Aged care business booming

David Renwick is staying on as Guardian boss despite the sale of the company to DCA of Australia. Picture / Ross Setford

David Renwick was looking for extra income to finance a trip to the 1991 Rugby World Cup when he bought the second rest-home that was to be the foundation for the Guardian Healthcare business empire, sold this week for $300 million.

But Renwick never made that trip. Instead he found himself painting the inside of the rest-home's cupboards while fellow investors and friends, a builder and a professional painter, refurbished the rest of the Stokes Valley, Wellington, property.

His paintings skills, he recalls, "weren't that flash".

Those efforts were the genesis of New Zealand's largest residential aged-care business, which has been sold to Australian aged-care heavyweight, DCA Group.

It is the second time Guardian Healthcare has changed hands in less than a year. Last November, as a public unlisted company with around 220 shareholders, Guardian was bought out for $190 million by Pacific Equity Partners of Sydney.

Renwick, who owned about 16 per cent of the Wellington-based company when PEP took over, stayed on as boss, as he will again under DCA ownership.

Guardian Healthcare, with 2542 residential aged beds and 379 independent living units and serviced apartments across New Zealand, as well as the country's biggest in-home medical alarm business, is hot property.

Given the present lively corporate interest in old age, it is tempting to think the sector is a hot investment prospect.

Abano Healthcare has just sold its ElderCare business to the Macquarie Group for $63.5 million. Guardian has expanded to become about 10 per cent of the sector and DCA is promising to expand Guardian's bed numbers by more than 500 a year over the next two years.

This month churches and charities were reported to have sold out of 11 rest-homes, including Auckland's Roskill Masonic Village. But the fat transaction figures and trading buzz mask a serious financial problem in a sector most of us are destined to join.

The aged-care sector is in crisis, say industry advocate healthcare providers. Retirement villages can be extremely profitable but the business of aged care "barely breaks even", says chief executive Martin Taylor.

The residential care sector, 95 per cent privately run, is at least 20 per cent underfunded by the Government, but the number of people annually requiring residential care will rocket from the present 46,000 to 89,000 over the next two decades, Taylor's group says.

Nursing staff and caregivers are underpaid compared with those in public hospitals and are leaving in droves.

Renwick says Guardian has lost nearly 20 per cent of its nursing staff, who are paid between $19 and $23 an hour, to higher pay in the public health boards in the past six months.

Government subsidies cannot be banked on from year to year. Private providers still do not know how much, if any, they will get of the extra $71 million promised in the Budget.

Rest-homes are going under. Although they provide expansion fodder for the incoming corporates with deep pockets, the result, exacerbated by lack of funds for new building, will be a dramatic fall in beds for an ageing Kiwi population, says the organisation. Getting your parent a bed in a caring, safe environment could become difficult.

Taylor says DCA and Macquarie are long-term players who see the crisis and are buying at the bottom of the market.

"They have deep enough pockets to hold out until supply does not equal demand. No one is building, which means existing bricks and mortar will appreciate as demand increases."

Guardian's land, buildings and assets at the end of March were valued at $200 million. Its unaudited revenue for the year to March 31 was $76.8 million, below the projected $78.7 million. Unaudited ebitda was $18.7 million.

Renwick, 62, says DCA had been eyeing Guardian for two years. The acquisition will give it a transtasman business of 5700 beds and units across 69 locations.

The takeover appetite for Guardian was no surprise, he says, though PEP planned to keep it for a few more years and list it.

Guardian has grown to an attractive size. It expanded again this year with the acquisition of the Care and Independence Group, which added Auckland's Hillsborough Hospital, Remuera Life Care retirement village, and care operations in Taupo, Rotorua and Christchurch to its assets.

But Renwick had no idea back in 1990, when he and his wife Jan and a couple of friends paid $1.5 million for a struggling Gisborne rest-home, that they would enjoy the industry so much they would go on to buy the Stokes Valley home the next year.

They did not imagine that Renwick, an accountant and credit charge systems specialist, would switch careers and end up employing 2100 nurses and caregivers for 2200 elderly people countrywide.

In those early days he was working overseas as a banking consultant, work which funded the entry to the rest-home business.

The first two rest-homes were administered out of the Renwicks' Wellington garage under the umbrella of Harbourside Investments.

The portfolio bulged in the 90s as more family, friends and friends-of friends invested in the rest-home syndicates.

"In hindsight it was a pretty dangerous strategy. If it hadn't gone well I'd have no friends and family wouldn't have talked to me."

By the late 90s, the rest-home count was 22, each with separate shareholders and governance, and collective annual revenues of around $30 million.

By then some shareholders were saying to Renwick: "You got us into this, how are you going to get us out?"

He suggested rolling everything into one company for greater ease of share trading, and Harbourside Group Holdings was the result. It was renamed Guardian Healthcare last year.

Guardian chairman Bryan Mogridge, an old friend of Renwick's, recalls that even when PEP arrived, the company "still had a club feel about it".

The former Montana Wines chief executive has, like Renwick, been asked by DCA to stay on. He says Renwick is a good leader.

"He's got a very caring side which has endeared him very well to the aged-care sector."

Renwick believes New Zealand's present 33,000 rest-home beds will be owned by just a dozen companies in five years.

An industry source who would not be named said consolidation could lead to an oligarchy, like the oil companies.

Renwick says the Government has "opted out" of geriatric care, delegating the costly job to the private sector and in danger of "strangling it" with uncertain funding.

Instead the Government is backing home care as the total answer. But research has shown the taxpayer is paying more for home care than it would for residential care, he says.

"It would be lovely to be looked after in your own home. I totally support it. But there comes a point when someone cannot economically be looked after in their own home."

Renwick says 65 per cent of people in residential care are subsidised, 35 per cent are self-funded.

"That [ratio] will go up with the new asset testing regime. Previously if you were in a rest home, you could keep assets up to $40,000. Now it's up to $150,000. So there's going to be more people qualifying for subsidy coming into rest homes."

Renwick says he will stay in the job for another year or two and then look at his options.

No doubt they will include providing for a comfortable old age.

AN AGEING POPULATION

* The number of people over the age of 65 is projected to increase from 460,000 to nearly 800,000 in the next 20 years.

* Aged people who will require residential care will rise from 46,000 at present to 89,500 over the next 20 years.

* The Government at present subsidises aged care by $843 million a year.

* The industry says this represents 20 per cent underfunding.

* At current prices the cost to the Government will increase to $1.6 billion in 2021.

* Current number of residential care beds is 33,400.

* By 2021 64,700 beds will be needed.

Source: Healthcare Providers NZ