Small Caps | 1:03 PM
Combining an attractive business model with an appealing housing model for older Australians has already placed GemLife Communities on the radar of institutional investors.
-GemLife IPO breathes new life into Australia’s aging demographic housing market
-Land lease communities emerge as a premium downsizer solution with strong growth tailwinds
-From family roots, GemLife has emerged with a 10,000-site development pipeline
-Balance sheet strength and robust cash flow boost appeal
By Danielle Ecuyer
Introducing a pure housing play in a the longevity thematic
Australians are never far away from two of the most discussed secular thematics; housing and aging demographics, two long-term trends which can throw up attractive investment opportunities.
GemLife Communities Group ((GLF)) which arrived at the ASX via the largest initial public offering of the year to date with an upsized and oversubscribed deal, raised $750m and listed with a market capitalisation near $1.6bn.
The market cap currently stands at $1.75bn and the newcomer was highlighted as one of the top smaller cap performers during the August reporting season.
After all the travails and disappointments for investors around the once market darling Lifestyle Communities ((LIC)), GemLife has breathed investor enthusiasm back into the demand thematic of housing for Australia’s aging demographic as the fourth largest Land Lease Community (LLC) provider, comments Morgans, with the largest pipeline of yet-to-be-developed vacant land.
The LLC model allows downsizers to buy the house without incurring the cost of buying the land or incurring deferred management fees, the bête noire which undermined Lifestyle Communities’ ((LIC)) model as an LLC provider with the added negatives of a lack of transparency and governance concerns.
GemLife has positioned itself as a premium LLC developer for modern homes situated in resort-style complexes on the lucrative eastern seaboard for the over-50s market and is considered as the only pure LLC exposure on the market. As highlighted by Wilsons, peer Lifestyle Communities charges a deferred management fee and Ingenia Communities ((INA)) offers permanent rentals and holiday parks.
The business model is relatively straightforward; existing pre-acquired land banks are being progressively developed and sold off in stages. GemLife develops the houses which generate, ex-infrastructure costs, a 50% margin on sale. As highlighted by Morgans, a 50% margin is impressive but the internal rates of return on capital employed will depend on civil construction costs, including community centre costs and other costs associated with developing a community complex.
Buyers do not have to pay stamp duty. The land lease fee, which is on average around $200 per month, is paid to GemLife for maintenance and upkeep of the infrastructure, including roads, pools, gyms, country clubs and the like which GemLife retains ownership of.
Currently the earnings model is split 87% from housing sales and 13% of profit from rental income. As the communities and complexes expand and age, the proportion of earnings from lease income is expected to rise.
GemLife houses are positioned at an attractive price point, estimated by Morgan Stanley at around a -30% discount to equivalent median housing stock in similar catchment areas. The difference can be attributed to the removal of the land component and in doing so an average $300k in equity can be unlocked by downsizers who sell and repurchase a GemLife property.
While Wilsons notes the average selling price is around the low $700k (ex GST) level, a premium to peers with disclosed average home sales prices around the mid-low $500k (ex GST) level.
The lack of stamp duty is also attractive, a reason often cited by industry experts as a deterrent to selling the family home and downsizing. Equally, the rental/lease component can qualify for the Federal Government Rental Assistance scheme, which offers around $106 per month to owners. An estimated 30% of GemLife’s owners qualify for rental assistance according to Morgan Stanley.
By way of an historic case study, GemLife’s Bribie Island was developed over five years including the construction and sale of 404 homes with cumulative cash flow breakeven reached during the fourth year. Cash flow is often the make-or-break factor for developers.
GemLife is positioned to benefit from two macro tailwinds
In the FNArena universe, three brokers cover the stock since its stock market debut, and all have embraced the bigger picture thematic which underpins the growth profile proposition for GemLife over the near to medium term. Two of the three, Morgans and Morgan Stanley, were involved in the IPO.
Breaking down the macro backdrop, the Australian over-50s market is expected to grow by 44% between 2025 to 2045, to 15m people from 9.8m currently, according to ABS forecasts.
Currently in the above 65-year-plus age demographic the penetration for LLC is low at 1-3% against 5-6% for retirement villages and around 90% in private dwellings. Exposure to “Longevity” is one of Morgan Stanley’s key thematics for 2025.
With an attractive offering to the over-50s as one part of the proposition, analysts are also quick to emphasise the streamlined exposure to the potential and expected recovery in Australia’s housing sector, with lower interest rates and pent-up demand as tailwinds.
Arguably GemLife has been able to position at the premium end of the downsizer market, which is more in line with Stockland Group’s ((SGR)) Halcyon product, while remaining affordable and generating excess equity for retirement.
As highlighted in the company’s prospectus, “GemLife operates within an attractive sector thematic, bolstered by tailwinds including an ageing population, increased life expectancy, the buildup of home equity among Australian seniors, and the relative strength of the Australian household balance sheet among the baby boomer cohort.”
From an investor perspective, GemLife holds the additional appeal of being a founder family-led company. Created in 2015-2016 with Peter Puljich and his son Adrian joining with Thakral Corporation of Singapore to create over-50s resort-style land-lease communities and offering home ownership without land, and no entry or exit fees, both parties retain majority shareholding.
The Puljich family owns 26.5% and Thakral Capital 16.7% with Adrian Puljich still CEO and Managing Director with over twenty years’ experience. The Puljich family has scaled GemLife from a family-founded business to a portfolio of 32 communities and projects.
Asmit Thakral is the CFO and Joint Company Secretary and continues to represent the Thakral stake.
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