The banks are optimistic for the future of aged care development – if your business has the books and the leadership required to build scale and grow the organisation.
In SATURDAY last weekend, the banks told us there was an expectation that investment would increase over the next few years, but this was tempered by the lack of clarity around the future funding model – mainly the $32 billion in RADs sitting on the operator’s books.
“We understand the underlying fundamentals and the growth dynamics around future demand of the sector and we are committed to continuing supporting our customers, however, there are uncertainties surrounding the future model of aged care and the RAD environment which we will need to work through over time,” said Lavanya Nadarajah (pictured top right), Executive Director with Institutional Business for ANZ.
This is not necessarily a deterrent to obtaining finance, but requires a greater debt facility which the business will have to service – in short, operators need more cash to drive their expansion.
“Getting a DAP instead of a RAD isn’t the end of the world, as consideration can be given to the structuring of lending facilities. This may result in more core debt for a longer amount of time, but the business benefits from increased cashflows from the DAP to service the debt,” said Belinda Hegarty (pictured top left), National Head of Healthcare at Commonwealth Bank.
The banks typically liked operators with scale – or the resources to build scale.
“We target operators that have scale as it means they are likely to be better resourced to navigate the regulatory, clinical and financial challenges,” said Lavanya.
The removal of the Aged Care Approvals Round (ACAR) will also see more focus on location and demographics for new developments.
“Customers must be able to demonstrate unmet demand, for the proposed development, and market acceptance of the product they are offering. That means analysing the demographic profile of the catchment where they are looking to build, and understanding the competitive landscape within the catchment,” said Lavanya.
Strong governance and management is a critical factor.
“We look for experience, especially for aged care and retirement given the key role they play in the community. We like to observe strong experience of the owners, management, and the advisors who assist them,” said Belinda.
A track record of financial sustainability is also key – and an area where Not For Profits with their stronger balance sheets and mission may have the advantage.
“These operators may not necessarily have the strongest returns, but are they operating good facilities? Are they able to service debt commitments? And are they doing what they need to do to stay viable? If you balance that with good balance sheets, it gives us the appetite to lend into the sector,” said Belinda.
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