Rapid retirement expansion – what’s the next big play?

Arthur Case

Demand for retirement facilities in South Africa is surging, with one development company’s footprint growing dramatically. Though the retirement sector is growing in South Africa with 6,8million retirees being predicted by 2030, it is a fragmented and largely underserved market.

The retirement industry has long been neglected and in need of a resurgence of new developments to meet this rising demand.

A leading provider of retirement living in South Africa – Evergreen Lifestyle – is forging ahead with major new developments and expansions across the country.

“After a spike in both interest and development in 2017 the industry is growing at a rapid rate this year,” says Arthur Case, CEO of Evergreen Lifestyle. “We are delivering extensions to most of our existing villages and a number of new villages are under construction.”

This growth has been achieved due largely to a significant investment in the industry. A cash injection from PSG’s Alpha unit to the value of R675 million – one of the biggest by the PSG group to date – and the acquisition of 50% stake in the business fast-tracked Evergreen Lifestyle to launch a string of construction projects last year.

At an annual general meeting on Friday, PSG CEO Piet Mouton said “Evergreen’s developments were going great guns. I don’t think we’ve ever made an investment that’s hit the ground running as hard as Evergreen.”

“Demand for housing for the elderly is only set to intensify further,” explains Case. “Funding on this level, and continued investment from PSG, has enabled us to speed up the construction process on our current developments.”

Within five years, the goal is to operate approximately 10 villages with a capacity of 5000 units. Case adds, however, that the company is looking to expand to at least 20 operating villages with 10 000 life right units with a gross asset value of more than R25 billion. However PSG makes the point that even 10 000 units “still represents an insignificant share of the total opportunity”.

The other 50% shareholder, the Amdec Group, boasts flagship projects in the country, including Melrose Arch, the Yacht Club at the V&A Waterfront and Harbour Arch planned for 2020 on the foreshore.

Evergreen’s current portfolio comprises 550 units across six retirement villages in Bergvliet, Diep River, Muizenberg, Noordhoek and Lake Michelle in Cape Town, Val de Vie in Paarl, and Broadacres in Johannesburg. By the end of February 2019, the company will have expanded to 1074 units (double its current figure) at an average of R2,7 million per unit.

2019 sees Evergreen targeting new regions with four new developments in the Midlands (Hilton) and Umhlanga (Ridgeside) in KwaZulu-Natal and Port Elizabeth in the Eastern Cape.  These four developments would add more than 2 300 new units by the end of February 2023.

“The pieces of land have already been bought,” says Mouton.

The table presented at the meeting forecast that Evergreen would hold 1 840 units by February 2020 and 2 815 by February 2021.

“We have identified these as key regions of growth for the retirement industry, specifically in KwaZulu-Natal that’s seeing a surge due to demand from seniors seeking retirement solutions,” Case says.

Mouton noted that after Steinhoff International’s sale of its 25% stake in PSG in December and January, the foreign ownership of the group’s shares had surged from 10.7 to 20.2%.

What makes Evergreen Lifestyle’s retirement developments so attractive, the PSG Group notes, is that they do not follow the outdated model of stereotypical old-age homes with a hospital-based atmosphere, instead offering resort-style facilities and amenities in all their villages.

The company’s retirement villages operate on the life rights model, which enables retirees to purchase the rights to a property for the remainder of their life and that of their spouse.

Evergreen contends that the Life Right model is more flexible and offers a number of benefits including flexible purchase pricing and the liberation of capital during the life right tenure, should personal circumstances require. “This capital is recovered by the developer when the unit is resold after the passing of the buyer.”

This means that along with profiting off a development pipeline (as well as ensuring that on an ongoing operating basis, estates/’villages’ are profitable), Evergreen will also participate in the increase in the value of the underlying assets over time.

PSG noted when they announced their initial investment in 2017 that the company’s PSG Alpha mandate “is to invest in and work with businesses that show high growth potential for the future”.

The company further stated that Evergreen Lifestyle is “an attractive company to invest in” owing to its “competitive advantage, intellectual capital and deep-rooted expertise in the retirement property development sector”.

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