Thursday 19 January 2017 02:38 PM
Macquarie still upbeat on retirement village sector, consents up in November
By Rebecca Howard
Jan. 19 (BusinessDesk) - Building consents for retirement villages continued to rise in November as operators expand to
meet the demands of New Zealand's ageing population and Macquarie Group is still upbeat on the sector despite a lower
forecast for house price inflation.
A total of 205 consents for retirement village units were issued in November versus 174 in October, data from Statistics
New Zealand showed. Retirement village consents fell 8.1 percent on the year, but are 87 percent higher from the same
period in 2011.
Government figures show the number of people aged 65 and older doubled between 1984 and 2014 to reach 650,000 and that
number is projected to double again by 2039. Against this backdrop, listed retirement village operators like Ryman
Healthcare, Metlifecare and Summerset Group have been rapidly expanding and reporting record profits as they benefit
from New Zealand's hot housing market.
Summerset's underlying net profit rose 44 percent in the six months to June and it expects to report earnings rose by as
much as 46 percent in 2016. Ryman said its underlying profit rose 9 percent in the six months to Sept. 30 and it expects
full-year underlying profit of between $175 million to $185 million, up from $157.7 million last year. Metlifecare,
meanwhile, reported a 26 percent jump in underlying earnings, also driven by an increase in sales of so-called
occupation rights agreements.
The village owners do not buy and sell the units but sell the right to occupy. When a resident vacates the unit they
receive their original investment back less a management fee. The owner can then resell the unit for the current market
value, effectively receiving all of the capital gain and the management fee. According to Macquarie, in New Zealand this
typically sits between 20 percent and 30 percent. House prices were up 12.5 percent in the year to December data and are
52 percent above the previous market peak of late 2007, according to government valuer Quotable Value.
Macquarie this week sounded a note of caution as it took a less bullish view of house prices. It lowered its long-term
assumptions for house price growth by 1-to-3 percent, something it said will have an impact on resale gains and
management fees, as the fees are a percentage of the unit price.
"The level of house price appreciation is a key determinant of the level of retirement village profitability," Macquarie
said in a note. Other indicators today also point to an easing in the property market, with the latest ANZ-Roy Morgan
consumer confidence index showing house prices are expected to rise 4.3 percent per year versus an expected 5.4 percent
in the prior survey in December.
While Macquarie was less upbeat on house prices, it continued to rate all three companies at 'outperform' and said it is
"still positive" on the sector. Its target price for Metlifecare remains unchanged at $7.25 as the impact of lower house
price inflation is offset by a reduction in the risk free rate and an increase in historical unit price inflation.
Metlifecare is currently trading unchanged at $5.50.
Macquarie lowered its Ryman target price to $10 from $11 and the stock is trading at $8.40. It increased the target
price on Summerset to $6 from $5.60, again as the increase in forecast resales volumes and increase in historic unit
price inflation outweighed the reduction in its house price inflation assumption. Summerset is currently trading at
$4.71, down 0.2 percent.
(BusinessDesk)
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