The $490 million paid by the Australian super fund for a further 24.9% share of Lendlease’s 75 retirement villages is a vote of confidence in Australia’s retirement village sector – but with the village value proposition shifting towards a continuum of care, operators need Plan B.
As we reported here, Aware Super already paid $460 million for a 25% stake in the ASX-listed operator’s Retirement Living business just over 12 months ago in February 2021.
This latest announcement follows Stockland’s recent sale of its Retirement Living business to global investment firm EQT Infrastructure for $987 million, close to its $1 billion book value.
Both Aware Super and EQT have flagged that they see huge potential in the retirement living sector – not a surprise when you consider the demographics.
16% of Australia’s population is now over 65, and this figure is forecast to grow by about 30% between 2020 and 2040.
But village operators cannot afford to sit back and hope that customers and investors will come to them.
As we discussed in our latest issue of SATURDAY, Australia is lagging behind other OECD countries in investing in the ‘living sector’ – which takes in retirement, aged care, student accommodation and Build to Rent – with retirement coming in close to last among alternative asset classes in attracting investment (pictured above – credit: Jones Lang LaSalle Australia).
New competitors are coming through in the form of Build to Rent developments and Community Apartment Projects (CAPs).
Land lease is the ‘flavour of the month’ with operators and investors, and is likely to continue to attract new entrants and growth from existing operators.
Village operators need to redefine their value proposition – and with the age of the average village resident continuing to climb, that means providing a continuum of care as part of your service offering.
EQT has already indicated that it plans to pursue a care strategy for Lendlease’s villages once the deal is formally approved.
Delivering care in the village makes both financial and regulatory sense.
In this week’s issue of SATURDAY, former Mark Moran Group CEO Cameron Kirby outlined how his proven financial model for combining aged care and retirement living could deliver up to a 67-78% increase in the valuation of a village over its 10-year life.
MinterEllison Partner Tammy Berghofer also explained how providing care could help operators ride out the increasing compliance challenges of operating retirement villages.
The Stockland and Lendlease deals show that the interest and demand is there.
Operators now need to capitalise on this unique position to drive the sector’s growth and investment opportunities – or risk being overtaken by the also-rans.
Under Plan B, older Australians with the means to pay will co-contribute to their care – this will give village operators the confidence to invest in continuum of care service offerings, commit the capital to new developments and increase their pricing to match.
Stay tuned.
