Controversial listed retirement village owner Aveo has reported a 42 per cent dive in sales of existing retirement village units while the company conceded it had done little to improve the financial outcomes for the thousands of its residents still on old and allegedly unfair contracts.
The sale slump came after a joint Fairfax Media and Four Corners investigation in 2017 uncovered a litany of questionable business practices at Aveo including churning of residents, fee gouging, safety issues and misleading marketing promises, such as safety and emergency services.
Mr Grady said the declines were driven by "negative media sentiment" about the retirement sector and the drop off in existing residents willing to recommend buying an Aveo unit to their family and friends.
"It’s not that they’re not happy, they’re just very cautious about making that recommendation to friends and family," Mr Grady said.
In response to the media reports, Aveo sunk $3 million into advertising to salvage its brand and another $8.5 million on advertising on new development projects. It expects to spend $17 million by the end of year on advertising.During the first half of 2018, the company's profit contribution from its established retirement business fell 25 per cent to $26.4 million.
The profit drop was the result of a 42 per cent fall in total sales volumes of existing retirement village units within its villages to 299 units.
At the same time, Aveo benefited from an 8 per cent increase in resales price points to $409,000. Mr Grady said third quarter sales were now back on track and the company would hit is full year guidance of earnings per share of 20.4 cents per security for full-year 2018, an 7.9 per cent increase on 2017.
Despite the sales slump, Aveo recorded a 23 per cent jump in net profit after tax of $149.3 million for the half on the back of increased sales of newly developed units and higher sale prices due to the company's new controversial Freedom Aged Care program, a new offering from the company that combines retirement village living with home care services.
However, Aveo’s underlying performance was weak, with underlying profit after tax and non-controlling interest down 33 per cent to $36.3 million.
It did not declare an interim dividend, as per its usual practice, and will issue a final dividend after June 30.
Talking to Fairfax Media after the results, Mr Grady conceded many of the improved contract terms Aveo referred to during its conference call on Wednesday were introduced in its Aveo Way contracts two years before the media investigation and would have no financial benefit for existing residents on older contracts with freehold titles.
Since the investigation, Aveo has extended the six month buyback guarantee in its new Aveo Way from just NSW and Tasmania (as statutorily required) to Victoria and Queensland. It has also introduced a try before you buy period of six months for new Aveo Way residents and six weeks for new Freedom Aged Care residents.
When asked what Aveo was doing to improve the financial outcomes for existing residents, Mr Grady said: “What we have always said is if you’re on an old contract and you think you’d like to be on an Aveo Way contract, come and talk to us.
“The other benefit is things like this new retail discount.”
Several residents have baulked at transitioning to Aveo Way where they receive no capital gains, pay a higher exit fee and lose their freehold title.
Morningstar analyst Tony Sherlock said he was “steeling himself” but the result was not as bad as he was expecting.
“It was a very sound tactical response from management to implement a low cost sales approach of a no obligation six month stay,” Mr Sherlock said.
Aveo's shares closed up 3.5 per cent at $2.67.