Stockland is now talking down FKP's retirement porfolios -...

Stockland is now talking down FKP's retirement porfolios - trying to push SP lower before making an offer? Or is the situation that bad?

Hmm.... the SP is under attack.

http://www.theaustralian.com.au/business/property/retirement-developments-facing-valley-of-no-return/story-fn9656lz-1226516855220


A MASS clear-out of the mid-cap players in the retirement sector has been forecast as the value of development sites set aside for retirement villages falls.

David Pitman, who manages Stockland's Retirement Living division, has predicted further consolidation in an industry plagued by fly-by-night players with spurious and overvalued development pipelines.

"Development pipelines are often used to help give an impression of a really big, healthy business with a great future, but it's not always there," Mr Pitman said.

"If you look at our pipeline . . . it is a genuine pipeline. We are actually building at these sites. You can't say that about all pipelines in the retirement space."

Mr Pitman said that often projects had been mothballed and many pipelines looked better than they seemed.

He expected "a lot of deferral" due to the tightening of capital made available to smaller operators and this in turn would lower the value of the development sites contained in the portfolios.

Stockland is a significant investor in FKP Property Group and has the first right to acquire the troubled group's retirement business when it is hived off through the restructure of the company, with Stockland Retirement holding a 14.3 per cent stake in FKP.

Controlled by Malaysia's Mulpha, FKP's bankers are working through a restructure that could result in the float of the unlisted Retirement Villages Group that it manages.

FKP has been singled out by analysts as having an overvalued portfolio of development properties. In August, the company announced a 24 per cent writedown on the value of its retirement assets, but industry sources believe there is still much further to cut. While declining to comment on FKP, Mr Pitman said a lot of portfolios in the market were overvalued.

"Valuations have become more reasonable than where they were three or four years ago, but in many cases they are still too high," he said.

Stockland has made no secret of its intention to grow its retirement platform as part of the company's three R strategy retail, residential and retirement.

It now has a portfolio of more than 60 villages, which it built up through the purchase of listed group Aevum and its 29 villages in 2010 for $320 million, and it laid out $22m to buy additional villages from Retirement Villages Group last year.

Stockland's retirement division saw operating profit soar 125 per cent to $38m over full-year 2012 after booking a record level of 787 sales for the year.

It is a top-tier player in the sector alongside Lend Lease's retirement business, the privately owned Retirement Communities Australia and Australian Unity's burgeoning retirement business.

It recently launched its next village, the seven green-star Selandra Rise in the major Melbourne growth area of Cranbourne. The village will be located in a masterplanned community that Stockland is building.

Mr Pitman said Stockland's residential development business helped the company position its retirement villages so that they weren't on the outskirts of communities, and developed them more quickly than companies without a development arm. Mr Pitman said that building scale was essential to developing a customer base that would deliver returns across Stockland's retirement business.

"If you're very big you can make good returns and if you're very small you can make good returns and if you're in the middle you have what I call 'the valley of no return'. And it takes a long time to get out of that valley," he said.

Languishing in the valley are a number of companies such as Becton's retirement alliance with the Oman Investment Corporation, FKP's Retirement Villages Group and Prime Trust, which is in receivership.

Stockland is hankering to build scale, but Mr Pitman said sellers of retirement portfolios were asking too much.

"A lot of portfolios have changed hands at prices which were just too high and it didn't reflect the underlying economics," he said.

"Basically, they bought on the long-term, but you have to operate with the view to short-term returns as well."

Private equity players have also been jostling for the assets over the year. In June, Morgan Stanley Real Estate Investing injected $142.5m into Retire Australia, the fifth-largest operator of retirement villages in the country, via mezzanine debt, while the portfolio of aged-care facilities owned by Lend Lease and nursing home and retirement village owner Japara Holdings have also attracted private equity interest, though no deals have eventuated.

Receivers have also been trying to offload a portfolio of Prime Trust villages, while JPMorgan's majority holding in Retirement Australia has also attracted interest.