Retirement village investment in its infancy but demand's set to grow

Friday, 24 March 2017

The grey tsunami wave is only beginning.

Millennials who feel financially disadvantaged may consider wreaking their revenge by investing in the grey tsunami of baby boomers swelling retirement villages.

Forsyth Barr analyst Jeremy Simpson said the retirement village investment is still in its infancy in light of the potential number of village residents in future.

Millennials can cash in on the baby boomer lifestyle by investing in retirement villages.

There are four retirement village development companies listed on the New Zealand Stock Exchange - Arvida Group, Ryman Healthcare, Metlifecare, and Summerset Group, while Oceania is a likely listing prospect in the near future.

There is also a listed finance company called Senior Trust Retirement Village Listed Fund, which tends to fly under the radar as far as analysts are concerned because of its relatively low market capitalisation at $15 million.

* Retirement villages are booming, but school up before making the move**

Simpson's latest sector analysis highlights the rising build rate and substantial lift in developments in Auckland by private and unlisted corporate operators, including redevelopment and expansion of older villages especially on the North Shore.

Over the past 10 years, the net increase in beds and serviced apartments has only been 1.2 per cent a year or 4100 in total, versus a 35,500 increase in the number of people 80 years or older.

Projected new building by listed operators is only about 40 per cent of forecast demand, assuming existing beds remained, Simpson said.

'While we are late in the property cycle, we remain with an overweight sector view given the growth opportunity from the demographics at play and the established nature of the listed players,' Simpson said.

His preferred stocks were Arvida and Ryman which he rated 'outperform' for their low risk and expected growth.

He rated Metlifecare and Summerset 'neutral'.

The Senior Trust Retirement Village Listed Fund is unusual in being a listed financier with first mortgage advances over Whitby Village in Wellington, Arrowtown Lifestyle Retirement Village, Quail Ridge Country Club at Kerikeri, Palm Grove Retirement Village in Auckland and Roys Bay Estate at Wanaka.

The interest rate on the Whitby mortgage is 9.75 per cent and secured over the assets of the development; the interest on Quail Ridge is 10.25 per cent with a second loan at 12.25 per cent.

The interest rate on the Palm Grove Partnership is 14.74 per cent .

The loan to Palm Grove Partnership is a related party transaction - the bane of many finance companies in the crash of 2008.

The related party is investment partner STC Orewa, a wholly owned subsidiary of Senior Trust Capital, and has common shareholders with its manager, Senior Trust Management, whose sole shareholder is John Jackson, executive director of Senior Trust Capital.

Another related party loan in the last accounts was $625,170 to Senior Trust Management at a more modest 8 per cent.

According to company information, the fund is listed on the NZX main board because 'many Senior Trust investors have had a long involvement in investing in the sector and are reaching a stage of life where they seek the flexibility offered by the orderly and efficient trading facility provided by the listing of the units'.

Since listing in December 2015 at $1, a number of trades have been facilitated through the NZX on behalf of unit holders who have had a change of circumstance.

All trades had been at par ($1) until two weeks ago when an investor sold at 98c a share, setting the level until further trades.

Executive director Scott Lester attributed the move to an investor who was keen to quit for personal reasons below the listing price.

He said the fund issued new units each month as it increased its loans to retirement developers.

The developers often preferred to seek funding from a specialist funder because it could provide continuity of funding as the development progressed whereas some banks were more prescriptive.

He said the loan to Senior Trust Management was a mechanism by which the management company was able to pay for costs associated with the float of the fund.

People tended to invest on a long term basis. The listed fund aims to return 6 per cent a year before tax to investors, although this is not guaranteed.

An analyst contacted by Fairfax said investors should carefully weigh up the risks associated liquidity and the company's range of assets.