Seeing value in the Life Right model

Seeing value in the Life Right model

One of the biggest business surprises in the latter half of 2017 was PSG’s investment of R 675 million in the Evergreen Lifestyle retirement business.

Established in 1989 by the Amdec Group, Evergreen Lifestyle has grown to become South Africa’s first national retirement brand. The company has always been privately owned, and up until the end of 2017 had developed five retirement villages. These included four located in the Western Cape at Muizenberg, Lake Michelle, Bergvliet and Diep River and one in Gauteng at Broadacres.

The development in Lake Michelle was key for Evergreen, as it tested the concept of a multi-generational development. This secure residential eco estate is strategically positioned around a 22 hectare lake of the same name, where Evergreen has introduced retirement homes to create a mixed, multidimentional estate. This development will soon be increased by another 108 homes and a lifestyle centre.

Evergreen’s ambition is to grow exponentially and to develop villages in all of the major metropolitan areas, says CEO, Arthur Case. “We have aleady acquired prime locations to grow to 3 000 units over the next three years and then on to 10 000 units in year five and beyond. We will accomplish this growth by developing villages in parallel in areas where demand for retirement living is the greatest”.

He goes on to explain that Evergreen had no intention of taking on a partner, as they were going to grow organically, but then PSG found them. “The first meeting I had was with the PSG consortium and it just made perfect sense to us. The marketplace was changing and we knew the formidable reputation of PSG to invest in growth industries,” he explains.

As an investment company, the PSG Group has enjoyed enormous success in backing Capitec Bank and private education specialist Curro Holdings in the past. This new acquisition would see it venture into the realms of luxury retirement for the very first time, made possible through investment subsidiary PSG Alpha.

The deal secures PSG with a 50% stake in Evergreen Lifestyle via an issue of new shares, making PSG Alpha and Amdec Group equal partners in the Evergreen business.

Figures show that the total value of assets for Evergreen was estimated at R 1.8 billion, and the new acquisition will render it almost debt-free other than the life-right liability to their life-right holders. The company has already set a three-year target of Evergreen Muizenberg Estate nine operating villages with an asset value of R 7 billion. Some of these new developments include their maiden voyage at Val de Vie as well as Noordhoek in Cape Town, which will become a 350-unit village. Phase one of Evergreen Noordhoek, which consists of 46 homes, is almost sold out.

 

Seeing value in the Life Right model

 

Greater emphasis is also being placed on areas outside of Cape Town, with plans in place to develop a 458-unit village in Hilton in KwaZulu-Natal and a 640-unit development in uMhlanga Ridge, as well as an 800-home development in Westbrook in Port Elizabeth. The five-year target pencils in more than 20 villages with a gross asset value of more than R 20 billion.

The added boost in operational income will allow Evergreen to focus on making people understand how the life-rights model works and articulating why they would want to give some of their capital growth to it.

“The life-right model is the chosen model in North America, Australia and New Zealand, yet South Africans still remain wary,” explains Case. He sees his company’s biggest competion as seniors who choose to retire at home rather than the competitor retirement industry.

“Buying into a life right in a retirement village means you are buying a total retirement solution. It is like buying a carefree retirement product with built-in insurance when you get old and frail and may need someone to care for you,” he says.

Evergreen have always punted themselves not as developers but as creators of great lifestyle experiences. Every Evergreen village is different and attracts a different LSM category, with levies and house prices differing depending on the specific market. Their new development in Val de Vie, for example, will be attracting slightly more affluent purchasers, but their flexible purchase pricing still remains in force.

“The law allows a life right to be sold to anyone who is over 55. The average age of our homeowners is approximately 76 and we can simply adjust the capital return in circumstances when the homeowner is unable to meet the levy requirements, for example. This is a great bonus feature of a life right – in a sectional title scheme you would need to sell your home to be able to free up capital,” explains Case.

The future certainly looks bright for Case and his team, who are casting their retirement eyes up and down the country. Their aim is to find the right opportunities to suit their development style but for the moment they are staying clear of what he calls destination retirement (smaller beach and inland locations).

The fact that PSG’s initial investment has the possibility to be increased further means that financial impediments are the last of Evergreen’s worries. In fact, their only challenge now moves away from funding and towards selling as they do not want to create a sales lag from building to completion.

“We will be growing at a much quicker rate so the biggest challenge is going to be selling as well as continuing to change the mindset around the life-right model,” says Case. He is pouring a tremendous amount of marketing into the latter and foresees an eventual change in thinking, with a future where homeowners will be able to trade existing homes for a life right. Until then, he and his team have one hell of a sales drive ahead of them.


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