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Is this stock the best way to profit from Australia’s ageing population?

There are few genuine tailwinds out there that will benefit whole industries. However, one true tailwind is the ageing population.

The Australian population is steadily ageing as life expectancy improves and the baby boomer cohort is reaching retirement age. Indeed, the number of people over 65 is expected to increase by 75% over the next two decades. This is a large increase.

There are a number of different ways to try to benefit from this. Some investors may consider shares like Class Ltd (ASX: CL1), Ramsay Health Care Limited (ASX: RHC) and Japara Healthcare Ltd (ASX: JHC) as examples.

One share I’m really looking at is Gateway Lifestyle Group (ASX: GTY). It’s a retirement village operator. It doesn’t have entry or exit fees for the residents, which makes it more sustainable than the others in my opinion.

I like that its total rental revenue is consistently increasing, which is the main reason I’m considering Gateway. It helps that the like-for-like rental increases are occurring at a pleasing rate.

Today, Gateway announced that it is acquiring two established communities in South Australia for $45 million, excluding transaction costs. Combined, the two properties have 555 long-term sites, of which 488 are occupied and there is an approved pipeline of 67 development sites.

The acquisition will make Gateway one of the largest operators in South Australia. It will be funded mostly by debt and $3 million will be funded by Gateway shares.

Gateway has increased its debt facility to $280 million and it has also increased the weighted average maturity.

When the acquisition is complete the gearing is expected to remain in the target range of 25% to 35%. The acquisition is expected to settle in late FY18, therefore it’s expected that there will be no material impact on FY18’s guidance.

Foolish takeaway

I like Gateway and I think it offers investors a good mix of potential growth and income. The ageing tailwind should benefit the business in the long-term. I’m a bit wary of what may happen to its share price as interest rates rise over the next year or two, which is why I haven’t bought any shares yet. But, I will keep a close eye on Gateway for an opportunity.

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Motley Fool contributor Tristan Harrison owns shares of JAPARA DEF SET and Ramsay Health Care Limited. The Motley Fool Australia owns shares of Class Limited. The Motley Fool Australia has recommended Ramsay Health Care Limited. 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 Scott Phillips.

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