Home' Australian Ageing Agenda : AAA Mar-Apl 2014 Contents Finance
Over many years there have been numerous financial
surveys that have focused on one or more aspects
of building design. With the move to single rooms
in high care facilities, for example, there was a
view that these new facilities were, in the main,
less profitable and harder to manage than the previous model of
multi-bed rooms. Indeed, we have reported in the past that, on
average, facilities that had a majority of single-bed rooms had a
lower profit than facilities with multi-bed rooms.
However, the number of people to a room is only one of the
many factors affecting the profitability, or manageability, of an
aged care facility. Other factors include the location of the facility,
whether or not it caters specifically for residents with dementia,
whether it is single or multi-story, the acuity of the residents, and
the age of the facility. All these factors, along with a few others,
feed into the mix. Ultimately, the overall profitability of an aged
care facility will depend on the skills and competency of the
facility manager and other management personnel.
Recently we conducted a detailed analysis that looked at
a number of these factors and how, if at all, they affect the
profitability of aged care facilities. The profile of each facility
in StewartBrown's aged care financial performance survey was
updated and the results going back to 2010 were re-analysed
against this profile data. The results were surprising in some
respects, but they also confirmed a number of pre-held views in
many other areas.
The areas we considered in our analysis were: the age of the
facility; in which state the facility was located; whether it was
located in a major city or a regional or remote area; whether it had a
specific area for dementia residents; and the size of the facility.
We did not look at profitability alone but also examined
some specific areas of cost in relation to some of these building
In this article, we discuss the effect of age on the profitability
of a facility. (For the purpose of this analysis, we based the age of
the facility on the original build date rather than on when it might
have been refurbished or extended/altered.)
Certainly an older building may have characteristics that
would be detrimental to profitability, such as increased repair
and maintenance costs and lower occupancy. On the other
hand, older facilities are typically single storey and the high care
facilities often have multi-bed rooms - two characteristics that
have been held to be favourable to profitability.
So, what did we find? We discovered there was a pattern to
average profitability depending on the age of the facility.
In the early years, the profitability is relatively low. This is
during the time of commissioning the building and getting it to
full occupancy -- the run-in stage, you might say. In the period of
between five and 10 years, the facility generally reaches a peak in
profitability. In the following years, from 10 to 15 years, there is a
period of declining profitability. Profits generally rise again in the
period of 15 to 20 years, where a second peak is reached. There
then follows a long period of decline, out to around the 30-year
mark. After this there is another peak in profitability, from 35 to
40 years, then it appears to be downhill thereafter.
There could be a number of things feeding into this pattern,
including design factors for facilities of those ages and decisions
to refurbish the facilities at certain stages during the life cycle.
Unfortunately, we do not have 40 years of data to actually track
the profitability of facilities across a longer timeframe.
Of interest is the pattern that emerges for some of the other
factors that affect profitability in relation to the age of the facility.
We found that occupancy levels generally decline from their peak,
at the 15-year mark. There is a slight recovery at 20 to 25 years,
possibly due to many facilities undergoing major refurbishments
at this point in their life cycle. Repairs and maintenance costs
tend to plateau around 20 to 25 years. Interestingly, care costs
appear to be lower on average for those facilities that are
between 15 and 40-years-old.
One of the telling factors is that for the June 2013 survey, 28
per cent of the aged care facilities were built over 30 years ago.
This would indicate that there is a need not only to build new beds
to meet the needs of the future, but significant capital expenditure
will be required to refurbish or replace existing building stock
over coming years. The question that arises therefore is where will
the funds come from to finance this capital expenditure?
Another variable that appears to move with the age of the
facility is the level of accommodation bond obtained by providers.
Age is just a
Recently we analysed a
number of factors that affect
the profitability of aged care
facilities and, when it came
to the age of the building,
discovered there was a pattern
to average profitability, writes
26 | MARCH -- APRIL 2014 | AAA
Links Archive AAA Jan-Feb 2014 AAA Nov-Dec 2013 Navigation Previous Page Next Page