New Zealand Professional Investment Services Firm

Forsyth Barr

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Aged Care Sector<br>Insights into Australian Aged Care</h2>
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<p>Following lengthy investigations into Australia's aged care system over the past two and a half years, the Australian Government has taken action by; (1) outlining a material boost in aged care funding as part of its 2021–22 budget, and (2) providing its response to the Royal Commission report which was publicly released on March 1.&nbsp; As part of the budget an additional A$17.7b worth of funding will be provided over the next four years with the core focus on aged residential care and home care. We view the outcome of the Australian Government's budget and response to the Royal Commission report as positive for the two listed players with Australian exposure, Ryman Healthcare (RYM) and Summerset (SUM), and see it as a logical step forward in helping to alleviate pressures across the market.</p>
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<h3>Key take-aways&nbsp;from the Australian budget</h3>
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<li>A$7.8b dedicated for residential aged care: A number of increases have been announced, however, the A$7.8b primarily consists of; (1) A$3.9b to increase the amount of frontline care delivered to residents, with a requirement of least 200 minutes per resident per day, a registered nurse (RN) will also be required on site for at least 16 hours a day, and (2) A$3.2b for a basic daily fee supplement of A$10 per day from July 1 before a new funding model comes into effect in 2022.</li>
<li>A$7.4b dedicated to&nbsp;homecare:&nbsp;Including&nbsp;A$6.5b&nbsp;for an additional 80,000 home care packages over the next two years, and ~A$800m to provide additional services and support home carers across Australia.</li>
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<h3>Australian Government's thoughts broadly in-line with the&nbsp;Royal Commission</h3>
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<div id="m_7717350288629233366im74j">
<p>The Royal Commission report released on 1 March 2021, contained 148 recommendations to help improve the quality and standard of Australian aged care, which for a long time has been sub-standard. In response the Australian Government has rejected six, suggested an alternative approach for four while twelve are "subject to further consideration". The majority of key recommendations have been approved; however, the phasing out of Refundable Accommodation Deposits (RADs) has been deemed "subject to further consideration". The phasing out of&nbsp;RADs&nbsp;was to take place from 1 July&nbsp;2025, however,&nbsp;any further&nbsp;newsflow&nbsp;is now of interest given the material funding benefits its provides RYM when constructing care beds, particularly given its care&nbsp;pipeline still outstanding (~950 units). If enacted the implications are less material near-term as we understand&nbsp;RADs&nbsp;are assigned to ~50% of&nbsp;RYM's&nbsp;care beds in Australia (275 units).</p>
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<h3>What does it mean and how exposed are RYM and SUM?</h3>
</div>
<div id="m_7717350288629233366ipqxc">
<p>We view the recent announcements as a positive for two key reasons; (1) the direct impact of alleviating cost pressures on the care side of the business, and (2) indirectly, the continued acknowledgment and exposure of the benefits of aged care in Australia.&nbsp; We understand RYM already offers high quality care that delivers to these standards and therefore see them as a net beneficiary. Australia exposure is currently small in the context of the listed operators, with RYM's current Australian portfolio comprising ~7% of total while SUM is yet to have residents move in. However, looking ahead, the impacts of continued regulatory advancements become more material with Australia home to ~45% and ~10% of RYM and SUM's development pipelines respectively. The latter will also continue to grow as more villages are acquired, SUM's FY21 guidance is for an additional 3 sites of which one has already been bought in Northeast Melbourne.</p>
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<div><strong>Aaron Ibbotson, CFA</strong></div>
<div><a href="mailto:aaron.ibbotson@forsythbarr.co.nz" target="_blank" rel="noopener">aaron.ibbotson@forsythbarr.co.<wbr>nz</a></div>
<div>+64 9 368 0024</div>
<div></div>
</div>
</div>
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<div><strong>Matt Montgomerie</strong></div>
<div><a href="mailto:matt.montgomerie@forsythbarr.co.nz" target="_blank" rel="noopener">matt.montgomerie@forsythbarr.<wbr>co.nz</a></div>
<div>+64 9 368 0124</div>
</div>
</div>

Aged Care Sector Insights into Australian Aged Care


Following lengthy investigations into Australia's aged care system over the past two and a half years, the Australian Government has taken action by; (1) outlining a material boost in aged care funding as part of its 2021–22 budget, and (2) providing its response to the Royal Commission report which was publicly released on March 1.&nbsp; As part of the budget an additional A$17.7b worth of funding will be provided over the next four years with the core focus on aged residential care and home care. We view the outcome of the Australian Government's budget and response to the Royal Commission report as positive for the two listed players with Australian exposure, Ryman Healthcare (RYM) and Summerset (SUM), and see it as a logical step forward in helping to alleviate pressures across the market.


Key take-aways&nbsp;from the Australian budget



A$7.8b dedicated for residential aged care: A number of increases have been announced, however, the A$7.8b primarily consists of; (1) A$3.9b to increase the amount of frontline care delivered to residents, with a requirement of least 200 minutes per resident per day, a registered nurse (RN) will also be required on site for at least 16 hours a day, and (2) A$3.2b for a basic daily fee supplement of A$10 per day from July 1 before a new funding model comes into effect in 2022.
A$7.4b dedicated to&nbsp;homecare:&nbsp;Including&nbsp;A$6.5b&nbsp;for an additional 80,000 home care packages over the next two years, and ~A$800m to provide additional services and support home carers across Australia.



Australian Government's thoughts broadly in-line with the&nbsp;Royal Commission


The Royal Commission report released on 1 March 2021, contained 148 recommendations to help improve the quality and standard of Australian aged care, which for a long time has been sub-standard. In response the Australian Government has rejected six, suggested an alternative approach for four while twelve are "subject to further consideration". The majority of key recommendations have been approved; however, the phasing out of Refundable Accommodation Deposits (RADs) has been deemed "subject to further consideration". The phasing out of&nbsp;RADs&nbsp;was to take place from 1 July&nbsp;2025, however,&nbsp;any further&nbsp;newsflow&nbsp;is now of interest given the material funding benefits its provides RYM when constructing care beds, particularly given its care&nbsp;pipeline still outstanding (~950 units). If enacted the implications are less material near-term as we understand&nbsp;RADs&nbsp;are assigned to ~50% of&nbsp;RYM's&nbsp;care beds in Australia (275 units).


What does it mean and how exposed are RYM and SUM?


We view the recent announcements as a positive for two key reasons; (1) the direct impact of alleviating cost pressures on the care side of the business, and (2) indirectly, the continued acknowledgment and exposure of the benefits of aged care in Australia.&nbsp; We understand RYM already offers high quality care that delivers to these standards and therefore see them as a net beneficiary. Australia exposure is currently small in the context of the listed operators, with RYM's current Australian portfolio comprising ~7% of total while SUM is yet to have residents move in. However, looking ahead, the impacts of continued regulatory advancements become more material with Australia home to ~45% and ~10% of RYM and SUM's development pipelines respectively. The latter will also continue to grow as more villages are acquired, SUM's FY21 guidance is for an additional 3 sites of which one has already been bought in Northeast Melbourne.



Aaron Ibbotson, CFA
aaron.ibbotson@forsythbarr.co.nz
+64 9 368 0024





Matt Montgomerie
matt.montgomerie@forsythbarr.co.nz
+64 9 368 0124



Aged Care Sector: Insights into Australian Aged Care