Corporate retirement villages dish out $200m dividends, keep capital gains

Tuesday, 30 March 2021

Retirement villages owners are not budging on the no sharing of capital gains on units with residents or their estates in their submission to the Retirement Commission.

Retirement village owners are unbending over not sharing capital gains with residents while four big corporate operators paid out a combined $200 million in dividends to shareholders in 2020.

The association representing them, the Retirement Villages Association, said in its submission to a white paper from the Retirement Commission that the gains from reselling licences to occupy units were part of the business model which worked well and offered residents choices.

The Retirement Commission, in a white paper, is proposing a full review of the Retirement Villages Act 2003 and the accompanying regulations and code, and suggesting that several issues should be addressed and improved.

It suggests options were introducing a guaranteed timeframe for buy-backs, interest payable by owners during vacant periods, and sharing of any capital gain on sale between the resident or their estate and the operator.

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Retirement Villages Association executive director John Collyns says the Retirement Commission is “misguided” in proposing village owners share capital gains on units with residents.

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“Consideration could be given to restricting any changes to larger, for-profit operators,” the commission said.

Four big corporate retirement village operators on the New Zealand sharemarket paid their shareholders about a combined $200m of dividends in the 2020 year.

The biggest Ryman Healthcare paid out $117m in dividends to shareholders, Summerset Group about $30m, Arvida about the same and Oceania around $22m, their annual reports show.

But the suggestion of sharing capital gains failed to recognise the nature of the operating model, Retirement Villages Association executive director, John Collyns said.

In return for no resale gains sharing, the village operator took on the risks for the property such as long-term maintenance, renovations, storm or earthquake damage, paid rates and insurance and continued to invest in the village, Collyns said.

Residents who wanted to share the capital gains could choose villages that offered that. About 14 per cent did.

Ryman Healthcare paid out $117m in dividends to shareholders in the year to March 31, 2020.

The commission’s recommendations about mandatory buy-backs and sharing capital gains was “misguided”, Collyns said.

Forcing guaranteed buy-back times for the whole sector would create cashflow uncertainties for smaller, independent and not-for-profit operators and villages in provincial areas, Collyns said.

Its submission shows more than half of the retirement sector are big operators. About 62 per cent of independent living retirement units are owned by corporate operators like Summerset, Ryman, Arvida, Metlifecare and Oceania.

The smaller operators are the not-for-profits making up 10 per cent and independent owners making up 28 per cent.

The association’s submission said the act, codes and framework were “fit for purpose” and did not need a full review. The legislation was highly flexible allowing operators to offer different competitive models and choice for residents.

Too much prescriptive change in commercial terms would reduce choices for older New Zealanders, it said.

Many operators offered aged care as well, because residents were looking for a continuum of care. The profits from the independent units cross-subsidised aged care.

If earnings from independent units reduced through increased regulation, operators were likely to reduce the amount of aged care they provided or increase charges for care residents, the submission said.

The substantial majority of residents were satisfied with their decisions to move into villages and scored them highly for security, safety and peace of mind. The model gave them a high level of certainty of their costs in the future from when they entered the village, the submission said.

”We are ready to engage on reasonable points of difference, but we caution about giving too much weight to a small number of complaints,” the submission said.

Collyns says the association would work with the commissioner and the Commission for Financial Capability, which the commissioner is part of, to develop and deliver best practice on these areas.

They were re-licensing units, the buy-back process and timing, weekly fees after the resident leaves, the transition into care, refining the complaints system and managing repairs and replacements of chattels owned by the operators.

It had already signed a Memorandum of Understanding with the Retirement Village Residents’ Association late last year about working together on issues, and it was being put into practice.