Aveo has been subjected to a massive media onslaught fronted by the Fairfax journalist Adele Ferguson, with two consecutive major features on Saturday plus Monday in the Sydney Morning Herald and The Age, plus a joint Fairfax/ABC Four Corners show last night.
All village operators will be tainted by the reports.
Ferguson claims retirement villages are “a sector built on unfair practices”. She labels the sector as an “exploitive game” but “not a fun game at all”.
She claims operators have a strategy of “churn” – higher turnover of residents to achieve more exit fees. Aveo, she claims, is a key culprit as it states in its investor presentations that it forecasts an average occupancy of 10 to 12 years “which is high (churn rate) by industry standards”.
Supporting this assessment, Ferguson points out that Aveo makes an average “exit fee” of $75,000 and reported it made $90 million last year from these exit fees.
These insights demonstrate the unfortunate flaw in her investigations and reporting. She appears to not understand the retirement village value proposition for both the customers and operators.
Her own figures demonstrate this point.
An average occupancy (or “churn”) is in fact 10 years in privately operated retirement villages and 8 to 9 years in Not For Profit operated villages. Aveo’s occupancy of 10 to 12 years is actually lower than the average “churn” rate.
At no stage do the reports acknowledge that the exit fee is Aveo’s income for providing accommodation for the 10 to 12 years. Instead it is presented as a money grab independent of any goods or services provided.
Aveo’s average exit fee of $75,000, representing 10 to 12 years’ occupancy, equates to a lease rental of $144 per week across 10 years and $120 per week averaged across 12 years, in most cases, for a two-bedroom villa unit plus garage in a gated community in a middle ring suburb.
Aveo made $90 million from exit fees last year but this is on its $2 billion investment – a 4.5%. p.a. return.
Aveo has not been “exploiting” residents and residents have been receiving exceptional accommodation value.
It is unfortunate that Ferguson did not present the basics. Residents LEASE or LICENCE their homes with the “entry fee” being in effect a bond. The operator gets its RENT at the end of the lease when the bond is returned less the “exit fee”.
The resident enters a lease (or license) contract – which has obligations on both sides – which the resident has the opportunity of getting legal advice before signing.
The Retirement Village Act in each state is the most rigorous legislation supporting tenancy rights and obligations.
Historically 92-96% of residents are ‘happy’ with their decision to move to a village.
This business model is operated by approximately 1,750 of our 2,000 retirement villages, including close to 100% of the 900 Not for Profit church and charity operated villages. (The remaining are strata villages which operate in a similar fashion).
Most of the interviewed residents complained about their individual contracts and service agreements but only one had the documents reviewed by a solicitor before they signed and that resident, a retired Australian ambassador aged approximately 70, had not read the service agreement until several years after entering the village.
The reports presented a number of Aveo residents who are clearly unhappy and they clearly had their own particular reasons why they were dissatisfied – and they deserve to be heard. But to target Aveo alone is perhaps unfair or just easy.
Ferguson refers to the Victorian Parliamentary Enquiry into Retirement Living Housing in 2016 as demonstration of the widespread displeasure with Aveo. However Aveo reports that just 22 of the 766 enquiry submissions relate to Aveo of which three were from a single resident.
There will no doubt be areas where Aveo could have done better. However their customer performance as an operator matches the rest of the sector – see next story – which is in fact a greater than 90% satisfaction rate with the village value proposition.
Aveo has identified a considerable number of other areas where the Four Corners and Fairfax reports did not tell the full story. You can see them HERE.
The two important facts that arise are village customers at times will have concerns that are important to them and they must be respected and responded to, and for the wider community the retirement village sector must clearly communicate its value proposition. Urgently.