INsite asks experts in the retirement villages sector about industry trends, business decisions, investor information and legal advice.

Issues and trends

What are the current key issues for retirement villages?

JOHN COLLYNS, Executive Director, Retirement Villages Association (RVA)

When it comes down to it, the single key issue for retirement villages is keeping pace with success. And while success brings its own rewards, it also brings challenges.

Residents’ satisfaction with their decision to live in a village is the most important ingredient of the industry’s success. A survey of residents undertaken by the Retirement Commissioner back in 2007 gave the industry a 99 per cent “satisfied” or “very satisfied” rating, and individual surveys by operators reinforced that finding.

The RVA wanted a more current and industry-wide measure of residents’ satisfaction of their decision to live in a village, so at the end of 2014 we commissioned McCrindle Research, a leading Australian market research company, to undertake a survey of 3,000 randomly-chosen retirement village residents across the RVA’s membership. We also asked a number of questions about residents’ sense of security and wellbeing in a village.

The results found that residents reported better mental and physical wellbeing, with two in three residents surveyed reporting a greater feeling of security and confidence after moving into a retirement village, as well as high satisfaction with retirement village living in general.

More than 67 per cent of residents aged 79 and over also indicated their social lives had improved after moving into a village.

Meanwhile, residents overwhelmingly stated they would decide to move into a retirement village if faced with the same choice again.

The research used the Net Promoter Score (NPS) to measure retirement village residents’ perceptions and attitudes across New Zealand and benchmarked it with Australia’s retirement village industry and other sectors. NPS is a common method to evaluate sector performance and loyalty from customers.

The findings highlight that residents in New Zealand are more satisfied with retirement village living than their Australian counterparts by a factor of almost double.

Valuers Jones Lang LaSalle’s (JLL) annual review of the retirement village industry as at the end of 2014 shows continued growth in the number of villages and the number of residents choosing to live in a village. In the 12 months ending December 2014, an additional 12 villages were registered with the Registrar of Retirement Villages, increasing the total number of villages to 363.

There are now 25,300 units that are home to around 32,850 residents, an increase of around 5500 people over the previous 12 months. While the numbers of people aged 75 and over are steadily growing each year, so too is the percentage choosing to live in a retirement village. The industry’s penetration rate (i.e. the percentage of people aged 75+ of the total population who live in a retirement village) has risen from 10.5 per cent at the end of 2013 to 12 per cent at the end of 2014.

JLL also identify 76 registered villages and a further 51 villages yet to be registered with a total of almost 12,000 units that are in the resource consenting or construction phase of development.

This avalanche of retirement village development means that the industry has had to address how councils incorporate retirement villages in their planning system. The traditional approach has been that villages are a ‘discretionary’ activity in residential zones, and this means that the development can often be slowed through local opposition. Retirement villages draw their residents from a 15km radius and there is no doubt that they are ‘residential’ in nature, allowing people to realise equity and free up their family home for another family to live in.

The RVA has been working with councils to allow retirement villages as a ‘permitted’ activity in residential zones, with appropriate safeguards around height, bulk and traffic movements. Our objective is to ensure that villages are acknowledged by council planners as being appropriate developments in residential areas.

Allied to this is the challenge in finding suitable land for village development. Operators are on the lookout for the right location, but finding it is getting increasingly difficult, which is why it’s important to be able to get developments sorted reasonably quickly once suitable land has been identified.

New Zealand faces challenges around housing affordably and supply, as well as issues such as social isolation and mental health. Retirement villages can provide answers to these questions, and we look forward to another successful year doing so.

Mergers and acquisitions (M&A)

What advice would you give operators considering entering a major transaction?

CAM ANSELL, Managing Director, Ansell Strategic


The M&A scene in Australia has reached dizzy heights over the past 12 months, fuelled by three aged care groups on the Australian Stock Exchange. While activity has also been buoyant in New Zealand, the early signs are that 2015 will be a big year for new aged care and retirement living transactions.

Buying and selling in aged care is intrinsically unique, due to the sensitive nature of the transaction and the complexity of the industry. Gaining adequate information about a target, without breaching confidentiality, can be a difficult process. Historically Kiwis and Australians have tended to manage the sale of rest homes more like real estate than businesses and this can result in underselling the real value of the offering.

Last year we facilitated the sale of around 30 aged care homes and observed that there were some very clear differences in the approach taken by buyers. Here, we explore the characteristics of an efficient and effective due diligent process, and the pitfalls of dealing with other aspects of the transaction process.

1. Running a professional sale process

This is a sellers’ market and the only way of determining the market value of your service is through a competitive process. This is true whether you have one home or a dozen. Make sure you are dealing with specialists that understand the business and know who the genuine buyers are.

The process should be structured to ensure that your requirements are understood (timelines, price, qualifying bidders etc.), and that there is a clear communication plan so you know where you stand throughout the process.

A professional Information Memorandum should be prepared with sufficient information to enable an interested party to make an indicative offer. Detailed due diligence should be managed through a data room under tight protocols (see below).

2. Have a clear mandate

There have been a number of sizeable transactions in Australia that have failed because management teams did not have a firm mandate from the owners (or financiers).

It is not uncommon to find owners with cold feet or mixed expectations – but it’s a catastrophe to uncover the problem at the last minute.

Your advisors should ensure that their vendors are genuinely prepared to sell and are aware of the limitations and qualifications attached to that position. Buyer due diligence is a resource intensive process – any attempts to test the market without genuine intention to sell risks the reputation of the service and the owner.

3. Manage confidentiality

An aged care service is more than a business; it’s a home to your clients. The value of your goodwill is tied into your reputation and the stable environment provided to your clients, employees and the community.

Most vendors elect to keep the sale confidential until a sale agreement has been signed. Although more difficult, some will elect to keep the sale confidential until completion/settlement. Open sale arrangements can compromise value and be unsettling for residents and staff. If a sale does not occur, the goodwill of the business can be permanently eroded.

Your advisors should have a communication plan ready for the announcement as well as a contingency strategy in the event that the process is leaked ahead of planned announcements.

4. Dealing with consultants and advisors

Interaction with consultants and advisors can be one of the most critical elements for buyers and sellers. Professional advisors that understand aged care and the sensitive nature of the sales process will balance the requirement to obtain sufficient information on the target with the need to maintain confidentiality. A risk-based diligence process will reveal any major issues without asking copious irrelevant questions.

From the sellers’ perspective, you also need to manage the buyers’ approach to their diligence work. Their advisors are often paid by the hour, so they may be motivated to throw more resources at the process than required, particularly if they don’t have clear instructions from their client.

Your own advisors should carefully scrutinise information requests and site access to make sure that the prospective purchaser is operating efficiently and not wasting your resources or compromising confidentiality.

5. Integrity and transparency

As with many sales transactions, there can be a temptation to focus only on the positive side of the business. However, the importance of openness and integrity extends beyond your reputation and conscience – misrepresentations are costly!

A prospective purchaser will usually provide indicative pricing based on a limited amount of information and generally has limited time to do so. If they are selected based on the pricing, their detailed due diligence process will provide them with a much better insight into the business. This is where misrepresentations start costing you money – just about every material exaggeration or omission will be uncovered and the buyer will be justified in revisiting their original price or may even withdraw from the process.

Any good lawyer will make sure that the warranties in the contract provide recourse for the buyer, just in case they did miss something important.

Although it is essential to highlight the strengths of your business, it is equally important to ensure that you (and your advisors) are transparent about the negatives.

6. Run a formal process and do it professionally

I’m always struck by the amount of effort real estate agents make when they sell a single residential property, and yet a rest home or hospital, worth perhaps 10 times the value, is often sold on the back of a valuation submitted to a single buyer. Ansell Strategic adopts some fundamental principles when preparing a home or portfolio of homes for sale:

  1. Never hide your light behind a bushel – the value of the business is much more than bricks and mortar and its strengths should be presented in a professional document (the Information Memorandum).
  2. In the current competitive market the opportunity should be canvassed to more than one prospective purchaser (and they should know that the process is competitive), unless there is a specific limitation, in which case the pricing should be benchmarked.
  3. Manage the information exchange through a data room. Make sure you have a professional, experienced administrator responsible for the management of uploading information and monitoring data room activity.
  4. Ensure the lawyers are brought along for the journey, from preparing confidentiality agreements all the way through to settlement.
  5. Make sure the vendor is always engaged and made aware of progress and issues material to the transaction.

7.  Know when to cut and run

During a number of transactions, we’ve witnessed the key objective shift from securing a strategic acquisition or sale to just achieving completion. That is, the buyer or seller starts to compromise their position, purely to bring an end to what can be an intensive and stressful process.

In a heated market, with a number of operators acquiring aged residential care facilities for the first time, participants are often nervous about committing to a transaction and will make attempts to completely de-risk their position. This often results in protracted and unnecessarily intensive due diligence.

A client recently reminded me: “Sometimes winning means letting the deals go”.

In extreme cases, the process could drag on until the due diligence process itself starts to damage the value of the business. If the remainder of the process has been well managed, and confidentiality has been maintained, there should be avenues for the vendor to terminate the process and recommence with another bidder.

The acquisition process can be an exciting and highly beneficial activity when it’s done right. A successful transaction is one in which a vendor achieves a fair price for an asset that adds value to the purchaser’s business. Through a well-managed, professional process, and with mutual respect between buyer and seller, there is every reason your transaction will be a success.

Privacy compliance

What advice do you have for villages and facilities when dealing with privacy compliance issues?

MICHAEL MOYES, Partner – Corporate Advisory, Anthony Harper

The laws protecting an individual’s personal information are tighter than ever, and with stronger enforcement measures. But effective authorisation can change the rules.

People care about their privacy – and they are wary about organisations that misuse their personal information. Personal information (any information about an identifiable individual) is protected by our Privacy Act 1993, which – together with codes of practice such as the Health Information Privacy Code and the Credit Reporting Privacy Code – governs the way that ‘agencies’ (almost everyone holding personal information about others) may deal with such information.

At the core of the Privacy Act are the 12 rules or ‘Privacy Principles’ which guide agencies on how to safely deal with personal information. Generally speaking, an agency can comply with privacy law by adhering to the Privacy Principles. However, it is also possible to comply with privacy law without adhering to all of the Privacy Principles.

The importance of authorisation

The 12 Privacy Principles govern the collection, storage, use and disclosure of personal information.

Principle 3 is important. When an agency collects personal information directly from the individual concerned, it must take reasonable steps to ensure the individual is aware of:

  • the fact that the information is being collected
  • the purpose
  • the intended recipients
  • the names and addresses of who is collecting the information and who will hold it
  • any specific law governing provision of the information and whether provision is voluntary or mandatory
  • the consequences if all or any part of the requested information is not provided
  • the individual’s rights of access to and correction of personal information.

Principle 10 is also important – personal information obtained in connection with one purpose must not be used for another.

These principles assume that agencies can, at the time they first collect personal information, foresee all relevant uses of that information – which is not always the case.

Fortunately, because our privacy laws are consent-based, agencies do not have to comply with those principles if non-compliance is authorised by the individuals concerned.

In this way, an agency may collect information from an individual without making them aware of the information set out in Principle 3 in circumstances where the agency believes, on reasonable grounds, that the individual has authorised collection on these terms.

Similarly, an agency that holds personal information that was obtained in connection with one purpose may use that information for another purpose if the agency believes, on reasonable grounds, that the use of the information for that other purpose is authorised by the individual concerned.

Essentially, the individual and agency can agree to a different set of rules – rules that you can create to fit with your business. Typically, those rules are contained in a privacy policy or a privacy statement.

Effective authorisation

Authorisation is stronger than consent. Authorisation requires a positive action or decision by an individual, and they have to understand reasonably clearly what they’re agreeing to.

This is why the documentation governing your initial collection of personal information is all-important. It must make your ‘new rules’ clear, and require a positive action (such as signing a form, or clicking ‘I accept’ on your website) to confirm acceptance.

Timing of the authorisation is also important. Because it is not always easy to obtain authorisation at the same time as the personal information is initially collected, the law allows some flexibility.

Each individual must authorise the particular way in which you collect, store, use and disclose their personal information at the time that they provide that information – or as soon as possible afterward.

In the majority of cases, authorisation will be effective if:

  • the appropriate positive action or decision by the individual is recorded at the same time that they submit their personal information; and
  • your privacy policy (or other rules that the individual is agreeing to) is clearly referenced in the document the individual signs or accepts.

The first steps to compliance

The first steps to privacy compliance lie in your privacy officer reviewing your documentation, particularly those documents that collect personal information.

With ever-increasing public awareness of privacy breaches, now is the time for businesses in the aged care, retirement and community care sectors to review their privacy compliance regimes, as well as their standard form agreements, websites and forms that apply to the collection of personal information.

This article is necessarily brief and general in nature. We recommend that you seek our professional advice at Anthony Harper before taking any action in relation to the matters covered here.

Exit options

What should owners wanting to sell be considering?

MARTIN GRAY, Executive Director – Transaction Advisory Services, Ernst & Young

The decision to sell your facility is one of the most important an owner will make. The aged care and retirement village sector has evolved significantly in recent years and the market is segregating around service offering, target market and expertise. It is important to carefully consider which parties are the best and most logical buyers for your business that will:

  • be able to complete a purchase
  • maximise the value you achieve
  • limit the disruption on the business and staff
  • ensure confidentiality
  • continue the legacy of the business you have built.

EY has been actively involved in a large number of transactions in the sector and we have advised many owners through the exit process. We take the view that it is better to fully research potential buyers before approaching them, and come up with a short list that can be matched to your particular facility.

The aged care and retirement village sector has achieved far greater recognition in recent years due to more information on the sector being publicly available, more visibility from additional listings on the Stock Exchange, and greater public awareness of operator performance, as well as demographic changes spurring demand and the number of available facilities.

As a result, understanding of the business models has improved and a greater number of investors and buyers are interested in the sector, while liquidity from the banks is more readily available for good assets/operators. The range of buyer/investor groups that are active in the market include:

  • existing groups seeking add on acquisitions
  • Australian corporates looking for an entry point acquisition
  • investors looking to ‘roll up’ a number of facilities
  • New Zealand and Australian private equity groups and family offices
  • iwi
  • institutional investors
  • offshore sovereign and private funds.

All the investor groups have different objectives and seek different assets, so identifying a shortlist of potential buyers with the best fit with your facility is fundamental to a successful outcome.

It is important to present your business in the best light to the particular buyer/investor and ensure that the business is exit-ready.

Some of the issues that should be considered when preparing information to be provided to potential buyers and highlighted in your offer include:

  • full assessment of the potential of future development property opportunities
  • assessment of future demand and the demographics/penetration in the catchment area
  • the benefits of offering a continuum of services
  • GST and other tax issues
  • the mix of services that could be offered and the financial impact
  • property prices in the catchment area
  • consideration of different ORA (occupation right agreement) contractual arrangements or premium charging structures
  • ongoing management availability or how the business may perform under alternative management/group structures
  • tax, structuring and estate planning.

We leverage our extensive sector knowledge and transaction experience with New Zealand and Australian retirement village and aged care operators and investors to develop a discrete buyer group. We then ensure that the value proposition is well developed and articulated. It is more than just looking at a rule-of-thumb price per bed.

Rather than present a one-year budget, we think it is important to develop a cash flow model over the life span of the facility to help guide your value expectations that takes into account:

  • entry age, occupancy, length of stay and mix
  • growth in revenues from property price increases; subsidies, premium charges and weekly fees
  • operating and construction costs
  • hybrid care and RV models and service offerings
  • unit entry price/ current unit prices and volumes
  • GST and other tax considerations
  • an appropriate discount rate
  • maintenance and capex requirements
  • property price growth
  • demand and penetration rates in catchment area
  • resident contracts and DMF realisations
  • ORA structures – both current and local market norms
  • tax implications of the sale and appropriate structuring and estate planning considerations.

Not all the information needs to be presented to potential acquirers, but you need to know how buyers will assess your business and what value they see from acquiring your business. If you are armed with this information, the chances of maximising the outcome for you are significantly enhanced.

The market is currently buoyant and high prices are being achieved for well-presented businesses where the right competitive tension is achieved.

Investor information

What is the investor’s perspective of the retirement and aged care sector?

MARK LISTER, Head of Private Wealth Research, Craig’s Investment Partners

From an investor’s perspective, the retirement sector has changed markedly over the past few years. Five years ago, Ryman Healthcare was really the only company that was on the radar of most investors, and Ryman therefore got most of the attention. That all changed in 2011 when Summerset Group listed on the sharemarket, and when Metlifecare merged with Vision Senior Living and Private Life Care Holdings the following year.

Summerset had considered floating on the sharemarket a few years earlier in 2007, although changed its mind as market volatility increased ahead of the looming global financial crisis.

Metlifecare has actually been listed for much longer, since 1994 in fact, although the company’s chequered history saw it largely ignored by investors until a few years ago when some of the issues were ironed out.

Late last year we saw smaller operator Arvida list on the NZX and Oceania Healthcare is also looking at its future options, of which a sharemarket listing is one.

All of a sudden, investors looking to gain an exposure to the sector have a number of options, something which has had an impact on the retirement sector operators themselves.

Having multiple companies in a sector means that analysts, investors and fund managers find it a lot easier to benchmark companies against each other. This could mean comparing the levels of disclosure about their businesses, quality of management and governance, as well as operational performances.

We also tend to see the profile of companies increase when they are under the listed area. The media takes a little more attention, and it becomes much harder to fly under the radar.

Ultimately, company share prices will respond immediately to any changes in the outlook, as well as due to changing perceptions about the strategy and progress of each company in the eyes of the investment community.

On many occasions I have asked CEOs of recently listed companies what the key difference is between being a private company and having listed on the sharemarket, and the answer is always the same – scrutiny.

This added attention from a much wider, highly informed and engaged group of people is positive for the industry and for the companies themselves. It forces them to sharpen their game, become more efficient and innovative, work harder on customer satisfaction and focus their strategy.

One thing that hasn’t changed as a result of a much broader range of listed entities has been the stellar performance of the sector. Ryman remains the standout, having returned a stunning 29.5 per cent annual return over the past decade (compared with the broader market, which delivered 6.2 per cent). An investor who put $1 into Ryman shares 10 years ago would today have $13.26 if they had re-invested all their dividend payments.

The others haven’t been too shabby either, with Summerset up 18.3 per cent per annum over the last two years, and Metlifecare having returned 22.7 per cent.

Whether returns of this calibre will continue is difficult to say. We are coming off an exceptionally strong period for the sector and the market, so it is likely we will see some moderation in the pace of gains for these companies.

However, with demographic trends still as supportive as ever, a robust economy and plenty of growth options, the sector remains well-placed to deliver excellent long-term earnings and dividend growth.

Mark Lister’s disclosure statement is available free of charge under his profile on This column is general in nature and should not be regarded as specific investment advice.


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