would be a challenge.

Looking after people in their dotage will become a bigger cost as our ageing population grows. Ryman’s latest annual report notes on average men in their last six to seven years and women in their last nine years suffer long-term illness such as diabetes, dementia, osteoporosis and osteoarthritis.

Although there will be greater demands on nursing care, the village model will also need to change to meet the expectations of the next generation. Baby boomers contemplating their old age – many of them single – may be less interested in bridge and bowls, but still looking for supported or communal living.

The community project in my district is looking at ideas such as affordable eco-villages. The urban wealthy might opt for resort-style living, with golf, tennis and swimming for those fit and healthy and more care as their frailty increases.

Operators build different styles of villages depending on their location and demographics. Summerset’s 20th village, for example, will be next to the Boulcott Farm golf course in Lower Hutt, while Ryman’s Rita Angus apartments offer medium-density living in Wellington.

This business involves long-term planning, especially when it comes to matching facility location with demand. Operators need several years’ stock to ensure a steady flow of new units as they work through the town planning, design and construction processes.

West Auckland’s Dutch-flavoured Ons Dorp. Photo/Michael Craig


People thinking of buying into a retirement village might question whether the financial arrangements favour the operator over the occupier. But demand for places and high occupancy rates suggest there are plenty of satisfied residents.

For the operators, the model is working. Since raising $25 million in 1999, Ryman has invested $1.2 billion into villages and paid $290 million in dividends, financing operations from balance-sheet growth.

Both Metlifecare and Summerset have listed in Australia in the past couple of years – though not to raise new capital. Presumably Ryman’s Australian foray will mean it will do likewise.

TOTAL INDUSTRY


450 villages
680 certified facilities
25,800 units
34,500 care beds

Ryman Healthcare – established 1984
26 villages
3500 staff
6000 residents
3200 units
2100 care beds
Market value $3.7 billion

Summerset – established 1994
16 villages
500 staff
2200 residents
1646 units
370 care beds
Market value $690 million

Metlifecare – established 1984
23 villages
1200 staff
4700 residents
3836 units
359 care beds
Market value $800 million

Send questions to: money@listener.co.nz
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