Our industry had to endure much scrutiny this year with scathing reports from the Media and the announcement of a Royal Commission into Aged Care, in recent months. If the Hayne Royal Commission into the banking sector is anything to go by, we can brace ourselves for at least 12 months of almost daily negative media reports on the sector. Naturally, this has created immense uncertainty which can best be visualised by looking at the charts of our three publicly listed Operators, Estia, Japara and Regis which have been trading at their all-time lows since inception. A pretty grim picture by any standard.

While the fundamentals of the sector remain robust (a constant increase of frail elderly people needing care with somebody having to pay for it) it has become apparent from our many discussions that many stakeholders remain seriously concerned about the possible repercussions of being cross examined at the Royal Commission. An additional concern are the legal costs associated with preparing for a possible hearing. These costs may be more easily shouldered by larger groups and their in-house legal teams but pose a serious expense threat to smaller and medium sized operators. A development that may very well accelerate further consolidation in our sector.

That said, we are looking back at a positive year for our office with many successful transactions and satisfied clients. Investment activity has remained steady, albeit at moderate pricing levels when compared to 2015-16. A recent highlight in our list of transactions successfully concluded was the sale of the East West Health Care Group in Sydney, which shows us that there are aged care operators out there who see our industry as fundamentally sound and see the current uncertainty as an opportunity to expand.

With the general business consensus in Australia appearing increasingly more concerned after enduring the banking commission, a deterioration in most metropolitan housing markets and the recent correction on the ASX we believe that a case can be made for the increasing attractiveness of the aged care industry. As other sectors and markets are perceived as increasingly risky (see the recent deterioration in the world’s major equity markets) capital is looking for safe defensive havens. Being largely government funded, driven by constant and increasing demand and largely independent from economic cycles, we believe that Aged Care can be classified as such a sector with attractive yields. This might very well appeal to increasingly more domestic capital; not to mention that by international standards, the cheap Aussie dollar provides a good opportunity to purchase cheap assets for overseas capital.
We understand that as brokers, we will always be put in the “They are always bullish” draw but some of the above points may very well be valid. Time will tell.

We would like to wish you a safe and pleasant break and a successful 2019 year.

The Team at AMICUM