Inside PSG’s next big bet
NEW VENTURE: 50% STAKE HAS BEEN BOUGHT IN RETIREMENT ESTATE DEVELOPER, OPERATOR
The retirement space is fragmented, underserved and a large and growing market.
One of PSG’s biggest initial cash investments to date, in September, shows where its next big play is. Its PSG Alpha unit bought a 50% in retirement estate developer and operator Evergreen Lifestyle for R675 million.
In investor presentations, it has said this is a “fragmented market”. It adds that the retirement space is underserved (with many undesirable offerings), and a large, growing market in SA with – it estimates – 6.8 million retirees by 2030.
When announcing the transaction last year, PSG Group said: “Evergreen Lifestyle’s offering stretches far beyond the stereotypical old-age home with its hospital-like atmosphere and nursing-based approach to care.
“Instead, their offering is a hospitality-based approach, with resort-style facilities and amenities in all their villages.”
Evergreen Lifestyle, says the Group, offers the “opportunity to deploy significant amounts of capital at attractive returns”. “Pre-transaction” Evergreen’s gross asset value was R1.8 billion.
The other 50% shareholder, the Amdec Group, has developed a number of flagship projects in SA, including Melrose Arch and The Yacht Club at the V&A Waterfront.
Evergreen sells Life Rights which, it says, “guarantees the holder a safe and secure home for the rest of their life”.
This isn’t ownership per se, in that transfer duties don’t apply (as they would in sectional title or freehold properties).
The Life Right remains an asset in the retiree’s estate, while monthly operating levies still apply.
Evergreen contends that the Life Right model is far more flexible, as a purchaser is able to offer a lower amount than the actual selling price.
“The difference between the price and what is actually paid 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 (and ensuring that on an ongoing operating basis, estates/ villages are profitable), Evergreen could also participate in the increase in the value of the underlying assets over time.
Its current portfolio comprises just under 550 units across six “villages” in Cape Town and Johannesburg.
In its annual results presentation to end-February, PSG says by the end of its next fiscal (Feb 2019), Evergreen Lifestyle will have 1 074 units (roughly double its current portfolio), at an average value of R2.7 million per unit.
Evergreen Lifestyle’s stated five-year target is 12 operating villages with 5 000 life right units. These will be in “main metropolitan areas and important development nodes, most likely … Cape Town, Johannesburg, Durban and Port Elizabeth”, with a “gross asset value of approximately R13 billion”.
PSG has previously said new villages will be built in Umhlanga (Ridgeside), Port Elizabeth (Westbrook) and the Midlands (Hilton).
The next target is “more than 20 operating villages with 10 000 life right units” and a “gross asset value of more than R25 billion”.
Hilton Tarrant works at immedia