End of ACAR in 2024 looms for listed providers: StewartBrown

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Regis has flagged to the market that it will write down the $223.8 million value of its bed licences over the next three years ahead of the removal of the Aged Care Approvals Rounds (ACAR), reducing its net assets as aged care places are deregulated.

Regis says it expects to amortise the value of the bed licences on a straight line basis to 1 July 2024, resulting in an after tax amortisation expense in the profit and loss account over the next three financial years of:

  • FY22: $43.5 million, net of tax (9 months)
  • FY23: $58.0 million, net of tax
  • FY24: $58.0 million, net of tax

The move comes just months after Estia foreshadowed it will write off its $221.3 million in bed licenses within the next 12 months to three years.

StewartBrown’s latest listed provider analysis has highlighted the challenge for the listed providers, which had kept the bed licences on their books years after other providers had removed them.

As of 30 June 2021, Regis held $223.8 million in bed licences acquired as intangible assets (the equivalent of $31,400 per bed), while Estia had $221.3 million ($35,200 per bed) and Japara $234 million ($51,900 per bed).

“While any write down will be non-cash and unlikely to have an impact on valuations, it will impact on statutory profit and accounting net asset positions,” states the report.

Japara had a larger exposure than its listed counterparts – but its acquisition by Calvary Health Care last year means that this now becomes Calvary’s responsibility.

“Watch that space because Calvary has bed licenses in their own right,” StewartBrown Senior Partner Grant Corderoy told us. “They might treat it as being goodwill, as distinct from bed licenses.”

Grant says there are discussions that providers that still have bed license on their books such as Regis may see if they can re-budget them as an intangible asset – but he adds this is a “fairly tenuous argument”.

The banks also don’t consider bed licenses as an asset when lending to providers.

“When we have spoken to most banks, they uniformly say they have never recognised bed licenses when they are looking at their asset value of their organisation for their borrowings. So, it’s only the listed entities who have got a public shareholding that will reduce their assets.”