Aged Care Insite: Speculation Nation.
With 2011 shaping up to be a year of structural and financial reform, providers of all shapes and sizes are trying to determine where best to invest. Ruth Callaghan reports.
As the Productivity Commission mulls over the direction the aged care sector will take in the next decade and beyond, there is cautious optimism the industry might get some, if not all, that it wants.
With potential outcomes including accommodation bonds for high care, moves towards deregulation of supply and greater flexibility in charging for service, providers are hopeful, says Deloitte partner Helen Hamilton-Jones.
“Everyone’s optimistic about the direction that the Productivity Commission are going and hopefully the
recommendations they will come out with — and they are optimistic that the government will respond,” she says.
“Once the government responds, that will put a lot more certainty in the industry and hopefully lead to changes that will improve funding going forward, which will make the industry much more attractive.”
It is a waiting game for providers interested in expansion but needing the security of better regulation and extra funds before they move.
Catholic Health Australia sees the care needs of disadvantaged Australians growing rapidly in coming years, for example, and would to expand its role in the area.
“It is our aspiration to see Catholic not-for-profit beds grow to meet that demand,” says chief executive Martin Laverty.
“The challenge we are facing at the moment is that today’s financing system, particularly for capital, will simply not allow future growth.”
Other providers face similar issues, with ambitions stifled by limited access to funds.
“The world has fundamentally changed,” says Bentleys director Heath Shonhan.
“Banks now are much more cautious, much more diligent and have much, much less money to lend.”
On the lending side, David Bower, head of Westpac’s corporate business group in NSW, sees the fundamentals of supply and demand for aged care being very positive, but acknowledges the challenges for providers in as cash flow and regulation.
“Our view on aged care is quite positive. With the changing demography in Australia we expect there will be significant investment opportunities but we have to listen to the sector to find out what their needs are,” he says.
“In our position, we are very reliant on the industry body to have a good relationship with the regulator, and for us to have a good relationship with the regulator.
“When you look at how you set up a new aged care facility, one of the things we are very conscious of is that the
operator is getting all of the grants they can and are making sure the equity positions are strong.”
Cam Ansell from Grant Thornton says a lot of new facilities are high-care, extra-service operators who can charge
accommodation bonds, which have good earning potential.
But the market is too tight to loan funds if they can’t demonstrate expertise in their market and knowledge of their competition, develop a good operational capital forecast and be realistic about ramp-up time and costs.
“The quality of the application has a huge impact on the loan originator’s capacity to get it through credit,” he says.
“If you don’t do your homework properly the worst thing that happens is that someone opens up down the road with
ordinary high care and if people don’t have to pay they won’t and you will go broke fairly quickly.”
Besides the banks, investment in the sector remains patchy. In the medium term, Deloitte’s Hamilton-Jones sees
potential from foreign and listed investors but the dynamics don’t yet stack up.
“The larger the organisations are, the more consolidated the industry becomes, the more cost-efficiencies can be run through the business and the more appetite investors will have for the industry,” Hamilton-Jones says.
One group considering investment is newly formed company Aviiid Third Age, which is looking to launch a wholesale fund next year based in senior housing or care.
Managing director Scott Marinchek sees potential in aged care facilities that offer good returns, are run well, have sustainable business models and align with the expectations of residents and families.
“We are focusing on some geographic areas that we think have strong demography, access to labour and are hotspots in terms of growth,” Marinchek says.
“They have infrastructure that supports ageing in place, they have local medical facilities and in those hotspots we are looking to built a presence in a variety of different types of accommodation and care services at different price points.”
Innovation may be the clearest trend moving forward, with providers considering alternative models of accommodation
and service delivery.
Property consultants Colliers International recently released its forecast for retirement housing arguing that to meet the demands of baby boomers, retirement and care villages needed an overhaul, with models such as vertical villages of up to five storeys, residential towers that can be pre-sold to seniors, and ‘virtual villages’, where services are offered to clusters of units.
The Benevolent Society’s Apartments for Life project moves in this direction, with a residential apartment project that will allow residents to live independently but draw on community care services as required.
General manager of ageing Barbara Squires says the project offers a model for disaggregating accommodation and care
services.
“We will increasingly see a trend to separate the provision of housing from the provision of care services, in which community care services are provided where the person has got suitable housing that supports their independence,” she says.
The model is not without its challenges, however, and the Benevolent Society will run a symposium in February on the topic of overcoming barriers to innovative housing — like uncooperative planning authorities.
The project had been designed for 140 apartments, 40 per cent put aside as low-cost housing, but the group has received approval for just 128.
“All our financial models were based on the 140 apartments,” Squires says.
“Unfortunately the 128-unit approval has left us with a big financial challenge in delivering the 40 per cent affordable housing to which we are committed.”
This has forced another kind of innovative thinking, and the group is applying for National Rental Affordability Scheme funding and turning to the private sector with a concept called social bonds.
“We are seeking individuals to invest long-term in the project at low rates of interest to help us get the whole project up and functioning,” Squires says.
Whatever the outcome of the regulation reform process, many advisors find opportunity in the change cycle.
Shonhan sees the future as belonging to proactive providers.
“They have to decide if they are going to be consolidators or be consolidated,” he says.
“Are they going to be one of the ones leading the charge towards getting some scale and defraying the admin costs across a greater care recipient or are they going to be consolidated because they haven’t evolved?”
Australian Strategic Services consultant Michael Goldsworthy is also upbeat.
“For some providers the options for expansion are looking wider than just residential; they might be going into social housing, community care, in-home care, using technology like tele-health,” he says.
“I’m a great believer in the idea that big trees grow, the big organisations come up, but there are always niche
opportunities in the undergrowth on the forest floor. You just have to find your niche.”
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