McClure says the decision not to buy into nursing homes was intentional. “We deliberately chose to have a relatively pure retirement village portfolio as there’s a strong business case for retirement villages,” he says. “Number one, of course, is the aging population.” Another element is the low retirement village penetration – approximately only 3.6 per cent of over 65ers – and hence the potential takeup, particularly in light of the demand. And there is also scope for further consolidation. The sector is highly fragmented with the top 10 providers accounting for 40 per cent of the Australian market. FKP, the largest provider in Australia, holds 8 per cent of the market. And RVG as the largest across Australia and NZ controls 8 per cent of that combined market. The sector is dominated by small family-managed businesses and not-for-profit organisations.

McClure believes this is good for his business in some ways as it gives RVG an edge in implementing economies of scale to ensure high maintenance and good management systems, whereas the smaller providers may be challenged by lack of capital expenditure. But RVG can also expect fiercer competition as more investment funds in this sector are expected to follow.

A NEW DEAL FOR RETIREES

Mariner Financial has started spruiking a soon-to-be-revealed “Third-Age Retirement Living” group of funds. It will offer investment in retirement villages, but also in nursing homes and aged care services. However, in a bid to differentiate itself from some of the diversified community funds already on the market, Mariner will seek to separate the accommodation options and aged care services into discrete portfolios as opposed to bundling them together like other alternatives in this investment sector. Spearheading the new initiative, Scott Marinchek, executive partner for Mariner Third-Age Retirement Living says “more pure” portfolios will provide better transparency for investors and allow for better pricing of return expectations.

But Marinchek is not only seeking to repackage assets. He hopes to change some things about the way the industry operates. A key feature of Mariner’s products will be to make changes to the way fees are charged to retirement village residents as the current widespread practice of “deferred management fees” is “inappropriate”, according to Marinchek. A deferred management fee is a contract between the leasing agent – the retirement village operator – and the resident. Typically the operator owns the individual units in the village and transfers occupancy rights to residents via a loan license arrangement. The annual management fees under this contract are deferred until the resident departs.

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