Word on the street suggests that just before Xmas SGP appointed...

Word on the street suggests that just before Xmas SGP appointed Morgan Stanley to sell its entire retirement portfolio. There are more than a few observatons to make here.

Have SGP lost interest in the retirement industry and its ultra low return on assets? Could be. At a tad over 4% EBIT/net Retirement Assets they performed worse than AOG in FY18 who returned close to 4.7%. But these figures are way behind the returms they are used to getting in their residential, commercial and logistics divisions.

Do they see problems and hassles ahead? Possibly. The RC into the aged has reputedly fielded some 20,000 to 30,000 individual complaints against age care providers. BUPA can expect a shellacking judging on their atrocious recent record. I don't expect SGP or AOG will get much direct heat but they will 'feel the burn' as a consequence of industry proximity.

Has SGP deliberately picked NOW as the time to sell? Yep, they would expect to disrupt a number of candidates looking at AOG. The reverse of this argument would be that they know AOG has attracted quite some interest.

So who is the better choice?

AOG is bigger with 98 villages if you count USA with some 11,992 units. SGP has 65 villages with 9,609 units.
FY18 EBIT was $141m for AOG and $56m for SGP.

The critical comparison is the EBIT return on net retirement assets and as stated above AOG has performed better.

AOG has a bigger future pipeline (4,700 v 3,050). Its development margin was better at 28% v 20.2%.

On the other hand, SGP has a higher acceptance rating with 95% v 90% for AOG and AOG units are more expensive...its DMF are higher at 35% v 30% for SGP and they have not been as progressive as SGP in embracing the new land lease model to attract the downsizers. SGP now have some 4 villages been developed under this model and I would expect that the strategic plan for AOG will make some big announcements here.

Then again, AOG has a more mature model with the average age of residents over 83 v 80.7 for SGP. That means AOG are closer to drawing the cash when the residents move on.

The more I think about it, we are witnessing disruption to the traditional retirement model.