Lyndoch Living has announced it will close Terang's May Noonan aged care home after failing to find a buyer for the struggling facility.
Lyndoch board chair Sue Cassidy said it had been a "really difficult" decision to shut the centre.
"We've looked at everything we could possibly do... but we've made the decision that we can no longer keep May Noonan open," Ms Cassidy said.
"It is pretty devastating and it has been a massive decision for the board to go this way."
She said low, and declining, occupancy had combined with chronic staffing difficulties to make operating the facility unsustainable.
At last count the 40-bed home had 18 residents and Ms Cassidy said the occupancy rate had been below 50 per cent for many months.
Acting chief executive officer Jill Davidson said Lyndoch had also tried everything to recruit registered nurses to work at May Noonan, but the small, isolated site made the task incredibly difficult.
It meant Lyndoch had to fall back on agency staff, which wasn't financially viable in the long term and meant other care staff didn't get the clinical support and guidance they needed.
Ms Cassidy and Ms Davidson visited May Noonan on Wednesday morning to break the news to residents and their families and assure them they wouldn't be left homeless.
"(It) isn't nice, it's very real," Ms Cassidy said. "We do have plenty of room at the main Lyndoch facility for all of the residents if they choose to come that way.
"It's very important for the public to know there are beds for the residents... I would hate for the public to think we don't have somewhere for them to go.
"This is sensitive, it's people's homes. It's hard enough making this decision without people thinking we are putting people out without somewhere to go."
Ms Cassidy said she didn't know when the facility would close.
"It's as long as it takes. It's a long period of time now to do consultation; we've got staff, we've got families, so it's a long road ahead of us now," she said. "The building hasn't been sold at this point, so there's no fixed timeline."
She said the next priority was "securing a long-term future for the larger Lyndoch facility in Warrnambool".
Lyndoch's 2022 annual report revealed a $5.7 million deficit and steeply declining net assets, while the organisation faced rising interest payments on the $11 million loan it took out to build its $25 million primary care centre in Warrnambool.
The Standard asked whether May Noonan would have remained open if Lyndoch had been in a stronger financial position. Ms Cassidy said "no".
"Not with only 18 residents. For May Noonan to be successful we need to be at 90 per cent occupancy and we're just not even close to that and haven't been for quite a while," she said.
Ms Davidson said there were several reasons behind the facility's poor occupancy, the growing popularity and success of home care packages being a key one. Concerns had also been raised by Ms Davidson's predecessor, Ted Rayment, about the poor state of the facility, which required significant capital investment to bring up to scratch.
"There are also new facilities being built (in the region) and this is where competition undermines older facilities," Ms Davidson said.
She said an isolated home that couldn't get registered nurses didn't compare favourably to facilities supported by complex health services in neighbouring towns.
Lyndoch Living bought the May Noonan facility in 2018, with CEO Doreen Power trumpeting the "shared values" of the two services, and talking about how Lyndoch could "add more value to residents' lives" at the Terang home.
South West Coast MP Roma Britnell said the closure was "devastating news for residents and their families and the broader Terang community".
"I feel for residents and their families who will want to be close to their loved ones in care, and who now face the prospect of no longer having them close by in their community," Ms Britnell said.
"The community worked hard for many years to ensure Terang had this facility available to its locals and they will be rightly upset to see it now closing."
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