Japara flags major impairment,says conditions are tough

Japara Healthcare says operating conditions remain difficult and has flagged a $270 million to $300 million non-cash impairment charge that will hit its full year results due to the impacts of the COVID-19 pandemic.

The entire aged care sector is highly vulnerable to COVID-19, and on high alert since January. It was already facing many issues before the crisis hit Australia, including falling occupancy rates, problems retaining staff and overall more funding needed.

Japara said Wednesday it has suspended its greenfield and brownfield development projects given the tough outlook and operational conditions continue to be challenging with a moderate weakening in occupancy experienced from Easter onwards as a result of a reduction in demand, particularly from the hospital sector.

Rival Estia Health also recently flagged a fall in occupancy due to the cancellation of travel, elective surgery and a slowdown in regular hospital activity.

Japara currently has 4,060 occupied places (as at 26 May), an increase of five occupied places since December 31, reflecting a reduced occupancy rate of 91.7 per cent. This is a result of an increase in operational places by 44 since December 31.

Net Refundable Accommodation Deposit (“RAD”) and Independent Living Unit resident loan inflows of $18 million have been received during the first four months of the calendar year to April 30, it said.

Resident RADs and Daily Accommodation Payment preferences are consistent with those experienced in first half of fiscal 2020, it added.

The sector liability for accommodation bonds is now more than $30 billion.

Japara said it continues to manage its business with high regard to COVID-19 risks, with a dedicated committee actively planning and overseeing its response. So far, no residents have tested positive for COVID-19 while a staff member at a home was confirmed to be COVID-19 positive in early April and was immediately isolated and has since recovered.

Net debt totalled $201 million as at 30 April 2020 with available liquidity in cash and undrawn debt of $144 million. The previously announced sales of two Victorian properties have proceeded, with expected net sale proceeds of $13.3 million.

Japara’s newest home, The Regent in Mount Waverley, Victoria, opened on April 20 and is currently home to 16 residents. Two further greenfield developments at Belrose, NSW and Newport, Victoria and a brownfield extension at Albury, NSW are under construction.

In light of the uncertain economic outlook, all other greenfield and brownfield development projects have been placed on hold, it said.

Japara said Wednesday the non-cash impairment charge is mostly do to with goodwill, which to be disclosed separately as a significant item when its full year results are released in late August.

The expected adjustment will have no impact on Japara’s debt facilities or covenants, future cash flows, ability to undertake capital management initiatives or normalised earnings.