Australia’s residential aged care providers are seemingly simple businesses that operate provide accommodation and socially-imperative care for our elderly in return for a fee. However, the economics of these businesses are surprisingly complex. Probably the most confusing aspect relates to Refundable Accommodation Deposits (RADs). Think of RAD as a deposit posted up-front that's returned upon your exit. Investors love the idea of RADs – for they provide the operator with “free” capital to fund expansion, the earnings of which accrue to shareholders, not the RAD providers. But is this capital truly free? From the perspective of a cash cost of funding, a RAD is free. The operator gets the use of the RAD for the duration of the resident’s stay and does not need to pay any interest. But this does not mean the funding is truly free. For every RAD that is posted, the aged care operator forgoes an amount of annual income for that bed equivalent to 6.28 per cent of the RAD. Read more: (VIEW LINK)
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