The Waitaki District Council has started to collect money on its loan to the Observatory Retirement Village Trust after a milestone was reached when the trust hit the loan’s cap.
In 2015, the council granted the trust behind Oamaru’s new retirement village a loan of up to $8 million to build the $22 million stage 1 of Observatory Village Lifecare on Observatory Hill.
Construction began in February 2016 - but early this year, as the loan hit its $8 million cap, the council began to collect on the loan, council finance and corporate development group manager Paul Hope said.
Until this year, the council earned interest on the loan but this had been "added to the principal ... rather than physically paid to council".
In Mr Hope’s second quarterly report for the council’s 2017-18 financial year, tabled at this week’s council meeting, he said the stage 1 loan to the Observatory Retirement Village Trust reached $7,969,832 in December.
This week he confirmed the $8 million cap had been reached, triggering the requirement of principal payments. This year the council would earn 3.38% interest on the loan, compared with last year’s 3.49%.
So far this year it had received $134,891 from the trust in interest payments. Mr Hope downplayed the significance of the change, saying the payments were "not a significant amount of cash" for the council.
"The interest has always been revenue; we recognise it. We have to say we’ve earned this interest on this investment — it gets reported — but rather than getting it paid to us, we just added it to the loan amount until it hits $8 million.
"It’s still earning the same amount of interest, except it’s actually getting paid to council, rather than just adding to the loan balance."
Further, he said, the loan, which was "expected to be repaid in 2027", had already passed the first test.
"The risk for this loan disappeared as soon as it [the retirement village] was full on day 1 — all the beds were occupied on the day they opened ... [The] full amount of income from the care facility started the day they were operating."
The council had also extended the trust a loan for stage 2, which was "just being finalised", Mr Hope said.
The draw-down on that second loan of about $3.5 million would "in part be determined by progress on the stage 2 care facility" but it was expected to be between June and July. Interest would start being charged once the draw-down occurred.
