A closer look at the figures behind yesterday’s deal provides some interesting points for aged care operators to consider.
Aurrum spent $16.5 million on the 71-bed extension of the Erina home in 2017.
If you divide the cost of the extension by the number of beds, it cost $232,000 to build each new bed.
But when you take the $32.59 million sale price of the completed 250-bed facility, Home Consortium has paid just $130,000 per bed.
Aurrum will also have to pay $8,800 in rent per bed every year – a new cost the aged care business which will need to be offset by the investment return on the funds.
HomeCo appears to be the winner from the deal – but it is worth going back to the data from the Aged Care Financing Authority (ACFS)’s latest funding and financing report.
It shows the sector was sitting on net assets of $13.5 billion in 2018-19, up from $11.8 billion – a figure that has been increasing as a whole since 2014-2015.
For Profits now have $2.7 billion in assets (up from ($1.9 billion) while Not For Profits have a huge $9.8 billion (up from $9 billion).
However, providers are not reaping the benefits – the figures show they are short on returns and cash.
The average return on equity has fallen to 11.8%, down from 13.4% (15-20% is generally considered to be a good return).
The average return on assets is now just 3%, down from 3.3%, while the level of cash held as a percentage of accommodation deposit balances has declined to 20.8%, down from 22.1%.
But the fact is Australia’s population is ageing – and people will require support and services as they get older.
The Aurrum deal demonstrates that aged care operators can still make a good business out of aged care – paying 6.75% in rent while turning a profit – and this can be an attractive prospect to investors.
Earlier this year, Australian Unity and Infinite Care partnered for an opco/propco deal on six aged care homes in Queensland with the former to invest in the property while the latter is the approved provider.
As Aged Care Confidential’s Phil Smith (who brokered the deal) said at the time: “The transaction price was at an attractive yield and structured to ensure the leasing terms are viable and affordable for the aged care operator, while allowing Australian Unity a long-term passive investment return.”
Will we see more of these opco/propco-style deals being done as operators look to their assets to deliver higher returns to shareholders?
