Covid-19 cuts retirement village values resulting in $13.6m loss for Oceania Healthcare

Thursday, 23 July 2020

The Oaks Village in Upper Riccarton, owned by Oceania Healthcare, confirmed in April no staff or residents from the village had tested positive for Covid-19.

Aged care provider Oceania Healthcare has posted a loss of $13.6 million largely because of a drop in the value of its retirement village properties due to Covid-19.

The $13.6m after tax loss for the year ending May 30 2020 was hit by a $22.5m fall in the value of its retirement village properties. The after tax loss is 130 per cent lower than the previous year’s $45m profit boosted by a valuation gain of $33.8m on retirement village assets.

Oceania chief executive Earl Gasparich said CBRE, which values its retirement village properties and most of the other villages in the retirement sector, had included this year the expected impact of the pandemic on property values.

Oceania Healthcare chief executive Earl Gasparich says sales of retirement village units and care suites have bounced back strongly after lockdown.

CBRE had been applying a 3 per cent increase each year to its valuations, but for the coming year it considered retirement village property values would fall 2 per cent and be flat the following year.

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“That was their point in time valuation at the end of April. Now we haven’t seen that play out at all but so be it. That’s their valuation,” Gasparich said.

CBRE delivered the valuations with a lot of caveats and uncertainty over the impact of Covid-19 on the property market.

The Sands aged care and retirement village in Browns Bay, Auckland, is one of the newest developed and owned by Oceania Healthcare.

Volumes of sales in June were up 39 percent on June 2019. Oceania had a 50 per cent increase in sales compared to the previous year even though it lost three months of the year during lockdown, he said.

Its underlying earnings at $63.5m which exclude property valuations were in line with the previous year despite not being able to show and sell retirement units during the Government lockdown which hurt its income and profit also.

The pandemic had shown that aged care was a stable and defensive business, he said. Oceania was still taking admissions to its care beds and selling care suites during that time because care was regarded as an essential service.

But on the retirement village side it could not show or sell agreements to occupy the units because they were regarded as residential real estate. However, viewings and applications to buy occupation rights bounced back strongly in late May and June.

Retirement village assets were considered investment properties and had to be valued each year and the movement up or down boosted or decreased an operator’s profit. Aged care assets like rest home beds and care suites were not viewed as investment properties.

All retirement village operators who had reported annual results in the last three months had been hit by the changing assumptions CBRE made in its valuations, Gasparich said.

Oceania was the first company in the retirement sector to report with Covid fully reflected in its annual result because its financial year ended in May.

In total Oceania’s assets rose 10.7 per cent to $1.5 billion which included the building of new care centres and other spending on property.

During the lockdown it paid more than 2000 staff an extra $2 a hour to recognise the difficult work they were doing at a cost of about $1m on the wages bill.

People had seen how well-supported elderly residents in aged care and villages were during lockdown. Every resident at Oceania received a phone from a staff member every day to the end of May. That level of support an elderly person living in the community did not get unless surrounded by family.

That had driven the rebound in sales. None of its residents contracted Covid-19.