There are few things in the investing world one can count on as a certainty. Here are two. The ABS (Australian Bureau of Statistics) tells us by 2020 30% of Australia’s population will be age 55 or over. Another certainty is that Australia, like most of the Western industrialised world, faces a tsunami of retirements as the first wave of the famed Baby Boom generation begins to trade in their work clothes for styles befitting whatever retirement activities and adventures on which they choose to embark.
But the certainty in which we as investors should be most interested is that this kind of exploding market segment will lead to business, and therefore investing, opportunities. There are ASX listed companies that are well positioned to take advantage of this growing market. The following chart gives you some idea of the scope of what is about to begin happening:
In 2011 4000 Australians reached the age of 65 every week and in 2012 the number grows to a little over 4,800 every week. By 2027 approximately 6,000 Australians are going to reach 65 every week. Do the math for yourself and you realise we are looking at about a quarter of a million potential retirees this year alone – 249,600 people! In a decade that weekly number will approach 5,600 people every week for a yearly total of approximately 291,000.
What are these people going to do with themselves? Where will they live? And most important of all, do they have money to spend? The Baby Boomers were well positioned to benefit handsomely from both the commodities boom and the housing boom here in Australia. The GFC has hurt some and there is evidence of Boomers putting off retirement. A 2007 Australian Bureau of Statistics survey showed a full two-thirds of baby boomers did not intend to quit work at 65. Although many Boomers have built up substantial equity in their homes and some own multiple properties, the current property market decline confuses the issue of where the Boomers will go in their golden years.
While a 10% drop in Australian home prices from their peak is devastating for recent home purchasers, for many Baby Boomers it represents merely a dip in paper wealth. As property prices continue to weaken, however, the looming question is whether Boomers en masse will choose to sell their properties and run, despite a decline in the profits they'll realise; or whether they'll wait it out and perhaps resort to an Equity Release Loan, such as a Reverse Mortgage. Clearly, selling up the ranch in a cautionary market may not be easy, or even possible for those facing serious negative equity.
There is evidence Boomers prefer to seek the companionship of others and Retirement Villages and springing up all over the country in response. Retirement Villages are residential communities of people aged 55 and over. They are not the same as Assisted Living Residences, although some Retirement Villages do include such facilities. A Retirement Village is a place seniors who are capable of taking care of themselves can go where their needs, not the needs of a youthful family oriented community, are met.
Prior to the GFC investor interest in the future growth of the Retirement Property Sector in Australia was high, but the recent hyperventilation over the future of the market has caused many to pause. The problem many face is that existing homes must be sold before a Retirement Village spot can be taken and not all Boomers have sufficient equity to do so. What’s more, with fewer people buying homes it becomes harder for Boomers to sell.
Australian property developer Stockland Group is betting on the future of Retirement Villages. According to David Pitman, Stockland’s CEO of retirement living there is actually growth in the underlying demand from retirees who do want to move but may be finding it difficult to get the needed funds. His observation should be neither surprising nor suspect. Ask any grandparent you know how they feel about their grandchildren and somewhere in their response will be the relief they feel when their parents come to take them home. Aging changes our emotions as well as our physical capabilities and most seniors long for a place to live that is quiet and free from the once delightful sounds of children in the neighborhood.
While the demand for “rightsizing” for Boomers with a desire for smaller quarters in age compatible communities may be there, the property market dip may see growth in this market segment slow somewhat - at least for the time being.
From a contrarian point of view, this may be an opportune time to start researching companies that stand to cash in on Boomer retirement over the long haul. There are other sectors to consider as well, like tourism and leisure and especially health care, but right now some of the key players in the residential real estate space have been severely beaten down. The beauty of this sector is the companies benefit not only from the sale of retirement units, but also from the recurring revenue stream from the maintenance fees for the services offered that free seniors from the normal chores of home ownership. Here are seven stocks that deserve your attention:
|Company ||Code ||Market Cap ||Share Price ||52 Week High ||52 Week Low ||Dividend Yield |
|Stockland Group ||SGP ||$7,203M ||$3.23 ||$3.61 ||$2.52 ||7.4% |
|Fleetwood ||FWD ||$741 ||$12.52 ||$13.46 ||$9.53 ||5.9% |
|FKP Property Group ||FKP ||$624M ||$0.52 ||$0.80 ||$0.43 ||6.0% |
|Forest Place Group ||FPG ||$169M ||$2.05 ||$2.05 ||$1.60 ||2.9% |
|Lifestyle ||LIC ||$46M ||$0.10 ||$0.14 ||$0.08 ||5.0% |
|Becton ||BEC ||$4M ||$0.55 ||$6.0 ||$0.45 ||0.0% |
Let us begin with the smallest company – Becton. Right now this company is too risky for almost all investors, no matter how much you might fancy yourself a riverboat gambler. The company is struggling with a re-organisation effort they refer to as “simplification.” They sold off one of their revenue streams with the funds management business segment and have sold some of their properties to reduce debt and improve cash. The end result of this process was to be reduced costs and fewer projects. So far, they appear to have achieved the second goal as a company update released on 24 April 2012 announced the elimination of the position of CEO of Construction and Development since they now have only 2 development projects and 4 construction projects underway; down from 40 projects at the start of the simplification effort.
So why are they on our list? The company has been in business for 30 years and with their latest strategy of focusing on over 55´s independent life style and assisted living projects; they may be able to rise from the ashes. In addition, they have recently successfully completed an urban renewal project for which they won the Urban Development Institute of Australia (UDIA) NSW President’s award. Becton is a recognised brand you will find on most Internet Retirement Village locator sites. Finally, they claim to have a $1.2 Billion dollar project pipeline over the next ten years. Time will tell. Their troubles to date are adequately reflected in the following chart:
Lifestyle Communities (LIC) is a penny dreadful in this space but they have a unique business model that could make them a stock to watch. Currently they have seven retirement villages scattered around Victoria. Other players in the market sell retirement homes along with the land on which they are built and most also offer rental leases. Lifestyle Communities sells the home, but leases the land on which the home sits, making their pricing structure much more affordable to the average Baby Boomer. In addition, they have targeted a niche within the Baby Boomer population – those who prefer to maintain active lifestyles independently. If you believe “like seeks like” this gives them a competitive advantage for those Boomers who are more comfortable surrounding themselves with others who will actually make use of the athletic facilities offered within each village. Finally, as a pure player, they are less susceptible to the falling Australian residential property market, although it remains to be seen whether their home prices will be affordable enough in the event average Boomers find it difficult or impossible to sell their existing homes in a falling market. Here is their one year share price chart:
Forest Place Group (FPG) and FKP Property Group (FKP)
With an 85.28% shareholder interest, FKP is in effect a parent company of Forest Place Group. FPG operates in two segments – retirement villages and residential assisted living and healthcare facilities for seniors. Thus this company stands to benefit both from the living space demand and healthcare demand from the Boomers. They currently own and operate five retirement villages around Brisbane under the newly acquired brand name – Aveo Live Well. This resulted from the parent FKP acquiring the brand for the Forest Place operation as well as their own Retirement business group.
While FPG is strictly in the seniors market, FKP Property Group is a diversified property and investment company with interests in Residential Communities, Retirement Villages, Commercial and Industrial properties, Construction, and Funds Management. In better times this diversification should attract investors, but given the concerns over the Australian property market, the share price has suffered. However, they operate about 75 Retirement Villages across Australia under the Aveo Brand, in addition to the properties held by their subsidiary FPG. The contrast in sharemarket enthusiasm over a retirement pure play like FPG and a diversified company like FKP is evident in a one year price chart comparison of parent and child:
FKP offers broad exposure and will benefit when the Australian property market stabilises. With a P/E of 6.21 (well below the sector average of 12.47) and a dividend of 6%, an investment in FKP right now could be worth the wait.
Stockland Group (SGP) is a diversified property business. The company has three principal revenue streams --an Australian investment property portfolio; a development business; and a retirement communities business. Like smaller player FKP, the company is organised as a diversified Real Estate Investment Trust (A-REIT). You have probably seen them listed as Stapled Securities, as opposed to FPO (Fully Paid Ordinary) stocks. With a stapled security you in effect own two related businesses joined together. With A-REITS property is held in an investment trust while property development and management rests in a separate business entity. When property values decline, A-REITS suffer since they hold substantial ownership interest.
Although their traditional residential development may suffer, SGP is going after the retiring Boomers in a big way. They now get about 30% of their revenue from this segment and they want more. They already have one of Australia’s biggest portfolios of retirement units and villages, with 7,800 retirement units already in place. Earlier this year a Chinese company expressed interest in acquiring FKP. However, SGP holds a 14% interest in FKP and they have the right of first refusal for takeover bids. SGP may itself be interested in acquiring FKP’s retirement village assets.
With a P/E around 10 and a dividend yield of 7.5% SGP may attract the eye of a value investor. Given the shaky state of the Australian property market, growth investors are heading for the exit doors, and SGP’s one year price movement chart reflects that:
The five stocks we have highlighted so far all share one risk, and that's whether Boomers can manage to sell their existing homes in order to move into a retirement village.
However, the move to retirement villages has already started and although in the short term only wealthy Boomers may be able to make the move, the demographics offer a compelling case for investing in the future of this space.
The final stock in the table is not in the fixed space retirement village business. However, they may be in the best position of all to benefit from Boomer retirements and the growth of a movement you may have heard of – the Grey Nomads.
Fleetwood Corporation (FWD) offers mobile accommodations targeted at three sectors - retirement, recreation and resource development. Although their reputation is as a manufacturer of caravans of all sizes and in all price ranges, they expanded their technology to create mobile, yet fixed, accommodations needed by the resources industry to house workers at mining and exploration sites. The resources boom has served them well in the past, as has growth in the tourism sector. Here is their share price movement chart over the last ten years:
A 400% gain over ten years is a stunning performance but what about the future? There are three compelling reasons why FWD merits further research as a stock of note.
First, while the mining boom is slowing, we have another resource in abundance many expect to experience substantial growth going forward – natural gas. With their expertise in mobile accommodation villages with the mining companies, they are well positioned to benefit from expansion in accommodations needed for major natural gas exploration and drilling sites.
Second, about 70% of current Caravan sales end up in the hands of Australians over the age of 55. You already have seen the numbers about the expansion of that age group. What’s more, the existing Grey Nomad movement is sure to expand as more Aussies look to the open roads to explore the wonders of our country after decades cooped up in offices and factories and shops all across Australia. The Grey Nomads – seniors who take to the open road in vehicles that provide accommodations as well as transport –- have choices that span all income levels. Caravans with features that rival the comforts of home are available for wealthy Boomers while smaller and more modest Caravans meet the needs of those with lower incomes.
Third, if you have read much about the Grey Nomad movement you already know there is a dwindling supply of Caravan Parks where they can stop to rest on their journeys. Fleetwood is in that space as well.
If you are sitting on the sidelines watching the share market gyrations waiting for some kind of sure thing, the Baby Boomer phenomenon offers possibilities that, while there are no guarantees, come with very favourable odds.
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