Retirement living company Aveo Group (ASX: AOG) saw its share price drop 11% to $2.71 today after concerning allegations were made against it in the media by ABC's Four Corners and Fairfax media.
Media reports allege that the company employs outrageous pricing and highly restrictive contracts in order to harvest as much as possible of vulnerable retirees life savings.
What's more, it appears that the company is actively aiming to 'churn' residents (cause them to leave and replace them with new ones) so it can benefit from very high exit fees of up to 35% of the property value – a fee which could run into the hundreds of thousands.
I had a look at the company's reports and it does appear that the churn of residents has become a significant contributor to earnings – and more importantly, cash flow – in recent years. It looks as though an inability to attract new residents and/or falling occupancy could possibly lead to a financial squeeze in the future, if Aveo isn't able to continue attracting new residents to its villages.
Judging by the number of comments by aggrieved customers popping up on Twitter (a flawed measure, I know) in the past few hours, Aveo could be set to wear some meaningful reputational damage. Although shares have fallen 11% today I do not think this is the end of the story for Aveo Group.
