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Wednesday, April 29, 2015

Meet the men cashing in on

Australias aged care crisis
PADDY MANNING

APR 24, 2014 12:25PM |

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PADDY MANNING
C RIKEY BUSINESS EDITO R
@gpaddymanning

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As the nation ages, developers are cashing in. After the stunning
339
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market debut of Japara Healthcare last week, Crikey investigates the

government schemes making many rich.

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Tw eet

27
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Take two vulnerable groups of people: toddlers and the aged. Throw in large
amounts of government funding, a handful of extreme capitalists with preGFC form, and sharemarket investors looking for constant profit growth.
Stir.
Its a recipe for disaster. Two recent raisingsthe $450 million float of
nursing home operator Japara and a $100 million capital raising by the G8
childcare group, still underwayare another sign we have failed to learn the
lessons of the financial crisis, and that irrational exuberance may be
returning to the sharemarket.
Soft business coverage is one dead giveaway. Japara Healthcare, the first pure
aged care company on the ASX, which made a stunning debut last Thursday,
got a dream run in the media, with underwriter Macquarie apparently
inundated with calls ahead of the float at $2 a share. After Japara shares
jumped 35% on day one, to close at $2.70, The Sydney Morning Herald

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quoted analysts from (who else but) Macquarie! The Japara float was so
successful, it is expected to lead to copy-cats, with private equity-backed

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Allity lining up for some easy money.

It is easy to be bullish on aged care. We all know about the ageing

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population. The government forecasts we need another 74,000 nursing

home places (on top of the existing 186,000) by 2022. That will cost $25
billion, so private investment is necessary. The previous Labor governments
Living Longer, Living Better reform package, enacted last year and coming
into force from July 1, will abolish the distinction between high-care and
low-care beds in nursing homes and make it possible to charge all residents
an accommodation bonds.
Accommodation bonds are the key to investing in nursing homes, and
provide just the kind of complexity and opacity that financial engineers like
Macquarie love to exploit. The policy framework was set up in 1997 under
then-prime minister John Howard with close involvement from the private
sector, particularly the late Doug Moran. It is a fairly one-sided arrangement:
the aged care provider gets the interest generated by the bond, for working
capital or any other purpose (sometimes including cross-subsidising parts of
the operators business, outside aged care) and can deduct a regulated
amount each year (currently almost $4000 annually).
It is effectively free money; providers can charge whatever bond they think
the market will bear, relative to local house prices given most residents sell
their homes to raise the bond. Bonds were not expected to exceed $100,000
originally, but are averaging about $275,000. There are fears they may go
higher.
Japaras prospectus explains that bonds of existing nursing home residents
are generally paid outon average, after a 29-month stay that ends either in
death or relocation to acute hospital carewith bond money deposited by
new residents, which have generally risen in the meantime in line with
property prices. At the risk of being alarmist, paying out earlier entrants with
money deposited by later investors is one of the defining characteristics of a

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pyramid scheme.
Indeed, although the bonds are backed by a government guaranteewhich
has been called on to cover $25 million in bond repayments to date, out of a
national pool north of $12 billionJaparas own prospectus canvasses the
risk that a major issue at a facility could require Japara to repay a large
number of bonds that cannot be replaced immediately.
From July, residents will be able to choose between paying an
accommodation bond or an equivalent daily rate, or any combination of the
two. When the reforms were introduced, the industry warned many
residents would choose either not to pay a bond, or to pay a much smaller
bond. This could cause a one-off outflow of capital, threatening the balance
sheet of smaller operators, as old high bonds were repaid and replaced with
smaller bonds. Japara chief Andrew Sudholz told the Senate inquiry into aged
care last May this was a massive, serious risk for the industry.
Where Sudholz sounded bearish a year ago, however, Japaras April
prospectus was upbeat, declaring it was poised to benefit and sees
significant latent cash flow potential as it will be able to charge bonds for
its high-care beds. Japara is forecasting cash inflows from bonds will rise
from $9 million in 2012-13 to $25 million in 2013-14 and triple to $77 million
the year after. Japara expects its accommodation bonds to rise from $236,000
on average to $264,000 this year alone.
Where do rising bonds leave the aged? It is hard to predict how the reforms
will unfold. Charmaine Crowe, senior adviser for the Combined Pensioners
and Superannuants Association, believes many residents will still choose to
pay higher accommodation bonds to keep their assets down so they can hang
onto their pension, soon subject to tighter means testing. Crowe says there
is an inherent conflict of interest between for-profit companies, with
obligations to shareholders, and care for the aged.

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We believe the current

regulation around care quality is
failing and doesnt ensure
resident health and welfare is
upheld.
Making a profit is always going to trump quality of care, she told Crikey.
We believe the current regulation around care quality is failing and doesnt
ensure resident health and welfare is upheld. She also warns against
providing excessive public funding to provision of nursing home places,
when a better and cheaper alternative would be to fund home care, given the
overwhelming preference of the elderly is to stay in their own homes.
Nobody wants to move into a nursing home unless they absolutely have
to, she said.
Certainly, quality can not afford to decline. Latelines groundbreaking aged
care crisis investigation by Margot ONeill last year exposed woefully
inadequate standards of care across the industry. Japara is no exception.
Operating arm Aged Care Services Australia Group was criticised by Victorias
coroner after an 89-year-old dementia sufferer at its Central Park nursing
home in Melbourne died in 2007, four days after she was assaulted by
another patient, who also had dementia and was prone to violence.
In 2008 the federal government ordered checks of all 32 nursing homes
operated by ACSAG after finding malnourished residentstwo weighed less
than 25 kilogramsand dangerous understaffing at its Kiralee nursing
home in Ballarat. Then-federal ageing minister Justine Elliott said practices at

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Kiralee were just unacceptable.

Japara appears to have cleaned up its act since then, although it made the
news again after a carer accidentally gave 10 times the required dose of
morphine to a patient, who subsequently died, at the Tamar Park nursing
home near Launceston in 2010, which was later closed.
Japara was also subject to serious allegations in the Victorian Supreme Court
in 2010 by former chief executive Arnan Rouse, including that Japaras
property trust held on to $8 million in residents accommodation bonds. The
case was only settled in 2012 when the rest of Japaras shareholders bought
out Rouses 20% stake in the company for $21.5 million, with money
borrowed from the company and declared a dividend in last weeks float.
Before the float, Japaras two major shareholders were Sudholz and Julius
Colman, who each held 31.4% of Japara Holdings, which was sold into the
float at $233 million. They have retained stakes of 6% and 4%, worth $39
million and $34 million at yesterdays price of $2.57 and have shared in tens
of millions of dollars in cash. Sudholz also got a tasty float bonus of $1.5
million, paid.
Sudholz has a long background in the property industry, including as a
partner of collapsed auditors Arthur Andersen, merged locally with Ernst &
Young, where in 2004 he helped promote an unregistered managed
investment scheme, Business Australia Capital Finance, run by lender Ian
Lazar, subject of Four Corners investigations that year andastoundingly
again this month. In 2004 Sudholz was also embroiled in litigation over a
joint venture to develop a 98-unit retirement village in Melbournes Kew
with Primelife, founded by entrepreneur and former bankrupt Ted Sent.
Colman, now described as a professional poker player and philanthropist, is a
lawyer who pioneered the unlisted property syndicate in Australia, founding
the MCS business, which paid high commissions to financial planners who
flogged hundreds of millions of dollars worth of property to investors.
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Colman sold MCS to shopping centre owner Centro in 2003 for a stunning
$194 million, and thousands of syndicate investors subsequently got caught
up in the collapse of Centro when the GFC struck in late 2007.
Years later, the former MCS property syndicates are still being wound up
often at heavy losses.
*Monday: part two of Crikeys series on developers cashing inthis time in
childcare

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AUSTRALIA , COMP ANIES , P LAYERS

, AGED CARE, CHILD CARE, JAP ARA HEALTHCARE

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11

COMMENTS
Tom Jones
Post ed T h u r sda y , 2 4 A pr il 2 0 1 4 a t 1 :2 1 pm

| PERMA LINK

The costs of bonds is fraught and while people may prefer to stay in their own home it
is easier for family members to manage a good placement if it isnt left to a crisis
situation when poor homes offer places because the good ones are full. The bonds are
often far more than the suggested figure. The float sounds like ABC in childcare which
turned out so well at first as children were placed in plastic environments, toys were
cycled around centres to arrive just before inspection and good was not adequate for
growing children.

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tonyfunnyw alker
Post ed T h u r sda y , 2 4 A pr il 2 0 1 4 a t 1 :5 1 pm

| PERMA LINK

The Retirement Home Spivs Charter continues it would seem.

Drew Missly
Post ed T h u r sda y , 2 4 A pr il 2 0 1 4 a t 1 :5 1 pm

| PERMA LINK

My family paid a bond of $450,000.00 and a monthly payment of $2,500.00 to get our
mother into aged care. There is no greater rort in this country than aged care.

Tinatoerat
Post ed T h u r sda y , 2 4 A pr il 2 0 1 4 a t 3 :5 5 pm

| PERMA LINK

I think the bond for the newest aged care home in my area is closer to $750,000 than
the $250,000 mentioned in the article.
(Western Australia, Metro area)

AR
Post ed T h u r sda y , 2 4 A pr il 2 0 1 4 a t 4 :5 9 pm

| PERMA LINK

As a general principle I am of the spend the kids inheritance tendency.

Approaching this Last Frontier, I am appalled that some thrusting entrepreneur has
not yet started providing rocknroll retirement homes, for those of us with no
intention of going quietly into that dark maw.
Coz, even if the body is failing, the will remains and suitably lubricious and/or virile
attendants cojuld give many a new interest in life.
Oh, I see the problem, the preference for a quick turnover.

Carol Bayer
Post ed T h u r sda y , 2 4 A pr il 2 0 1 4 a t 5 :0 1 pm

| PERMA LINK

Why did nt you take her into your own home and give back to her some of what she
sacrificed for you all those years?
If so many siblings were not so selfish and wrapped up in their own life-style cocoons
then maybe it would nt be such an age care financial drain.

PDGFD1
Post ed T h u r sda y , 2 4 A pr il 2 0 1 4 a t 5 :1 8 pm

| PERMA LINK

Thanks P addy. Look forward to follow-ups by Crikey!

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Meanwhile - anyone game to raise the issue of home care for the aged, and at the last,
euthanasia?
An entirely FOR-profit company where (to be fair) attempts are made to assist the
aged and their relatives, but whose purpose is ultimately FOR profit Vs Quality of life
at home until a humane and peaceful death.
Anyone want to venture which will triumph?
I for one would rather step off calmly than endure months or years in any such
establishment.

CML
Post ed T h u r sda y , 2 4 A pr il 2 0 1 4 a t 6 :0 2 pm

| PERMA LINK

Absolutely appalling! High time the aged care sector was properly regulated to stop
the aged, and their families, from being ripped off.
Why cant we look at how aged care is managed completely by government, as in the
Scandinavian countries? Surely a higher rate of taxation is preferable to this
abomination!

AR
Post ed Fr ida y , 2 5 A pr il 2 0 1 4 a t 1 1 :4 1 a m

| PERMA LINK

CarolB - P ING! At both ends of life.

It is often said that a society can be evaluated by its attitude to.. animals, children,
woen ,,and other minorities.
That the two lowest paid, lowest esteemed (by $ociety)are the start & end of life, is
strange given that we will all taste the arrangements at the bottom end of the scale.

Suziekue
Post ed Fr ida y , 2 5 A pr il 2 0 1 4 a t 2 :5 5 pm

| PERMA LINK

10

@ Carol Bayer. You have no idea do you, of the reality of caring for the aged.
Simplistic solutions smack of ignorance. I can speak from experience. My mother was
bedridden, incontinent, diabetic and with a range of other medical problems when she
was in aged care. Tell me how even the most devoted family member might cope with
that in the family home. As it was, I shifted from full-time to part-time work so that I
could ensure her needs were met within the aged care facility which was woefully
understaffed. Despite having a Health Care directive stating that she wanted a quality
of life death, and despite my attempted advocacy, she had a shitty death, dying in pain
and discomfort because the medical staff were overwhelmed. This was in 2013. Im in
my mid 60s now, and terrified of ageing and ending up in a similar situation.

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And on that note, if we arent as a society willing to fund humane aged care, and
provide appropriate regulation of the sector, then at least let us have access to
euthanasia options.

11

Pamela
Post ed Mon da y , 2 8 A pr il 2 0 1 4 a t 1 :1 4 pm

| PERMA LINK

Ah Australia- you sweetie darling of a country- throwing the most vulnerable and
least articulate to the mercy of the market. The youngest and the oldest- little ability
to complain- grist for the mill.
Governments and regulatory instruments can avert their gaze as the dollars roll in.
Ah Australia what promise you had with your simple mantra- fair go for all.
P ity

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