With the first of the baby-boomer generation approaching the age where retirement villages become an option there's an open question of whether they'll be as amenable to retirement village living as their elders have been.
"Baby boomers are certainly more discerning in the product they're looking for" and many are sitting on large amounts of capital tied up in their existing homes so they'll have the money to pay for places in good quality and well-located villages, says Oceania Healthcare chief executive Earl Gasparich.
"They're looking for much better aged care than just government-funded care," he says.
The style of retirement villages is also changing from the "cottage" style of villas being built 20 years ago to greater proportions of high rise apartments, he says.
Oceania is two years into the process of upgrading its existing standard aged-care facilities into more premium units and care beds with the latter now 40 per cent higher than in 2017.
The company is targeting for premium independent living units, care suites and care beds to rise to nearly 70 per cent of its portfolio by the time its full pipeline of 1,995 units and beds has been fully developed.
Standard beds, units and villas now account for just under 62 per cent of Oceania's portfolio, down from 71 per cent in 2017.
The economics of this strategy are obvious.
Oceania today announced a 1.8 per cent fall to $49.7 million in underlying annual net profit from continuing operations. Slides accompanying its earnings presentation show that average earnings before interest, tax, depreciation and amortisation from government-funded standard-care beds ranges from $8,000 a year to $12,000.
A bed that attracts a premium accommodation charge for care above the government-mandated minimum produces ebitda between $5,000 and $20,000 a year on top of that – daily additional charges can range from $10 to $70 but the average in New Zealand is $20.
But a premium care suite earns incremental ebitda of $10,000 to $30,000 through the deferred management fee applied to such suites.
While Oceania is still expecting to have about 18 per cent of its portfolio as standard care beds and another 14.7 per cent as standard villas and apartments, Gasparich says they will all be in facilities Oceania already owns.
Because the company needs to be able to earn a reasonable return on capital, all the sites it is building from scratch will contain premium suites, apartments and villas, he says.
"At the moment, there are no operators developing standard rooms or government-funded rooms."
He doesn't think the regulators are concerned about that at the moment because with occupancy levels in care facilities at the high 80s per cent level, there's still spare capacity in the sector and because there's more emphasis on keeping elderly people in their own homes for as long as possible.
But clearly, that will become an issue in future.
Oceania's 1.9 per cent drop in underlying net profit to $50.2m was about 4 per cent below analysts' forecasts because its aged care ebitda fell short of expectations. It fell 4 per cent to $24.9m while its village ebitda rose 6.2 per cent to $55.8m.
That was why Oceania shares fell as much as 6 cents to $1.01 after the results announcement. The shares were recently trading at $1.02 and are down 5.5 per cent from a year ago.
Gasparich says while costs, including wages resulting from the equal pay for caregivers legal case and the flow-on impact on wages of other staff including nurses, played a part, the main reason for the fall was the company decommissioning buildings ahead of redeveloping them.
The company completed three developments in the year just gone, The Sands at Browns Bay in Auckland, stage four of its Meadowbank village, both in Auckland, and stage one of The BayView development in Tauranga.
The Sands and the Meadowbank village were completed towards the end of the financial year – Oceania's balance date is May 31 – so the company had sold nine of The Sands' 64 apartments at an average price of $1.7m and eight of the new Meadowbank units at an average price of $1.3m.
It expects to deliver 265 beds and units in the current year and it had resale stock of 21 villas, 26 apartments and 34 care suites at balance date and the company is guiding to a stronger result for the current year.