We are experiencing what some are calling a global ‘black swan’ event.
For Australia’s aged care industry, the funding mechanism (consumer capital funding) remains unusual. This mechanism will be further tested as the health crisis moves into an economic crisis and then a residential property crisis.
In preparation, many aged care providers are now moving beyond the immediate clinical management challenges to begin scenario planning around treasury management impacts.
Providers will need to consider new and innovative business models and business patterns. Bentleys are currently scoping and testing scenarios with providers including:
Community Co-op REITs (Real Estate Investment Trusts) – owned by residents and families
Longer-dated debt – syndicated Corporate Bonds
New business models/patterns focused around wellness typologies, digital led process re-engineering (eg customer/family engagement and resource planning) and online eCommerce
Key predictions driving these changes include:
Previous residential property support mechanisms that floated Australia through the GFC (being DEMAND created by inwards migration/Investment met by SUPPLY of bank debt capital) will remain constrained for the immediate to mid-term future (3+ years).
Rising unemployment (lack of affordability) + societal change (changing consumer habits) will continue to constrain the cycle of capital – resulting in impacts such as reduced rent flowing to landlords. This will further constrain asset prices (including residential property).
Equity capital markets will open up to more immediate risk-adjusted return opportunities. This will increase over the next 3-5 years as economic and system disruption occurs. Wholesale investment funding is unlikely to flow to Australian aged care.
Traditional bank debt is freezing as banks are under pressure to provide increased support to all their customers. This includes aged care providers (run on RADS). Alternative forms of debt will be required.
Government is the market maker and market funder and will cover system and – in some cases – provider-specific faults.
This increased cash burn from the COVID-19 response will force movement on operational funding. This is likely to result in both a temporary (estimated 6 months) increase in funding per care recipient plus more rapid implementation of a revised funding model.
Provider failure is highly likely to occur during this time. This could result in the implementation of the RAD / Bond Guarantee levy on providers as part of the funding model change.
How do you redesign your treasury function for future growth?
In this webinar, Bentleys’ aged care specialist Heath Shonhan provides practical examples and expert tips around how you can assess and redesign your treasury management function for future growth.
Contact your local Bentleys advisor for further information. We are doing everything we can to help businesses come out of this challenging time in good shape.
Disclaimer: This information is general in nature and should not be relied on as advice. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs and seek professional advice before making any decisions based on this information.