Five NZX listed retirement village share prices have dropped by around a third to half since late February but whether they're now good value remains to be seen, an analyst says.
Frances Sweetman, a senior research analyst at Milford Asset Management, noted re-pricing of all the listed stocks.
Since the NZX 50 Index peak on February 21:
• Metlifecare fell 51 per cent;
• Oceania Healthcare 45 per cent;
• Summerset Group 36 per cent;
• Ryman Healthcare 34 per cent;
• Arvida Group 32 per cent.
The market had re-priced these stocks due to fears about how the pandemic could affect an aged-care facility, she said, but whether further falls were likely depended on what happens in New Zealand in the next few weeks.
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"If you think we're headed for a recession, the sector doesn't look cheap. But if you think more positively and you think we'll be less restricted in terms of alert levels and there won't be so much of a recession, then they are good value," Sweetman said.
Metlifecare had fallen the most but the drop was not truly reflective of slightly longer-term trading, she said. The $1.49 billion takeover offer was announced for the business in late November when it was trading at $5.08 and the price shot to just under $7 before the pandemic alert levels.
Metlifecare's share price had only fallen 33 per cent from late November to mid-February "so it's actually been broadly in line with the rest of the sector".
It was only when the shorter-term measure was taken from late February to now that the 51 per cent fall emerged, she said.
If Asia Pacific's takeover did not go ahead "it would be good for the investment community because the stock stays listed on the NZX," she said. "But there's still a lot of churn going on because hedge funds bought into it for the last few percentages between the trade and the offer price," she said.
Substantial sharemarket notices cited the liked of Mitsubishi, Morgan Stanley and Vanguard buying into Metlifecare.
"The sector had been doing well before this. But it has fallen so hard because of the risk of an outbreak of coronavirus and whether people might want to go into villages in the future. Whether villages can sell new units and re-sell existing units - the question is, how much of that is priced into the stocks," Sweetman said.
Whether Asia Pacific pulled out of the Metlifecare takeover or offered a lower price were two options, she said.
The proliferating sector, home to 43,000 people according to consultants JLL, are at high risk of coronavirus infection, analysts said last month.
Retirement chiefs are meeting regularly to discuss a co-ordinated approach to the threat.
In an analysis headed "Covid-19 risk hangs over sector" last month, Stephen Ridgewell, Adam Lilley and Sam White, of Craigs Investment Partners, released a detailed review of five listed retirement companies.
"Retirement villages/aged care facilities appear to be at high risk of infection from Covid-19. See for example outbreaks at rest homes in Sydney, New York and Washington State and elderly are at risk of high mortality rates of 15 per cent-plus, which is materially higher than for younger age demographics," they wrote.
Debt levels and longer-term plans by Ryman, Summerset, Metlifecare, Oceania and Arvida were all questioned.
The World Health Organisation says coronavirus has proved especially deadly for older people. The fatality rate in China for those over 80 is an estimated 21.9 per cent, it says.
Craig Tyson, head of Australasian property securities for ANZ, yesterday praised Metlifecare as "a good business" and said his entity would look to re-invest.
"Markets are finding it hard to price risk when you have a global pandemic, a shutdown and the economy grinding to a standstill.
"It was clearly disappointing for the board and management who spent a lot of time on the deal in the last few months, and had achieved an attractive takeout price for investors, the market had started to price the probability of the deal being pulled since around mid-March.
"I can't comment on the legalities but clearly we are living with unprecedented times and in these contracts there are always clauses that can be interpreted one way or the other," Tyson said.
Jeremy Simpson, of Forsyth Barr, said that in terms of the share price, Metlifecare was trading around $5 before the takeover offer. The wider sector is back around 30 per cent year to date, "so if you knocked 30 per cent off $5 you get a price around $3.50. Not saying that is the right value, just an indication for you - $3.50 is half the net tangible asset backing".
Mark Lister, of Craigs Investment Partners, said Metlifecare's outlook and overall value had fundamentally changed over the past couple of months, as is the case for many companies.
"In this environment, I think any acquirer with the opportunity to back out of a deal would do so. I won't speculate on who has a stronger legal position here, but the Metlifecare share price is suggesting the chance of the takeover proceeding is very, very low," he said.
Shane Solly, of Harbour Asset Management, said retirement village share prices were influenced by fluctuating house prices, pandemic outbreak fears and in the case of Metlifecare there had been uncertainty about the Asia Pacific takeover in the last few weeks.