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A business case for ‘going up the country’: 2019 ACAR

Aged Care Allocation Round (ACAR) 2019 released 13,500 residential aged care (RAC) places made up of 63 per cent in capital city metro areas and 37 per cent in regional and remote areas.

Given that 32 per cent of the 70 plus population lives in regional areas, it is evident the Department of Health is playing a catch-up game in the provision of RAC services outside metro areas.

The top five winners in the 2019 ACAR were:

  Signature Care Group, which focuses on regional development of RAC facilities, was the most successful in terms of numbers of allocated places. Interestingly, 1,102 places (79 per cent) of Signature Care’s were outside metro areas. All of these were in regional cities and towns which have amenities and the population to effectively support RAC staffing and operations.

Except for Arcare, this contrasts with the other members of the top five who won places predominately in metros.

The chase for high value refundable accommodation deposits (RADs) is a strong motivation for RAC providers to prioritise seeking to expand their presence in metro areas. While RADs are higher in the metros, other factors may favour portfolio expansion in the regions:


Occupancy is a vital factor in ensuring the success of a residential aged care facility. In more recent times, occupancy levels have been falling due to people needing higher level care exercising a choice to stay at home for as long as they can. This has been supported by increased availability of home care packages as well as assisted living and private care options.

The national residential aged care occupancy rate declined quite dramatically to around 90 per cent by June 2018. Much publicised factors leading to Royal Commission into Aged Care Quality and Safety have no doubt added to reticence to enter residential aged care.

The top 10 Statistical Areas Level 3 (SA3s) by occupancy levels as at June 2018 relative to remoteness of an area are shown in the table below:

Table 3 shows that regional areas are well represented in the top 10 areas ranked by occupancy.

Supported resident ratios
The government pays an accommodation supplement for low means, supported residents. The present maximum supplement is $57.14 per day if a RAC service has more than 40 per cent supported residents and is significantly refurbished or newly built. The supplement falls by a quarter to $42.86 if the RAC has less than 40 per cent supported residents. The Maximum Permissible Interest Rate (MPIR) is used to equate daily accommodation payments to a RAD alternative. The rate is currently 5.96 per cent. Using this translation rate, a full accommodation supplement equates approximately to an RAD of $350,000.

Average supported resident ratios are higher in regional areas and therefore, on average, provide greater opportunity for providers to access the full accommodation supplement for 40 per cent of residents equivalent to an RAD of $350,000.

RAD levels
Excluding supported residents, the ACFA 2018 report reveals that as at June 2017:

  • Regional areas: 35 per centof the residents chose full RAD and 24 per cent combination RAD and DAP.
  • Major cities: 45 per cent of the residents chose full RAD and 22 per cent combination RAD and DAP.

The ACFA report also reveals that the average RAD is around $100,000 lower in regional towns than in major cities.

A point worthy of consideration for long term providers is that RADs ultimately have to be repaid. When contemplating redevelopment of RAC facilities which are past their use-by date, incumbent providers, particularly not-for-profits with RAD liabilities, perversely find that they are at a competitive disadvantage to new entrants.

Development considerations
Unlike metro developments that often run headlong into town planning challenges, development of RAC facilities in regional areas is often welcomed by city councils which are highly supportive of the benefits a new service will bring such as providing further opportunity for frail aged people to stay within the community they know, and the long-term employment opportunities. This can be expected to contribute to a faster passage from concept to commissioning.

Suitable land in regionals is easier to come by and much less expensive than in metros. There is better opportunity to develop single storey, on-ground car parking which enables much lower construction costs in regional areas. In contrast, because of constraints on land size, metro developments often need to be multi-storey with basement car parking. Both building multi-storey and underground car parking add substantial construction costs per bed.

Operational considerations
StewartBrown’s financial survey shows superior financial performance for providers operating in metro areas relative to regionals. Rather than location, StewartBrown attributes significant contributing factors to financial performance as:

  • stronger commercial management at facility level
  • newer builds or major refurbishments that have amended the building design to be more efficient in resident and staff movements, and
  • increased use of technology as an aid for delivering care (31 March 2019 survey).

Discussions with providers with large portfolios reveals that there is no regional disadvantage contributing to financial performance with RACs in relatively small communities often outperforming metro facilities.

Residential aged care nursing and caring is demanding work both physically and emotionally. One of the factors that impacts staff adversely in metro areas is onerous time and cost travelling to and from work, particularly into affluent city areas. The travel time to work proposition in regional areas for staff is generally much better in regional areas than metros. A new RAC in a regional location may be for some potential staff an enticing tree change opportunity.

A business case for going up the country
A business case for investment in residential aged care is usually supported by a discounted cash flow analysis (DCF) prepared to project cash flows over the long term (say, 30 years).

A short-form estimate of the post ‘ramp-up’ investment return for a metro v regional RAC investment opportunity is shown in the table below:


  1. The costs of land and building per bed varies substantially depending on the quality of the RAC building and location. Discussions with providers suggest big city construction costs exceeding $300,000 per bed are common. Discussions with quantity surveyors indicate a cost impost for basement car parks alone of around $50,000 to $75,000 per space.
  2. The ACFA report, 2018 reveals that the average RAD is around $100,000 lower in regional towns than major cities. For new builds in regions, the analysis in the above table assumes higher than average RADs and greater utilisation of RADs as accommodation payments in metros.
  3. Occupancy for a new build is assumed to be higher than average stock.
  4. Earnings before interest, tax, depreciation and amortisation (EBITDA) is a proxy for operating cash flow and commonly used as a measure of RAC investment return and valuation. In this analysis, the regional EBITDA is greater than in metro areas because of the assumed greater contribution of accommodation supplement (income) and lower RAD level. The assumed levels of EBITDA are in the order of industry first quartile before corporate overheads, i.e. incremental earnings.
  5. The post ‘ramp-up’ EBITDA is the projected level of EBITDA upon achieving a normal level occupancy and operating efficiency.

On reasonable assumptions, table 4 indicates a similar post ramp-up return on investment in a regional area compared with a metro area. In addition, a regional business case relative to metro case will rely on a lower level of RAD liabilities which (as noted earlier), to the chagrin of incumbents facing redevelopment of RACs past use-by date, ultimately must be repaid.

The 2019 ACAR round demonstrated government intent to support the need in regional areas for new RAC facilities. For organisations contemplating growing their RAC portfolios, analysis of factors driving demand and financial performance suggest there is a compelling business case for ‘going up the country’.

Safdar Ali is the director and founder of The Ageing Equation, a consultancy specialising in quantitative and qualitative market catchment studies to support business cases for independent living, assisted living and residential aged care developments.

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