Ownership of retirement properties is set for a major shake-up as operators look to gain funds for growth, and reduce risk, by introducing capital partners.
In comes as the retirement industry faces heated media, regulator, government and financial market scrutiny over questionable business practices including churning of residents, excessive fees and charges, high exit fees and exorbitant refurbishment costs.
Retirement village giant Aveo, under pressure from regulators and facing a NSW government inquiry, recently said it would simplify contracts with elderly residents and provide money-back guarantees and shortened buyback periods.
In terms of ownership it is a very fragmented sector, and pundits say consolidation is needed to push along regulation reforms.
Lendlease, which has $1.7 billion invested in retirement ownership, told investors this week it was “exploring the introduction of capital partners to help fund the growth of the business”. Reports suggest there are a number of interested parties.
Analysts said China Investment Corp was a very interested partner as it looks to expand its footprint into the sector. Morgan Stanley and Gresham are overseeing the process, which could run into early November.
Other potential parties could include Singapore’s sovereign wealth fund GIC, Blackstone’s real estate arm, Canada Pension Plan Investment Board and China’s Cindat Capital Management.
“We are looking to bring in a partner,” chief executive of Lendlease Steven McCann said.
“We’re not going to obviously get specific on dates. But we’re in the process of those discussions currently and the aim is to find the right partner at the right price to enable us to continue to grow that business.”
Average retirement unit resale prices were up 11 per cent, reflecting the broader strength of the residential and retirement living market.
“The underlying demographics of the sector remain compelling and we acquired the remaining 50 per cent of Brighton on the Bay and Townsend Park, taking the portfolio to 71 villages,” Mr McCann said.
Macquarie Equities analyst said Lendlease also lowered the weighted average discount rate by 30 basis points to 13 per cent in the retirement business, with the weighted average future growth rate also declining about 10 basis points to 3.7 per cent.
Lendlease’s n communities and retirement development business was in “good shape”, although production delays over the year slowed down completions, the group said.
Diversified developer Stockland, also a big player in retirement living, has 12,000 residents in its portfolio.
The retirement business returned 11 per cent growth over the past year and, while it had previously pursued joint venture options, it was not actively considering them now.
In September last year, Stockland hired Macquarie Capital to find investors for its $1.1 billion retirement business in , with a potential spin-off under consideration.
“At this stage, we’re not exploring that. We have done a lot of work on that over the last couple of years,” Stockland’s chief executive of retirement living Stephen Bull said.
“While we’ve been very pleased with the response to that in terms of giving us a lot of comfort … the business is growing really strongly and we’re really happy with that growth profile. So, certainly, at this stage, we’re not exploring that further,” he said.
Stockland was diversifying its offering by building retirement apartments such as the Birtinya at Oceanside in Queensland.
“This type of product allows us to attract the customer that previously hasn’t been a customer that would come into one of our villages. So, it’s enabling us to drive growth,” Mr Bull said.