Radio National - Background Briefing:

As private companies move into the retirement housing industry, the road is not always smooth and appropriately wide. Costs are high, and it's tempting to cut corners. The contracts are impenetrable meaning old people can easily get a bad deal. But, they're making a fuss.

Transcript:
Stan Correy: Almost every day we hear about that tsunami wave of baby boomers hitting the retirement beach. The staggering number, over 5-million people, nearly a quarter of the population now, has stimulated the imaginations of the financial engineers in the investment community. They see the retirees as dollar signs.

Hello, I’m Stan Correy and this is Background Briefing on ABC Radio National.

Up until a few years ago, retirement villages were a cottage industry dominated by the churches, charities, and small property developers. Then last year the big money moved in: Macquarie Bank bought villages previously owned by the Salvos; Babcock and Brown, ING and a host of other investment funds also started buying up or investing in retirement village operations.

So far only a small number of retirees are living in retirement villages, 3%. But many more are expected in coming years, and there is already a bewildering range of options on offer. And some failures, for both retirees and those who are investing in the villages.

Background Briefing asked listeners for information about how they are making decisions about retirement for themselves or their parents.

One who contacted us was Geoff Freeman.

Geoff? Hello, how are you?

Geoff Freeman: Not too bad.

Stan Correy: Thanks very much for doing this.

Geoff Freeman: That’s quite all right.

Stan Correy: Geoff Freeman had done extensive research into the retirement options for his mother, and invited Background Briefing to visit him at home to go through the options.

Geoff Freeman: My mother lives alone. My father died about ten years ago and Mum has struggled on since then. She’s a war widow’s pensioner, and while she’s mentally quite capable, as capable as she’s ever been really, physically she’s quite frail. She has a condition known as neuropathy, which simply makes it very difficult for her to move around. So she’s quite immobile. She’s staggered on for a few years, and there have been a few little crises, stuff like that, and it finally just got the point one day where we thought Look, we’ve got to sort this out. She kept changing her mind about whether she wanted to stay in her own home, or go to some sort of supported accommodation, or a commercial retirement home, or whatever.

Stan Correy: Geoff Freeman showed me his many pages of calculations and analysis of all the options.

Geoff Freeman: I worked out how much money she had, how much money she was getting in weekly, and then I explored about five options for her, which seemed to me to be fairly realistic options. I excluded the status quo, so I excluded staying in her own home, with her current level of support that she was getting, but I did include amongst those five options, staying at home with additional support.

So I just went about getting information from various places, from retirement homes themselves, from aged care homes, from various commercial providers of services in homes, and I just analysed it. I worked out how much money she had, what she could afford. I set out budgets for her, I set out what could be called sort of ‘social budgets’ for her, just the pros and cons socially, and culturally, of her making certain moves. And tried to compare the five options, rate them for her, making sure she understood all the time that really in the end, she had to rate them. And it achieved its objective really. She made a decision, and I hope she sticks with the decision, but she did make a decision which in the end was to stay exactly where she is in her home of 50-odd years, where she has neighbours and friends and organisations around her, but she will need additional help in the home on a commercial basis.

Stan Correy: There are many different computations of retirement living. There are what are known as Independent Living Units, or ILUs, which are self contained. There are retirement resorts, and there are high-rise retirement villages, and there are options for owning or renting. In the US there’s even been a proposal to have a retirement village on a passenger ship.

In each option, there will be a complex array of occupancy agreements. In Australia, there are at least eight different kinds of agreements: leasehold, strata title, company title, are just a few.

Alan Jones: Joining the Teagardens Grange community is easy. The ultimate sea-change resort for the over 55s. The accent is on ….

Stan Correy: The advertising for all these usually highlights that6 it’s all not so much about retirement as about lifestyle.

Alan: … you deserve this, Teagardens Grange is a lifestyle change, not a retirement destination …

Stan Correy: In the past 18 months, there’s been lots of fast money changing hands in the aged care sector. There’ve been expensive takeover battles for control of companies. For example, Primelife attempted to take control of Aevum, a company that runs Catholic retirement villages. Aevum fought off Primelife, but Primelife has responded by buying up sizeable parcels of Aevum shares.

And some companies have literally come unstuck. The media has been full of stories about a company called Village Life Limited, which was selling ‘affordable’ rental accommodation to retirees. Their prospectus gave glowing accounts of the profits for investors, but there’s soon to be a claim filed in the Federal court against Village Life for not giving the full story.

It’s all early days in the field of ‘for-profit’ retirement housing, and one thing that investors are learning is that older people can’t be treated just like a number. You can’t use the cookie cutter approach to housing them; they’re people, with ongoing real issues and problems, not just buyers or renters.

Stan Correy: Good morning. I’m here to see Lois Towart.

Lois Towart: I’m Lois Towart.

Stan Correy: Stan Correy from ABC Radio.

Lois Towart: Do I just want to make you a cup of tea?

Stan Correy: That’s all right, not a problem.

Lois Towart is an analyst with Landsbury’s property advisory services.

Lois Towart: When you look at retirement villages, it’s not like most other property businesses where you produce a defined product and you sell it to a marketplace. With retirement villages you have the additional complexity, in that the product there’s accommodation you’re selling to retirees. These people have rights, they have requirements, whereas from the point of view of the investor, they’re looking at their investment returns and requirements. So consequently it is marrying these two together which is proving a lot more complicated.

Stan Correy: Investing in what’s called social infrastructure, such as retirement villages, was meant to be easy, a guaranteed source of income. But with retirement villages, you have to take account of the residents as well.

Lois Towart: The investment group has both the requirement to satisfy the investors but also the requirement to satisfy the residents of their village, both of which have quite different demands, and have quite different ways of demanding those demands.

Stan Correy: Older people are now calling talkback radio and pestering aged care organisations, or community groups, which can take up their issues and make life difficult for business

Lois Towart: The degree of publicity which a group of retirees in a village would be able to get is quite unlike the publicity say a group of office tenants or retail tenants could get. And this is something that some property investors are becoming increasingly aware of, that they are dealing with an end user of their product, which has quite different requirements and is in quite a different marketplace.

Stan Correy: Lois Towart’s observations that retirees don’t behave like office tenants is confirmed by the Research Centre on Aging and Retirement at the University of New South Wales. Last year, they released a survey of Australian attitudes to retirement accommodation which showed retirees can be demanding. Diana Olsberg.

Diana Olsberg: What I think the financial services sector is going to have to really seriously confront, is a very much more educated baby-boomer population who are going to be much more demanding about the transparency of those products. Sort of the layers of maintenance costs, all of those sorts of things, and I think it’s very important that perhaps we look at some means, I’m not saying impose a whole, very costly layer of regulation, but I think there has to be some measure to introduce greater transparency into these financial services products.

Stan Correy: With so many different kinds of contracts for retirement villages around at the moment, it’s hard to know where you begin shopping for retirement.

Diana Olsberg: It’s very difficult at the moment for people to be able to make those comparisons and its lack of transparency which has produced a high level of distrust, and anxiety about financial planners, about retirement villages, some of the people I’ve been interviewing say, Well they went into the retirement village with a layer of promises about what the maintenance costs might be, what the range of services provided, they were going to get hot meals and now they don’t.

Stan Correy: At the Bond University at the Gold Coast, Professor George Earl is one of the co-authors of a major study on demand for retirement villages.

I’m after Professor George Earl.

Woman: He’s up on Level 3.

Stan Correy: Level 3, thanks very much.

Government social policy now demands that it’s the individual’s responsibility to look after themselves and their families.

George Earl says it’s inevitable that there’ll be more corporate involvement in retirement villages. There’s no choice, because of the numbers of people and the buildings needed. But corporate involvement that just focuses on the financial bottom line, spells disaster.

Some people will want to rent their accommodation, others will prefer to buy it. All of them will also have to pay added-on expenses, and living costs such as electricity, travel costs, or medical costs. The whole package has to work or the business will fail, says George Earl.

George Earl: One of the greatest marketing tools is word of mouth. The level of satisfaction of people living in those villages. Now if you purely concentrate on the financial bottom line, with disregard to that social interaction etc., the reputation will go out there and you will have problems, whether it’s a rental village or it’s an equity village, of replacing that tenant or the occupant when they leave.

Stan Correy: If renters or owners become too disgruntled about conditions or costs, they’ll leave, and that’s not good for business.

George Earl: If you have disregard for those kinds of things, of course then yes, they were having large vacancy factors if you’re talking about rental villages, it has a huge impact on their yields. If you’re talking about equity base villages, it has a vacancy factor that has negative impact on the value of those properties.

Stan Correy: So the key phrase is occupancy, isn’t it? I mean occupancy rates?

George Earl: Sure, and that really goes back to what I was saying that they’re actually business models rather than real estate models. Because the viability of the villages is about occupancy.

Stan Correy: Most older people say they like the idea of community living, or having people around to talk to, some social life and interaction with others. In that sense the village experience can be worthwhile and enjoyable. But very often this is marred by complex financial deals that turned out to be much more expensive than expected.

Geoff Freeman prepared a brief for his 83-year-old Mum to help her decide if she would stay at home, or move. His mother has a War Widow’s Pension, and a little bit of super. She had five options. Her final choice was to stay at home and pay for extra care services. That, according to Geoff, was going to be cheaper than paying for similar services at a village or serviced apartment.

Geoff Freeman: To give you an idea of how that works: her total annual income is about $25,000, and in a weekly recurrent income and expenses sense, she would be just able to afford one of these inner urban or middle urban serviced apartments. However, if she got a little bit more dependent, and needed a bit more in the way of personal care, or a bit more in the way of room care, or food service, she wouldn’t have been able to afford it. Those extra services are charged at full commercial rates, and they’re about, as a rough rule of thumb, they’re between $32 to $35 an hour, those services are always provided at. And that’s about the same rate as a company like Silver Circle or the range of others will provide services to you in your own home, on a full commercial arrangement. No government subsidy involved in that at all.

Stan Correy: The cost of personal services is becoming one of the key issues in deciding where you retire.

Geoff Freeman: Just to give you a concrete example: I remember when I looked into this for Mum, if she needed somebody to come in and help her with a shower, which she’s going to need, fairly soon, that was charged at $8 for 15 minutes. Well it doesn’t take long for 15 minutes to tick over. For an hour, that’s 8 4s are 32, so that’s yes, $32 an hour for that. In the budget I assumed for Mum at one of these places, I assumed only 30 minutes a week of personal service, which is not much, and as I say, she could must afford it, just afford it.

Stan Correy: This is Background Briefing on ABC Radio National. I’m Stan Correy. Many listeners wrote or phoned us about their experiences with living in retirement villages. And the financial complexity and expense theme emerges once more.

Here are readings from a couple of emails:

Reader: At 14 years occupancy, the percentage the village takes means that selling her unit will leave nothing over. The complicated formulas are something like this: the sale price, currently $140,000 value, minus the cost price, $70,000. Of this, the village gets half, that leaves about $35,000. Plus the agent’s selling fees, say, $10,000. That leaves $25,000 profit. Then on a sliding scale each year, the Village takes back 2.5%, for up to five years stay; 3.5% for ten years, 4% for 15 years Of the $25,000 that’s a bit chunk.

Then, to add insult to injury, the village have written into the contract that the refurbishment of the unit must be brought up to current day standards at sale. So there goes another $20,000 for the upgrade. There ain’t much left.

Stan Correy: Being older, it seems, you pay more, and more often.

Reader: It was a bit of a surprise at the contract required payment to the village of a percentage of the sale price of the unit. That percentage is 2.5% per annum for each year of ownership, up to 10 years. The equivalent body corporate fees have been charged quarterly and paid. They were a substantial charge each quarter, plenty to cover all necessary contributions to rates, maintenance of community facilities, community services and even to an extent to contribute to a building fund perhaps.

Rates of three types were each paid separately: general, water and sewerage, so I’ve no idea what this sale price fee is paying for. It could be that the village thinks it should share in any capital gains or market appreciation during the period of my parents’ ownership. I can envisage owning a very weak justification for that.

Oh hi, is that Val? It’s Stan Correy here, Val, how are you?

Val lives in a retirement village in Melbourne. It’s in a great location by the water, with plenty of facilities.

Val: This is a little coffee area here, come down and have a look, it won’t interrupt them. There’s a billiards room round there, we’ve got our own kiosk for …

Stan Correy: Val invited Background Briefing to visit her unit, which she purchased with her husband Rob seven years ago. While they love the location and the lifestyle, the corporate side of retirement villages has annoyed them considerably.

Val: The whole industry is a stinking fish, let me tell you. If I knew then what I know now, I would not have touched this contract with a bargepole. Because let me tell you why: they are a contract of entrapment. Once you get in, and you stay, and you’ve got to give anything a certain amount of time, it is not the village per se that is the problem, it is all these extraneous issues that weigh heavily on people and particularly people in my situation where I will inevitably with my condition, have to move on to higher care.

Stan Correy: Moving on, either just to somewhere else to live, or into a nursing home or aged care, can be expensive in itself. Many Radio National listeners referred to the fee that has to be paid when you leave the retirement village. This fee goes by many names: the departure fee, the exit fee, or its more technical name, the deferred management fee.

It’s this fee that makes investors and operators their profits. So the operator makes money when they sell you your town house, then again when you leave And there’s also likely to be a cost for renovating the property. The fee is calculated in a whole range of ways that can confuse retirees and investors alike.

Val has been lobbying politicians and consumer groups about how the exit fee is against the best interests of retirees.

Val: When all these scheme operators, these entrepreneurs if you like, got in and built bigger and better and gave more facilities, they will tell you that they need to have that deferred management fee in order to go on making and building bigger and better. Now if people have to go on to higher care, they have to pay a bond. And that bond can be $135,000. Now if they don’t sell their unit, they either have to borrow. Now the industry will tell you that they will assist people in those situations. That is an absolute crock, if you like. I’m sorry to be so direct. But they will tell you they will assist, they will assist, maybe if you want to borrow against your unit from them at an interest rate. But who wants to be taking out a loan in their 80s to move on to higher care?

Stan Correy: And if you’re buying into a retirement village, says Val, you’ll need a good lawyer. To help you understand the contract. And retirement village contracts are the size of an encyclopaedia.

Val: This is a contract, now for goodness’ sake. How many of us would know unless we had a Philadelphia lawyer to go through that. Now we claim that the suburban solicitor wouldn’t have a complete knowledge of what goes on in here and so what they would say to us, as they said to us ‘Look, it’s very complex. It’s very restrictive, but you’ll have a body corporate that will look after you.’

Stan Correy: In Val’s opinion, that doesn’t happen very often, because the body corporates are heavily influenced by the companies that own the villages.

The confusion and expense involved in many retirement arrangements where people actually bought a unit outright provided a market opportunity for one of the most entrepreneurial retirement village companies in Australia. They came up with the idea of retirement rental accommodation as much more ‘affordable’.

Announcer: You don’t have to be wealthy to afford a rich lifestyle, and you don’t have to sell up or raid your retirement fund to retire comfortably. Let us introduce you to a life that most retirees only dream of, Village Life.

Woman: A lot of lovely people here, and they’re all very jolly and you just get to talk to so many different people from different walks of life, and learn lots of things, even though you get older, you can still learn.

Stan Correy: It all sounds great, and they promised that it would be much cheaper, or ‘affordable’.

Announcer: What makes us different? You’ve all heard the advertisements where companies say Yes, more often. But we’re also proud to say No. No buy-in costs, no long-term contracts, and no exist fees.

Stan Correy: Village Life Limited is a Queensland-based company and it grew very quickly. Now it has 84 villages, but it’s having a bumpy ride. A lot of residents have been angry about the quality of their units and services, there have been management difficulties, and for investors, the fall in the share price has been disastrous. It’s all happened in a little over a year.

Since January, 2005, when its share price was $2.80, the company has been on the verge of collapse. Its latest share price is around 27-cents.

The lobby group called Housing for the Aged became involved. They were originally set up to watch over tenants in public housing, and are now monitoring private retirement villages as well. Many of the villages are a long way out of the cities or on the outskirts of towns. On the way to the Village Life managed complex at Melton, on the western outskirts of Melbourne, I talked to Jeff Fieldler.

Jeff Fieldler: We first heard about Village Life because we also provide advocacy services, so we had calls from residents with complaints about where they were living, and the complaints centred around the services many, complaints about the quality of the meals that were being provided, but also complaints about the affordability. They seemed to be the two main issues that were coming in. And Village Life was expanding at a great rate of knots; we’ve got I think over 15 villages in Victoria now, and that expansion we’ve been trying to track as it’s been developing.

Stan Correy: So in a sense, you saw this company offering affordable accommodation, but some of the first complaints you’ve got were about affordability. What were the first kinds of complaints that you had to deal with?

Jeff Fieldler: It’s been this issue about firstly the advertising, that they advertise it as affordable accommodation for seniors, is often the slogan that’s used, that people were going in, knowing that they were paying 85% of their income in rent, but thinking that the services that were being provided were catering for them, and the reality was quite different to that when they moved in, and realised that with only 15% left of their pension to pay for all sorts of additional things that perhaps they weren’t expecting at the time, that they had to pay for their own electricity, medication, toiletries, travel, that’s often an issue because a lot of Village Life places are established in country Victoria, and people rely on a car or they rely on taxis where public transport is very poor to get around. So left with about $30 a week at the most to live on, that makes it very difficult for people to pay for their accommodation unless they do have additional assets behind them.

Stan Correy: Jeff Fieldler wasn’t only hearing about resident problems at Village Life, but also problems about management. There have not been enough staff and managers on the whole haven’t been professionally trained, they say.

Jeff Fieldler: I think one of the things that we’re looking for is a bit more of a professional approach to the management of Village Life, where you might have a proper staffing structure that does allow for people to have a normal five-day working week, for example, whereas currently at the moment the managers are basically on call seven days a week 24 hours a day, and that’s just not sustainable.

Stan Correy: Better management may mean attention to some of the costing and management issues which are causing ill will among residents. Many older people use electric wheelchairs or scooters, for example, but there are problems with recharging the batteries.

Jeff Fieldler: A lot of the villages where residents, they all need to pay for their own electricity, but a lot of the hot water systems are set on a day rate which is much more expensive than a night rate. There are concerns about scooters, electric scooters that had to be plugged in to sockets inside people’s flat, and so they had to leave their carts outside their home, which would become an obstacle for people walking past. All these sort of minor things kind of add up, and there’s no real way that they can liaise with management to have improvements made in this way. Management’s approach seems to be, ‘Well this is the village that you bought into, this is the product that you are in, and we don’t really provide any improvements to that. This is the model that you’ve bought into.

Stan Correy: Over the past year, Jeff Fieldler has been doing focus groups with residents at other Village Life managed complexes in Victoria. At this particular village, Melton, which looks very much like a motel, he’s taking me to see two residents who were willing to talk to Background Briefing.

Hello Sandra. Stan Correy. How are you? Good to meet you.

To rent accommodation here you give the company all of the government rental assistance you get, plus 85% of your pension. In Sandra’s case that leaves here with only a little over $40 a week for everything else she needs, transport, clothes, medical are, and ordinary needs like that. As well, Sandra says she is very disappointed with the quality of the building itself.

Sandra: I think it’s totally unfair, I think they’re charging too much for what we get. The units are not soundproof, you can hear everything that goes on in your block.. You heard next door when she went out. I can hear talking next door. When they turn their TV on, it’s all right if it’s on the same channel bit if it’s on a different channel you’ve got problems. You have that echo. I also hear Baz snoring which brings back memories.

Stan Correy: Would you have any recommendations, or how would you advise the company, because the company Village Life has got into problems with its shareholders, and many people believe it didn’t construct its villages in the right way, or it just was a bit of a good idea but not well done. What’s your feeling?

Sandra: My feeling is that they should go back to the drawing board. They should state exactly what is being paid out, well we know what’s being brought in. The units are jerry built, they’re not soundproof, everything is just for effect. You find quite a few people, their doors don’t fit. The average were built very, very quickly.

Stan Correy: Another resident we met, Joy, has been at Melton since the village opened two years ago. Joy says she’s been reasonably happy at the village, though she’s finding she needs more privacy.

Joy: I’m just not into having to be over at 12 o’clock for my meals, and 5.30 for my tea and I like to eat when I want to eat and what I want to eat, you know what I mean? So that kind of thing, I want to get a big more dignity back into my life, which I find when you’re all grouped together like that, they’re nice people but it’s sometimes like having a meal in Victoria Market, if you can imagine what I’m saying.

Stan Correy: But Joy’s greatest complaint is that of the no-frills management.

Joy: We’ve had different managers, we’re on our seventh lot of managers now in two years.

Stan Correy: Seven managers?

Joy: Seven lots of managers in two years, we’ve had. I think the majority of them moved out because financially they were working long hours and not getting financially catered for. That was a lot of the problems, and a couple of the other problems were people, dealing with different people that were really nasty, and they just didn’t feel they had to put up with it. Like those kind of things, you know what I mean? But this one manager we did – and when he found out, I went round with a petition, we wanted him out of here. I said to him, ‘If you don’t get out, I’m going to Current Affair, about you and Village Life. He was an absolute disaster. Foodwise, the way he treated people and everything, and he threatened me.

Stan Correy: Joy says she likes the idea of the community setting of Village Life. But there have been disappointments about the planning of the site.

Joy: And I came in one day and there was a guy here from Village Life, one of the managers or whatever. And I did say to him, ‘Could you please tell me what’s going to be built at the back here?’ And he said, ‘I can assure you it will be absolutely nothing that will affect you.’ And I said, ‘Well that’s good’. That’s why we picked this end unit, these two units here, Wally next door and me here. And then after they got us all settled, they decided to pull the fence down and start building another village at the back. So now we get all the traffic through to the village at the back. They have got another opening at the other end but they don’t use that, they use this entrance in and out.

Stan Correy: The fact that Joy is leaving, as have many others, is a concern for investors because it affects the viability of the company. Joy is moving up the road to what is a called a ‘Manufactured Home Village’. This is a new trend in retirement living, where you buy a home, but only lease the land it sits on. It’s all regulated as a caravan park, not as a retirement village. And Joy says she expects to have the benefits of affordable community living without the problems and costs she’s experienced so far.

The prospectus put out by Village Life Limited when it was listed in December, 2003 promised much. Village Life consistently informed investors that villages were being completed on time, and that occupancy rates were high.

By June 2005, according to the 2003 Prospectus, profits should have come in at $15.4 million. Stockmarket analyists and investors took the information at face value, but were horrified when the figure instead was between $1.5 million to $1.8 million. Now 350 Village Life Limited shareholders are seeking at this stage $10-million in compensation from Village Life as a result of what they see as the company’s alleged breaches of the Corporations Act.

Keith Foote is a Melbourne financial adviser who lost money investing in Village Life.

Keith Foote: Our attention was drawn to the stock, firstly from the press, and then secondly on looking at the company in more detail, getting research reports from companies that actually researched the Stock Market, and it appeared to me that you’re getting into a company at a very early stage in its life cycle, just shortly after it had floated. And we came down to thinking, Well, it’s providing a good income, it’s a growing sector with the aging of the population and this was just such a good investment at the time, not just based on our judgment alone, but on a whole range of other opinions from experts in the markets. So that was the reason we were involved.

Stan Correy: So big is the potential market in retirement living that any stock that has the phrase ‘aging baby boomers’ has become very attractive to investors. Companies involved in the area simply roll out the demographic trends to the analysts and out come the positive forecasts.

Keith Foote: The company was very good in getting publicity and if you looked at the information that the company published themselves through the Australian Stock Exchange site, and putting reports, it was very positive information, there was very little questioning about the actual model that they were employing and the growth was exponential, according to the company, they just had so many opportunities, and I think it was also planned for them to expand in New Zealand, so it was all certainly positive views. That really went in to early, I think 2005 until we started getting profit warnings, which sort of came out of the blue.

Stan Correy: Did you invest after any of those profit warnings? I think the first was in February. Most people were still recommending to buy even after that first profit warning.

Keith Foote: We did. I think we purchased more stock, probably in April of 2005, I think. There was still positive coverage, even though there’d been some profit downgrades published. But most of the analysts were still very positive on the longer term outlook for the company.

Stan Correy: Keith Foote says the company was simply too slow to let the market know that it was having some teething problems. What does Keith Foote think the company should have disclosed to the market?

Keith Foote: If you look at the elements of the business, one was building the villages, and they weren’t forthcoming with information about the delays and the cost blowouts. They weren’t forthcoming with information about the take-up by residents and units, and their vacancy rates were very high. And it came as mild profit warnings, ‘we’re not sure because of delays, we’re not sure because of this’, but it didn’t seem to raise major problems until their final profit warning. In the end we couldn’t rely on anything the company said, so we totally lost any faith in the company’s ability to actually run along the model that they’d said was working fantastically.

Stan Correy: So after this experience, what do you think of the retirement village sector which is seen as still an emerging sector but has great claims made about it, you know, people tend to be a bit wary of the deferred management fee model, and that’s why the rental model of Village Life attracted investors. What’s your feeling now, post this experience?

Keith Foote: Well I think the aged care sector is one we won’t look at. We’ll concentrate on other forms property, office building, commercial developments, industrial, retail.

Stan Correy: Keith Foote is just one of the investors who feels badly burnt by the aged care sector. Another, Sydney accountant Lindsey Samyia invested in Village Life knowing he was taking a risk, investing in the company when the share price was falling. But he says the information the company was providing the market gave no indication that they were in serious trouble.

Lindsey Samyia: Look, in the modern day, and especially if you’re talking about getting access to capital funds from other investors, you’ve really got to have information that’s accurate, and it’s readily available. That is timely as well, because when you’re talking about making a decision to invest, you’ve got to be not just making an educated guess but a well-informed investment decision and of course that’s what I tried to do, but it was within a month I was proven absolutely wrong.

Stan Correy: And you feel that if a month later the information that they had, they should have provided that earlier? They put out their information in May.

Lindsey Samyia: Once you list on the Stock Exchange your responsibility is with the disclosure rules on the Stock Exchange, and you’ve really got to be adhering to them at all times. And of course, in my view, if you’re going to have a statement to the Stock Exchange a month later which is significantly different from that given a month ago, it’s really providing a misleading, and bordering – I’d put it as deceptive to other investors. For me, I feel like I’ve been duped.

Stan Correy: Lindsey Samyia, one of 350 Village Life shareholders who will be filing a claim in the Federal Court against Village Life Limited.

While small investors have largely deserted Village Life’s experiment in rental retirement accommodation, the big investment funds look to the longer term future, and they’ve been fighting over it.

International investment bank, ING, has a listed property trust called the ING Real Estate Community Living Fund. ILF, as it’s called, came to the assistance of Village Life Limited in 2005 and took control of its property trust. That trust now owns over 20 retirement villages. Why does a big investor come to the aid of a company that isn’t doing very well? Managing Director of ING Community Living Fund is Ian Muir.

Ian Muir: When you say Village Life didn’t do very well, I must just qualify that by saying that what they did is, they grew a business from I think in 2003, well they started – their first village was opened in ’99. By 2003 they had about 40 villages under management, and then by mid last year they had about 80 villages under management. So they grew a scaleable business very quickly, and that was a major achievement, to grow a business that quickly. It really demonstrated there was a demand out there for that product, so when you go around those villages, in a lot of cases, well pretty well all cases, you see very happy, contented people. So when you say they didn’t do so well, they did actually come up with a model that was required by the market. But their model had some flaws to in it, and as their business grew, unfortunately those flaws became accentuated.

Stan Correy: So accentuated that Village Life had to revise its profit forecasts three times between February and May, 2005.

Ian Muir: They had a system of Mum and Dad operating these villages. So a Mum and Dad operator would run a village of, say, 50 people, and that Mum and Dad operator would have to cook the meals for those 50 units, and they would have to mow the lawns, they would have to do the laundry, they would have to be social organiser, legal adviser, psychiatrist, a many-faceted role. And in fact it was too much to put on a couple a running a complex like that, and there was not sufficient back up for these people from head office. And as a consequence the managers started to turn over very quickly. Like every 12 to 13 months, these managers would just suffer from burn-out. So you had to keep on replacing these people, backfilling them. And one thing old people really need and want is consistency. So if you’ve got managers coming and going like that, the residents start to become discontented, occupancies start to fall.

Stan Correy: The other area was the economics of building the villages. Village Life Limited didn’t own all the villages it managed. Other developers built the complexes and paid Village Life a fee to manage them under the Village Life brand.

Ian Muir believes the flawed management model, combined with rising development costs almost landed a killer punch to Village Life.

Ian Muir: It was essentially as land prices escalated and building costs escalated, they just got caught in a pincer between those two rising costs, such that their profits started to fall, and the development profits were actually funding their business to a very large degree, so when they couldn’t acquire sites at a reasonable price, get their approvals and build them on time, on schedule and open them on schedule, they just got put under a lot of financial duress.

Stan Correy: Despite being in a growth industry and in a rising stock market, Village Life was the worst performing stock on the Australian share market last year.

In February this year, Village Life Limited blamed lower cost alternative and government subsidised housing as a reason for falling occupancy rates. They pointed out that in the past year, that while they attracted 1,971 residents, 1,359 left.

Background Briefing approached Village Life Limited for responses to the issues raised by residents and shareholders in our program. The Melton residents had complained about the high turnover of managers, seven managers since the opened in 2004. General Manager of Operations, Christine Hayward.

Christine Hayward: Since Melton Stage 1 opened, there have been three sets of managers, managers are contracted to us and they do move between different villages. But seven is certainly not correct.

Stan Correy: What about the transfer of a manager?

Christine Hayward: It’s certainly not the case of any issues regarding threatening residents. There was a petition regarding food and attitude of some relief managers, and the residents themselves worked through that. We did transfer that manager out of there and sometimes there are personality issues, but that manager is still working for us and is successfully managing another village. But certainly not because of threatening behaviour.

Stan Correy: So what are the requirements for managers at the Village Life complexes, because there has been an issue of high turnover of managers at Village Life complexes.

Christine Hayward: I don’t know that that is a true statement, that there has been a high turnover of Village Life managers. I don’t think that that’s quite correct, but as far as our standards are, all managers are recruited to the same standard, they undertake a comprehensive recruitment and selection process, and this includes pre-screening interviews, behavioural interviewing, we also conduct psychometric assessments, and reference checking. The potential managers visit with already successful managers to ensure that this is the type of role that they would like to take on. Their main competencies would be management-style competencies, interpersonal skills, and of course the commercial cooking ability.

Stan Correy: You don’t believe that too much work is placed on the managers, looking after lots of residents? You only have two people, the Mum and Dad operation?

Christine Hayward: We do only have two people. These residents, or the units, are independent rental accommodation, so they are for residents who are able to care and look after themselves. There’s no doubt that it is a tough job, and our managers work hard, they do an excellent job in all our complexes around Australia.

Stan Correy: Christine Hayward, who also told Background Briefing that Village Life stuck by its claim of affordable living, and that the company was upfront in its advertising about what it provided.

We also wanted a comment from Village Life about the shareholder concerns, but Village Life was unable to provide us with a response.

There’s an interesting little aside to this saga: Village Life Limited only a month ago, said that the company was ‘facing a difficult and uncertain future’. Nevertheless, in that past month, and since the beginning of the year, a considerable amount of entrepreneurial money has been buying into Village Life.

For example, two other Queensland companies, Byand Capital and MFS now control sizeable chunks of Village Life shares.

New models for retirement living are inevitable as government policies to privatise come into full gear. From the Research Centre on Aging and Retirement at the University of New South Wales, Diana Olsberg.

Diana Olsberg: There’s no clear path. We’ve never done this before. And I mean I think as we already have seen, some people who thought that they were entering the market which was a gold mine, it’s actually turned very sour, because I think we’re going to see some experiments which don’t work. So there’s going to be a lot of to-ing and fro-ing and a lot of change and development. But this is a period when governments, and the private sector, have to come together to explore these options because you can’t say, ‘Well let’s leave it all to the public sector’ or ‘Let’s leave it all to the private sector’. I think the most successful initiatives are going to come from a realistic collaboration.

Stan Correy: You’ve been listening to Background Briefing. Co-ordinating Producer, Linda McGinnis; Research and website, Anna Whitfeld; Technical operator, John Jacobs. The Executive Producer of Background Briefing is Kirsten Garrett. I’m Stan Correy, you’re with ABC Radio National.

Further information: Housing for the Aged Action Group