[+] Kiwis Cross the Ditch to Drive Aussie Aged-Care Evolution

Kevin Hickman was an ex-Kiwi copper who’d started his own private investigations business when he was called upon to look into a fire in an aged care building. The year was 1983 and aged care facilities in New Zealand were known as rest-homes. Regardless, Hickman did not like what he saw. “There were four people to a room with shared toilets down the corridor,” he recalled. “The people running the rest-home were nice and did a good job in as much as they were expected to, but to me it was crazy. The standards were so poor.” Fast forward 40 years. Ryman Healthcare—named for Hickman and his business partner John Ryder—is publicly traded on the New Zealand Stock Exchange, and with total assets of $11.58 billion and an underlying profit up 18.4 per cent last year to $279.9 million, that country’s biggest aged-care operator. Ryman came across the Tasman Sea in 2014, bringing its retirement and aged care model to Australia. Today, it counts 14 locations in Australia—all of them in Victoria. Five of those are completed and open for business, three are open but still partly under construction, two more are still being built, and another four are in the planning stages. But hold that thought. Five years later, in 2019, New Zealand’s second biggest aged care and retirement operator—Summerset Group—made that same journey to Australia, also to Victoria, and immediately went on a buying spree. In September of the same year Summerset paid $17.6 million for 8ha in Cranbourne North, and then 11 months after that, $36.85 million for just 1.83ha in Golf Road in Oakleigh South. Small as the property may be, it is surrounded by two golf courses, and only 15km south-east of Melbourne’s centre. And just one month later? The dual NZ exchange and Australian Securities Exchange-listed company paid $42.35 million for 21.4ha on Manchester Road in Chirnside Park, east of Melbourne. ▲ The centrepiece of Ryman’s most recent development approval will be a heritage-listed, 42-room mansion south of Melbourne. Main image: an artist’s impression of Summerset’s soon-to-be completed Cranbourne North facility. In fact, Summerset has picked up seven greenfield sites in Greater Melbourne and Geelong in just four years. “I would say that we would have liked to have had more, to be honest,” says Summerset’s general manager of development in Australia Stewart Scott. “But that is a lot, I suppose. It’s really about getting a pipeline for us, and really starting to leverage the in-house resource that we’ve got. “And building that pipeline relatively quickly, but also recognising that these things can take a long time.” Like Ryman five years before them, Summerset woke up late in 2017, early in 2018 in a country with a then-population of about 4.8 million, asking themselves: “What is the growth opportunity and where do we go?” Australia’s economic strength, proximity, cultural similarity, and a mature retirement living market made it a natural target. If not an all-out invasion, at least a well-planned attack along the country’s south-east flank. Both companies have taken aim at Victoria, armed with not much more than healthy bank balances backed up by strong investor sentiment and a thing called “continuum of care,” a business model whereby all forms of aged-care—from independent living to assisted living and eventually end-of-life support—sit within a single facility. And, invariably alongside retirement living. Ryman’s chief executive in Australia Cameron Holland says that key feature of the New Zealand model—the integrated care approach—is rare in Australia but works well. “Effectively, in New Zealand, there hasn’t been a stand-alone aged care facility built for probably the past dozen years,” he says. “And they are now pretty much always built with a retirement living component.” Summerset’s Scott agrees: “All of our properties, no matter what the size or the landholding, will have aged care, all have independent and assisted living, and serviced apartments. I mean, those two terms are interchangeable.” ▲ A 2022 Royal Commission into Aged Care Quality and Safety found the number of Australians aged 85 years and over will increase almost three times to 1.5 million by 2058. Investors appear to agree. In March this year, Ryman completed an $836-million capital raising, about 71 per cent of which came from existing shareholders. Most recently, Ryman won approval for a 230-resident facility on the Mornington Peninsula after a drawn-out legal battle over building sizes and set-backs, which ended in the Victorian Civil and Administrative Tribunal (VCAT). The centrepiece of the $317-million village will be a heritage-listed, 42-room mansion on 8.9ha, about 40km south of Melbourne. For its part, Summerset’s first acquisition—the 8ha in Cranbourne North—is due for completion by year’s end. Sometime in the new year residents will move into 161 independent living units, a mix of cottages and townhouses. There will be 34 serviced apartments and 72 aged care beds, including those for “memory support,” or what is more frequently referred to as “dementia care.” “What that means is you're providing all levels of care for people as their needs change,” says Scott. “People will come into the village, they might buy an apartment or villa, and then live completely independently. But as things become more acute you then have the ability for to either move into the aged-care home, or they can move into a more purpose-built serviced-apartment. “All of their care needs are provided in one location by one operator throughout the years as they start to age.” Summerset, which already has development approvals for its Chirnside Park and Oakley South acquisitions, arrived in Australia just as the Federal government began the Royal Commission into Aged Care Quality and Safety. The final report—published a year late in March of 2021—was damning. It found the country’s aged-care industry “was not fit for purpose” and Canberra was spending 20 per cent less on the sector than other OECD countries. ▲ Summerset’s Stewart Scott: It was all about getting a development pipeline in Australia. Perhaps more critically, that 64 per cent of all providers operate at a significant loss. The Commission’s final paper produced 148 recommendations, many of which were then enshrined in legislation passed in August last year. But in a white paper on aged care delivered just a month later, Ryman argued that while the changes are welcome, they created “additional burdens for an industry already in a precarious financial position.” “They will add significant management overhead, require additional staff, add more cost to deliver and, for older or smaller operators with limited ability to update systems and processes (let alone refurbish outdated facilities), will increase pressure on them to leave the industry altogether,” Ryman found. The New Zealanders both believe their continuum of care model can address that. “In the continuum of care model, while aged care is not directly subsidised, its costs are offset by the efficiencies provided through the sharing of fixed costs via the co-location of retirement living, serviced apartments and home care,” Ryman’s white paper says. “These include shared facilities, care staff, property maintenance and operational expenses.” Australia’s overly regulated processes have not made their job any easier. New Zealand has no state level of government. But in Australia’s three-tier system the Federal government oversees aged care, each state government is responsible for retirement living, while municipalities preside over at least some part of development planning. “What that has meant,” says Ryman’s Holland, “is that providers on both sides largely select one piece of legislation. “In Australia, most operators either pick to be a retirement village operator or developer, or an aged care operator, and they're seen as quite separate, to be frank. ▲ Ryman co-founder Kevin Hickman, the ex-New Zealand policeman who had the idea after an investigating a fire in an aged care home. “And the retirement living sector has really been dominated by developers who build retirement villages on large sites, sell them, then move on to the next development. “Whereas the aged care operators have always had that care focus, which is why it’s been dominated by the not-for- profits.” The challenges of housing an aging population are not going away any time soon. The Royal Commission on aged care found the number of Australians aged 85 years or more will increase almost three times to 1.5 million by 2058. At current projections there will be a shortage of both aged care and retirement units and there will be enough business for at least two New Zealand providers and operators. “Absolutely,” says Holland, pointing to the penetration rate, or that number of people over 75 years who are living in a retirement village. In New Zealand it is almost 15 per cent. In Australia it is less than eight per cent. “So even if all we did was to maintain that current eight per cent, we'd still need to build 20,000 units a year,” he says. “The demand is just extraordinary at the moment, so quite frankly existing operators can't build at a rate even to meet that current demand, the current penetration rate. “And remember the Boomer generation is coming through.” Scott says they’re starting to see the Baby Boomers move into the age group which is attracted to their continuum of care villages. “They've got a very different set of wants and needs.,” he says. “But if you provide the infrastructure, you provide the operations with good managers, good carers, good food, all those sorts of things, then that becomes a very attractive proposition for people wanting to downsize and get out of their home. “So yes, I would say for Summerset looking across the ditch was probably the right option.” You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. 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[+] Kiwis Cross the Ditch to Drive Aussie Aged-Care Evolution

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