In August 2013 Stephen Bull had just assumed the leadership of Stockland’s Retirement division. His primary objective: build return on assets from 4.5% to 6.5% by 2015 and 8% by 2018.
By 2015 ROA hit 5.3% and July 2017 it was 6.2%. Then Four Corners hit.
Last week Stockland announced its half year results and its cash ROA was back to 4.5%.
Sales were up 12% on HY19 for established homes but the price remained flat at an average of $378,000, a repricing strategy to drive increased occupancy, which sits at 93%.
Again, reflecting the majority of retirement village operators, Stockland has experienced little price growth. In 2013 their average established home value was $356,000 and today is $378,000 – a 6% increase compared to the national mean house price increasing 20% in the same period.
With 63 villages nationally delivering 9,271 independent living units, Stockland is a spotlight on how ‘cheap/affordable’ it is for ageing Australians to buy into a retirement village. The 2019 PcW Property Council Retirement Census reported the average village ILU costs an incoming resident just 64% of the local median house price.
With an average village age of 25.8 years, not dissimilar to approximately 60% of all villages across the country, Stockland must face a significant capital allocation challenge. Do you invest more capital to refurbish older villages to make them more attractive to today’s customers? Will you get the price increase to justify the reinvestment?
It should be said that Stockland has been a leader in refurbishments, but can this continue?
Exploring capital partners and divestments is a logical strategy. Interestingly, of their development pipeline of 3,485 home sites, 2,380 of them are land lease communities, topped up by their strata title/no DMF Aspire model village communities.
The sector needs a strategy.
