KEY POINTS:
Let's hear it for the village people - the retirement sector is undergoing a corporate blossoming.
This year two retirement village companies will join the New Zealand sharemarket. Dutch finance group ING is floating its Real Living retirement business, seeking $100 million.
And AMP Capital Investors will float
its Summerset retirement villages, aiming to raise up to $350 million in what is expected to be the year's biggest initial public offering.
In Australia this week, investment firm Babcock & Brown floated a retirement company with A$1.8 billion ($2 billion) in assets, including villages in New Zealand.
As the autumn years loom for the baby-boomer generation, corporate experts see retirement villages as a sunrise industry.
The ING and Summerset listings will take the sector's market capitalisation to $2.2 billion. Heavyweight Ryman Healthcare stands at $1.1 billion followed by Metlifecare at $700 million, and there are other players on the fringes.
Two years ago, Australia's Macquarie bought Abano's ElderCare business and Macquarie has a big chunk of Metlifecare.
Ironbridge Capital owns Qualcare, Goldman Sachs JBWere's local cashpot Hauraki Private Equity No 2 Fund has Vision Senior Living and Guardian Healthcare has a big presence.
Larger organisations control only a third of the sector.
Not everyone in the investment community sees only blue skies. Some analysts have taken a more cautious stance, questioning company valuations and share prices, which they see as being set too high.
Jason Familton of First NZ Capital in Wellington is one analyst who has questioned prices. And rival analysts have admitted he was right to take a somewhat guarded approach. Ryman Healthcare's share price has fallen from $2.67 in May to $2.09 yesterday and Metlifecare is off its highs at $7.95. Familton's target price for Ryman is just $2.20.
But others see potential for consolidation and growth.
Norah Barlow, president of the Retirement Villages Association and Summerset chief executive, and Warren Couillault, chief investment officer and a director of Fisher Funds, predict the sector will eventually be controlled by big corporates which have access to the capital needed to buy the best sites in prime areas.
Barlow said small fry dominate now but that could change. The average village size is just 35 independent living units.
Couillault is optimistic about retirement companies, citing big growth opportunities for investors. Fisher has stakes of more than 10 per cent in Metlifecare and Ryman, an investment worth at least $170 million, although he won't reveal investment intentions.
Couillault has a simple explanation of how retirement village operators work: "Retirement villages build a unit for $1, sell it for $1.20, buy it back at 95c and sell it again for $1.50."
Simon Botherway of Brook Asset Management takes a more cautious approach.
"The sector is certainly in vogue. Local stocks, including Ryman, are attracting higher multiples than their Australian counterparts despite typically more aggressive management fee structures in New Zealand than in Australia.
"The long-term fundamentals look solid, but like many property plays there is no shortage of developers attracted to the super-normal returns achieved by Ryman in the past."
Shane Solly of Mint Asset Management said: "There's a lot of change in the industry but the question is: Is it a place where there's good opportunities from an investment point of view? It certainly has been with Ryman and Metlifecare."
But he cautions against taking a one-size-fits-all view of buying in, saying companies take varying approaches to the business and have very different models.
Ricky Ward of Tyndall Investment Management sees the sector as attractive because of steady cash flows, a drawcard that pulls the private equity fraternity.
But he has questioned the share price multiples and wonders whether this is why AMP is bringing its float to market at this "opportune" time.
Kieran Trass, property market analyst of the website SuburbWatch, has a pessimistic outlook.
"There's got to be a lot of growth potential, with the ageing population. But I don't believe there will be an en masse shift for the baby-boomers out of their own homes and into retirement villages."
He thinks many people will hang on to their house and use mechanisms such as reverse-equity mortgages.
"My grandmother in Masterton is in her 80s and refuses to go into a retirement village because she's happy in her house. Maybe this industry will have to change. Maybe this sector doesn't look so flash to put your money in?"
Trass is one of a group asking if the sector touted as a sunrise one could instead be heading into a sunset.
The numbers
* New Zealand has about 400 retirement villages.
* They are occupied by about 22,000 people.
* Twelve per cent of the population is over 65.
* By 2039, 25 per cent of people are expected to be over 65.
Investment outlook
What factors should investors consider when buying into the listed retirement sector?
Positives
* Around 250,000 baby-boomers headed for retirement soon have sparked optimistic growth projections and rosy sector forecasts.
* Industry consolidation is said to be on the way and many smaller village owner/managers are expected to sell to larger players, allowing growth.
* The sector is seen as having massive growth potential and vast untapped wealth opportunities for savvy investors.
* The idea is: buy a stock now at a cheap price and reap the rewards in the next few years as the companies expand to meet demand.
* New floats in NZ and in Australia show a growing appetite among the investment community for more exposure to the sector.
Negatives
* Business is little more than a cottage industry, with only two listed companies, and just 4.5 per cent of those aged over 65 are in retirement villages.
* There is a widely held perception among the professional analysts community that shares are vastly over-priced.
* Retirement village stocks are essentially "property plays" with all the potential downside that comes with any real estate gamble.
* Exorbitant management fee structures gouge out the big money well before the investors see any dividends.
* Over-priced land will choke expansion, smothering the sector's growth opportunities and depressing returns.
* Village owner/managers will have to squeeze more units on their sites, creating conflict.
* Most people won't live in retirement villages. Government policy encourages us to stay at home and has hammered the sector lately.
* Perception and conflict issues dog the sector, criticised for being under-regulated and unresponsive and gouging the elderly's cash.
* New entrants are clambering into the retirement village industry which they see as being a goldmine. But are they being blinded by dollar signs?
New regulations guard the old from exploitation
Retirement villages have been a nightmare for some residents, prompting the Government to tighten regulations.
It has introduced the Retirement Villages Act to try to eliminate bad operators, poor practices and unresolved disputes.
The Government has also provided more assistance for people to stay in their own homes - a move which is not good news for the retirement village business.
The sector has grappled with various issues, ranging from high ongoing management fees, leaky units, residents' powerlessness to resolve disputes with owners or managers and problems for the aged who want to sell units and leave the villages.
By November 1, all owners and operators will need to submit registration documents to the new Retirement Villages Registrar in the Companies Office. All new villages will have to be registered before they can make offers of occupation, known as an occupation right agreement.
Building and Construction Minister Clayton Cosgrove said that in the past, residents' only option had been court action, which was out of reach for people on fixed incomes.
From May 1, all new residents entering a retirement village had to be issued with a new occupation right agreement, disclosure statement, code of practice and code of residents' rights.
Cosgrove said the aim was to swing the power balance: "Many of these measures are about protecting the rights of residents." But he believes informed residents are less likely to be disgruntled and the sector could bet on fewer disputes.
Meanwhile, the Government's positive ageing strategy encourages independence and well-being at a retired person's own home so that people won't have to move into retirement villages.
