Nathan Treitel, Partner at Segal Valuation and Transaction Advisory, co-authored this article for the Chartered Business Valuator Institute’s Journal of Business Valuation.
The expected growth in the seniors’ age demographic in the coming decades has garnered considerable attention in the social, political and financial discourse of late. This has brought attention to expense and capacity issues around seniors’ residential care. In addition to the costs of administering care, residential facilities involve substantial capital costs in the form of land, buildings and equipment. Further, while provincial governments have historically provided funding to the sector, we are likely to see significant policy changes in the coming years, particularly in jurisdictions facing intense budgetary pressures. These dynamics are common to most jurisdictions within Canada.
Within the seniors housing and residential care industry, market participants typically segment properties as retirement homes (RHs) or long-term care homes (LTCHs). While the two segments are related, the businesses are different enough to warrant the distinction, particularly as it relates to the level of care delivered within the residence, the extent of government operating funding and regulatory involvement in the business operations. Residents of LTCHs most often have more significant care requirements and benefit from government subsidies to cover the personal care services delivered within the property, whereas the cost of RH services and accommodation is most often exclusively the responsibility of the resident.
The valuation of firms that own and operate LTCHs must take into consideration numerous market and government policy factors. Critical market factors include demographics, cost of capital, resident choice, competition, economies of scale, availability of staffing, and the impact of negative media coverage. The principal policy factors can be divided, practically, into those affecting government funding, and those related to governance, which include licensing, regulation of services, inspection and compliance.
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