With history’s largest – and richest – generation heading for retirement, you would think cashing in on this demographic would be a sure bet.
But simply owning a retirement home is no guarantee of profit. You must offer retirees the right product at the right time and in the right place, says the chief financial officer of one of Canada’s up and coming retirement industry companies.
That is the strategy behind Leisureworld Senior Care Corp.’s acquisition last year of three luxury level retirement homes in Metro Vancouver in a deal worth $119.8 million.
It is Leisureworld’s first venture outside of Ontario, where it currently operates about 27 long-term care facilities with 4,500 beds for residents requiring 24-hour care and 294 suites in retirement and independent living homes. The B.C. acquisition from Avenir Group of 392 suites in Surrey, Port Coquitlam and White Rock makes Leisureworld about the fifth-largest company in the $10 billion Canadian retirement industry.
Long-term care represents about 90% of the Markham, Ontario-based company’s business and is the most secure sector for current and future income, said Leisureworld CFO Manny DiFilippo. The provincial governments heavily regulate the industry and provide facility operators with a steady stream of clients and income, with a per-diem subsidy for residents requiring full-time care.
“Long-term care is our core,” he said. “The demand is not going to go anywhere but up.”
But the most promising area is in retirement homes. Healthier and wealthier seniors between 65 and 75 have much higher expectations for accommodation – and the income to pay for it. Margins for retirement homes run about three times those earned by operating long-term care beds.
But unlike long-term care, where there is a steady stream of provincially funded residents waiting for beds, those seeking retirement homes can pick and choose where they want to live and pay for it themselves, said DiFilippo. It can also take several months for retirees to commit because they are often waiting for funds from the sale of a home or other real estate.
“You can’t have the demand at your door and then build up the capacity,” said DiFilippo. “You want to be ahead of the curve and ensure that you have the right capacity so demand grows into it and you are capable of serving their needs.”
Citing his company’s annual report, DiFilippo said there will be a virtual explosion of demand in this sector. “Canada’s 75-plus age cohort is entering a period of unprecedented growth and, if current demand for [retirement home and independent living] residences remain constant, management believes Canada’s current capacity will not be able to meet future demand.”
DiFilippo said it is also important to get the right mix of accommodation, something Leisureworld is working through.
“It’s harder to place people in retirement homes because they are paying out of their own pocket. Some may have their payments tied to a real estate transaction [the sale of their home]. The certainty of the income flow is not as great as in long-term care, so you try to have the right blend between the two.”
Diversification is also important because of possible future changes in government funding, he said. Long-term care, called residential care in B.C., could ultimately become the only option for seniors who can’t afford any other form of care, which could limit profitability.
“People who are going to be retiring over the next 20 to 30 years, they are accustomed to a much higher level of amenities,” said Troy Maclean, an analyst for CIBC World Markets. “So higher-end properties are going to be much more commonplace.”
Leisureworld is now trading about $12.90 a share.
