Can I just say that the choice to but into a retirement village IS a lifestyle choice.
To clarify: All retirement villages need to be registered and are subject to the respective state retirement village legislation which have some mostly cosmetic differences but seem to be the same at the core in so much as:
1) The operator cannot make a profit from the village operations which is re-imbursed to the operator via a General Service charge. So the $5k some one has referred to can only be for services provided to the resident's benefit.
2) Capital costs are also borne by the operator including the capital replacement fund.
3) Its also my understanding where the resident gets no capital gains the re-instatement cost on exit are generally also borne by the operator. That bit is a bit more messy as the law and contracts have changed in the reasonable recent past.
So what's in it for the operator: Well .. the incoming contribution may cover the initial capital outlay .. so they may get a "free" village. Ongoing general maintenance is paid by the residents so no upkeep bill .. what's left is a net capital gain and the DMF.
So wind the clock but 15 years ( average life expectancy for a 70 ish ) and the ingoing contribution would have been in the $150-200k range, So say with a 30% DMF .. the operator may get $60,000 to re-instate the unit and cover capital costs .. probably not a lot of profit in that but they do now have a $400-600k unit on their books. So if the residency is shorter then you can chop this up but its apparent that profitability is heavily contingent on capital growth and this is where the model has taken flak and its weakness.
The extraordinary rise in property values means that what seemed a good idea then has resulted in the unforeseen loss of capital growth which often isn't apparent until the estate is administered. Its just unfortunate that most incoming residents of say 10 years ago have missed out on the largely unforeseen property boom. So the likes of Aveo should be sitting on significant unrealised capital gains (refer to NTA). Since the ownership of the units is almost never freehold then I doubt whether the resale of the license would trigger a capital gains tax event. That ones a bit above my pay grade. Where the operator cashes out of course is in the resale value to the incoming resident. So the equation maybe something like and I have to say that this is a generalisation and not related to Aveo contracts but as a shareholder my hope is that this may eventually unfold for the company.
Cashflow:
Incoming Contribution 1: $200,000 less construction cost (Say $150,000) less exit entitlement ( say $140,000 ) less re-instatement say $20,000.
That seems to me to be $200 - $310 = a $110,000 loss .. not so great
But behold:
Incoming Contribution 2: $450,000 less exit entitlement ( $315,000 ) less re-instatement say $25,000 .. profit of $110,000 .. breakeven ..
Incoming contribution 3: $550,000 less exit entitlement ( $385,000) less re-instatement say $35,000) .. profit of $130,000 ..
So its apparent that there is no cash profit in building new retirement villages .. initially. That is unless they can sell it at a profit but Its an accountants wonderland to engineer that profit. Its not until several cycles that the cash begins to flow so eventually you get to $130,000 profit ... for no effective net capital outlay. Of course this takes deep pockets and a long long term view .. not quite the 3-18 months most hedge funds have in mind ..
I'm not saying AOG is a buy but there must be some value somewhere in this company .. eventually .. and by all means correct me if my understanding is not correct.
