Retirement village owners pick leaping demand and profits

Friday 25th February 2000

By Peter V O'Brien

Elderly retired people are proving worthwhile for various entrepreneurs in an age when a youth culture permeates most aspects of the business environment.

The four listed "age care providers," as Metlifecare Group terms itself, have shown good growth recently, although Metlifecare had a setback in the six months ended June 30, 1999 due to internal management problems.

That was not the first time the company had had to adjust to rapid physical growth.

Eldercare Group reported last week for the six months ended November 30.

The company earned $2.17 million in the period. Figures for the corresponding period or the previous year were not comparable, because at that time Eldercare was New Zealand Petroleum and recorded a loss of $3.31 million.

Eldercare's profit was earned on revenues of $9.77 million. The company said the result was ahead of the trend indicated at the December annual meeting and "leaves it on track" to a full year profit of $4.1 million as forecast in last May's prospectus.

The four listed retirement care companies - Calan Healthcare Properties Trust, Eldercare, Metlifecare Group and Ryman Healthcare - have moved into a market expected to grow substantially in coming years.

Eldercare's annual meeting in November was told the number of New Zealanders aged 65 or over in 2051 would be more than double the current level, increasing demand for suitable facilities.

A fair number of people - including this columnist - will not be part of the 2051 demand, unless there are extraordinary breakthroughs in life expectation maintenance, but the company had a point on general demographic and mortality rates.

It was on less solid ground when chief executive David Lowry said development of retirement facilities in New Zealand had fallen behind levels of comparable countries. Mr Lowry said 15% of the elderly in the US lived in retirement villages compared with 5.5% in Australia.

Only 2.8% of elderly New Zealanders lived in a residential care setting. The gap indicated the potential for remarkable growth.

With respect to Mr Lowry, the bare percentages proved little, unless to show there was scope for retirement village expansion through zeroing in on the elderly with attractive advertising of available facilities.

It seems likely social factors could account for the apparently small proportion of New Zealanders living in residential care facilities compared with the US and Australia.

The range of lifestyle choices available in this country plus the intangible element of a desire for personal independence in relation to how one lives and looks after oneself could be at least a partial explanation for the apparent low proportion of people living in facilities such as Eldercare's.

Even so, there is some merit in the industry's view that it operates in a growth area. Metlifecare had a hiccup in the six months ended June 30 (the company should report on the full December year in early March) when net profit fell to $1.2 million, compared with $4 million in the corresponding period of the previous year and $8.5 million for the whole of 1998.

Rapid expansion seemed to account for some of the company's problems. It went from nine sites in 1995 to 14 last June.

The company said a build-up of unsold stock, a material reduction in sales activity and a decline in nursing home occupancy highlighted some management deficiencies.

Metlifecare's board commissioned independent reports which confirmed the accumulation of "diverse management practices, brought about largely through the acquisition of additional facilities" resulted in a decline in both performance and accountability.

Substantial company infrastructure and management changes were necessary.

Metlifecare was in trouble in 1995 when profit was only $200,000, there were management problems and the company was the subject of a Securities Commission inquiry.

Calan Healthcare Property Trust and Ryman Healthcare were listed last year, although both operations had a track record.

Ryman listed last June after raising $25.6 million in equity.

The share price has performed well, as shown in the table of comparative prices.

The group has a quirky practice of naming its retirement villages after notable New Zealand women: Malvina Major, Ngaio Marsh and Shona McFarlane. Apart from the late Ngaio Marsh, the other two are still active and apparently yet to become candidates for a retirement village, but they would have given their agreement to naming the facilities.

Figures in the table record share prices at close of business on February 23 and the highs and lows for 1999/2000.

The $22 for Eldercare was the figure reached before a sweeping capital reorganisation of New Zealand Petroleum and should accordingly be treated as theoretical, as should the low, which related to the oil company.

Long-term investors - if there are any still out there - could do well out of the retirement care sector.

Retirement sector share prices

Company	Price	Price 1999/2000
	23.2.00	high	low
Calan	112	119	100
Eldercare	60	2200	25
Metlifecare	210	260	172
Ryman	187	225	130

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