Aged-care groups turn to sale and leaseback deals

Australia’s aged-care sector is witnessing a new trend in which smaller aged-care groups are executing sale and leaseback agreements with larger groups that are intent on consolidation.

While larger groups including Estia, Japara and Regis are showing an unbridled appetite for expansion and acquisitions, smaller groups are capitalising on opportunities to release capital through sale and leaseback agreements, according to Knight Frank analysts.

“The aged-care industry remains highly fragmented, with a multitude of operators managing less than half a dozen facilities,” Knight Frank aged care head Russell Allison said.

“Profitability across the industry, however, is not uniform, with some providers continuing to operate at break-even. Now, consolidation is occurring as expanding mid-sized and major listed groups compete for available aged-care facilities. Many long-term providers are looking to acquire facilities, and as prices approach replacement cost there has been strong interest in acquisition of greenfield sites for development of new facilities.”

Rather than holding on to the freehold land and buildings component of aged care facilities, smaller aged care providers including Generation Healthcare, RSL Care, Heathley Aged Care and Infin8 Care are using a sale and leaseback model that is expected to eventually extend to larger, listed groups.

“Given the advantages, it is likely there will be more in the future — and that the larger, listed operators will start to pick up the same mode of operation,” Mr Allison said.

The model was pioneered by the likes of Coles and Woolworths, the analyst said, noting how the retail giants had been prepared to finance development which they could then sell off to finance further expansion, while locking themselves into attractive rental terms at the same time.

The model wasn’t yet widespread throughout the aged-care sector, but the success of Generation Healthcare and others in securing the deals had set a blueprint for the sector, he added.



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