A sign of the danger of RAD outflows.
As we covered here yesterday, Estia recorded a full year loss after tax of $116.9 million for the year ending 30 June 2020 after writing down its assets by $144.6 million.
The listed operator concluded that its $25.2 million profit after tax (before the impairment charge) – a 39.5% decline on the previous year – was a result of the funding and financing challenges facing the sector.
But their results presentation highlights the deeper problem of RAD outflows, showing that they have accelerated during COVID – and are not being replaced.
Check out the graph above.
As you can see, Estia had $244.7 million in incoming RADs from its mature homes – with an average incoming price of $433,000 – plus $25.8 million from its new homes.
Outgoing RADs from mature homes were $237.3 million – with an average outgoing price of $380,000.
That’s a $33.2 million difference – so far, so good.
However, the presentation also notes that since February 2020, new RAD inflows have only amounted to $4.8 million – down on the previous eight-month net inflow of $26.5 million.
On a month-by-month basis, that’s a drop of 64%.
Estia puts the drop down to a combination of COVID, new homes reaching full maturity and movement in their probate liability.
The report also notes that incoming RADs continue to be higher than the average outgoing RAD.
But overall, the number of residents paying a RAD is declining – for Estia, from 1.754 in FY 18 to 1,509 in FY20 with the number of concessional residents continuing to rise (now sitting at 48.4%).
While its occupancy is sitting above the industry average at 93.2%, reductions in the number of hospital transfers during the first wave of the pandemic has seen its overall resident numbers fall by 125 (80 respite and 45 permanent).
Not all providers have the luxury of Estia’s scale and operations either.
In Ansell Strategic’s Financial Update webinar, the two operators featured recorded a 7% and 2% drop in occupancy respectively.
Both also noted that RADs had not returned to their pre-COVID levels.
A 2% drop doesn’t sound like much – but let’s extend that to the sector.
Let’s say there are 200,000 beds across the sector – that is 4,000 newly empty beds. If 40% are non-concessional, that’s 1,600 beds that are likely to have some RAD component, easily making for $500 million unfunded refunds.
We always return to Estia’s 2019 half yearly results that stated a 1% difference in occupancy equals $5 million in EBITDA.
