Japara takes $300 million hit to goodwill thanks to COVID-19 – occupancy sitting at 91.7% but just five new residents in past five months

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The listed provider has warned the market it expects its full-year financial results to include a non-cash impairment charge in the region of $270 to $300 million – mostly against goodwill – because of the coronavirus pandemic.

While the operator says the impairment will have no impact on its debt facilities or covenants, cash flows or normalised earnings, it will be disclosed separately from its financial report as a “significant item” in late August.

Japara already flagged a drop in its half-yearly profits to $5.42 million on the back of the Royal Commission and financial pressure on the aged care sector.

Critically, the operator says its number of beds has increased by 44 since 31 December 2019, but a lower occupancy rate of 91.7% means their net number of occupied places (4,060, as at 26 May 2020) has only risen by five.

“Operational conditions in the aged care sector continue to be challenging with a moderate weakening in occupancy experienced from Easter onwards as a result of a reduction in demand, particularly from the hospital sector,” the update stated.

Other listed operators have also reported declines in their occupancy as a result of COVID-19.

Last week, Estia revealed its occupancy had dropped 2.1% from 93.8% to 91.7% during the pandemic – with 1% of occupancy for Estia equaling $5 million net revenue.

This fall in occupancy does not appear to have had the same effect on Japara – the operator maintains its reported Refundable Accommodation Deposit (RAD) and Independent Living Unit resident loan inflows was $18 million between 1 January 1 and 30 April – similar to levels from 2019.

However, Japara has responded to the uncertain economic outlook by pausing all other construction projects, with construction to only continue on two greenfield developments at Belrose, NSW and Newport, Victoria and a brownfield extension at Albury, NSW, that are already underway.

Interestingly, the operator says that while none of its 4,060 residents has tested positive, it did have a staff member diagnosed in April who was isolated and had since recovered – another close call for an operator after Estia announced it had also had three staff test positive but avoided any further residents or staff becoming infected.