Friday, August 3, 2007

Time for Retirement?

Two new Retirement Home Village operators are going to list on the NZX in the next few months. Last week AMP announced the floating of their Retirement unit and today ING have announced that their two village's are on the block for a float to the public.

When these two operators are listed it will bring the number of listed retirement home operators to four.

These IPOs' are part of a wave of activity sweeping the retirement village sector.

CVC Partners said last month that it was looking at selling Guardian Healthcare and Goldman Sachs JBWere's private equity unit is rumoured to be looking to float, sell or raise new capital for its Vision Senior Living group.

The two IPO's also have a connection of sorts. NZ First Capital, who are floating Summerset and Forsyth Barr, who is floating ING's retirement unit, got together to float the abysmal IPO failure, Feltex, a few years ago. Reminders of overvaluations , high debt and creative accounting still resound in the investment community from that fiasco.

The ING groups' village's are by far the smallest by number of units at around 150 with only two properties, while AMPs' Summerset has 11 village's and over 1500 occupants.

ING are asking for $NZ100m while AMP are looking at 300m.

Ryman Healthcare [RYM.NZ], the biggest listed Retirement operator, has a market cap of over 1B and Metlifecare[MET.NZ]around 700m.

Ryman Healthcare has today just reiterated its profit growth for the current year at around 20%. It has been growing at this rate for many years and seems confident that it will grow at this rate for years to come.

At first glance AMP's Summerset looks like a great opportunity to get into this industry, which is growing rapidly as the population gets older. How good the offer really is will only become fully apparent as we get a look at the prospectus in a few weeks time. Until then we can reserve judgement.

On the other hand the ING offer I have some problems with. While ING is a highly reputable company, the track record of some of the participants may give cause for some restraint before plunking down your moola. Colin Reynolds was the head of the pyramid "property development" company Chase Corp which went bust in the 1980s, while Robin Congreve was involved with Fay Richwhite during the Winebox tax fiasco. Beware.

One of their villages is also 20 years old so may need some capital to fix up the paintwork and spruce up the surroundings and decor for the 21st century.

The retirement sector looks set for good growth for some years to come. With good margins and rapidly increasing and also affluent population. The baby boomers, when they do decide to relinquish their hold on the rest of us, will provide a mini-boom in this industry in 10-15 years.

The added bonus of consolidation as the players in this sector get more numerous is an added attraction. Currently the majority of retirement home living is being done by individual owners of villages, that is, operators owning just one village. Good assets are always up for sale.

Of course no investment is without risk and the retirement sector, like every other one, cannot continue to grow unabated the way it has. It will have its ups and downs.

Post prospectus of AMPs' Summerset, if the figures and management look good, I am going to buy as much as I can. If it is the golden egg that I think it is then demand is going to far outstrip supply.

Burger Fuel eat your heart out.

DISCLOSURE I own Ryman Healthcare shares

Related Share Investor Reading

Stocks on my Watchlist: Metlifecare Ltd
Why did you buy that stock? Ryman Healthcare

Related Amazon Reading

The Warren Buffett Way, Second Edition
The Warren Buffett Way, Second Edition by Robert G. Hagstrom
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c Share Investor 2007