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Could these 3 smaller aged-care operators be a buy?

Older people retirees

Aveo Group (ASX: AOG) has been in the news for the wrong reasons in the past few days. A joint investigation between Fairfax Media journalists and the ABC’s Four Corners program has revealed unfair and potentially unethical policies.

We covered the issues earlier this week in more detail here, but Aveo’s shares were sold off, with shareholders not impressed.

One of the major issues raised is the exit fee Aveo collects when residents die or leave the village. In some cases, Aveo can make as much as 40% of the property’s value according to reports. For the same reason, investors might want to avoid Estia Health Ltd (ASX: EHE), Japara Healthcare Ltd (ASX: JHC) and Regis Healthcare Ltd (ASX: REG)

This controversy could shine a spotlight on the sector, but investors keen to take advantage of the theme of an ageing population could still invest in the aged care/retirement segment through the following companies.

Gateway Lifestyle Group (ASX: GTY)

The company has a market cap of just under $600 million, and is paying a dividend yield of around 4.6% at the current price of $2.00. Gateway is a provider of affordable community living housing for seniors through land lease communities and manufactured home estates. This essentially involves the resident owning their own home with the operator keeping ownership of the land and receiving a rental income stream in return. Any capital gains on selling up are for the resident to keep – there are no exit fees.

Lifestyle Communities Limited (ASX: LIC)

Lifestyle has a market cap of $424 million and is currently paying a minimal dividend yield of 0.7%. But that will likely improve over time as the company requires less capital to reinvest back into the business. Lifestyle does charge an exit fee in the form of a deferred management fee (DMF), similar of Aveo. However, the company says the DMF is 20% of the resale price of the home – not quite as controversial as the 40% Aveo can garner in some instances.

Eureka Group Holdings Ltd (ASX: EGH)

Eureka is the baby of the three, with a market cap of just $81.5 million and 35 villages under management as of March 2017. Eureka is still growing, both organically as well as through acquisitions. As you might expect, the company also doesn’t pay a dividend, recycling profits back into future growth. With shares almost halving since early February, now might be the perfect time to take a closer look at Eureka Group.

Foolish takeaway

The above three senior’s accommodation providers might be worthy of a closer look for Foolish investors.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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