Regis Healthcare Limited (REG) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Regis Healthcare FY '26 Half Year Results Briefing. [Operator Instructions]. I would now like to hand the conference over to Dr. Linda Mellors, Managing Director and Chief Executive Officer. Please go ahead.

Thank you very much, and good morning, everybody, and thank you for joining us today to discuss Regis Healthcare's 2026 Half Year Results. I'd like to begin by acknowledging the Wurundjeri Woi-wurrung people of the Kulin Nation, traditional custodians of the land on which we meet today and pay my respects to their elders, past and present. I extend that respect to any Aboriginal or Torres Strait Islander peoples with us on the call. Before we begin, I want to briefly note that as previously announced, I have resigned and will complete my time as CEO in June. A well-structured transition is underway, and the executive team remains fully focused on delivering our strategy and performance outcomes. And I'm again joined today by Rick Rostolis, our Chief Financial Officer. As outlined on Slide 2, Regis is one of Australia's largest and most geographically diverse aged care providers with approximately 8,400 beds across 74 homes. Our operations span residential aged care, home care, day therapy and respite centers and retirement villages. With a dedicated workforce of over 13,000 people, Regis delivers care and support to more than 10,000 residents and clients across the country. This morning, I will start with an update on aged care industry dynamics and the funding environment. We will then take you through our financial results and operating highlights, followed by an update on our strategic priorities, growth plans and outlook, and then we will open the call for any questions. So moving firstly to the aged care industry. Aged care remains an essential, strongly growing and reforming sector. The market is underpinned by demographic tailwinds, regulated pricing, fragmented supply and strong cash flows. The market exceeds $40 billion and is forecast to grow at 9% per annum through to FY '32. Demand continues to rise. 26.5% of Australians aged 85 and over accessed residential aged care in FY '24. This cohort, led by the baby boomer generation is expected to double to more than 1.2 million people by 2041. At the same time, chronic undersupply of beds persists with an estimate of 200,000 net new beds required by 2043. Hospital discharge delays remain pronounced across the country with an estimated 3,000 older Australians currently occupying public hospital beds while waiting for aged care placement. There is significant financial cost to older people remaining in hospital longer than they need with each hospital bed day costing multiples of the cost of an aged care bed day. In terms of supply, only 5,400 net new beds were added across the last 4 years, which is well below the replacement rate and growth required to meet future demand. With over 700 RAC providers, there are significant opportunities for continued consolidation. The new Aged Care Act commenced on 1 November 2025 and represents a meaningful change for the sector towards a rights-based framework, placing older Australians at the center of care. It reflects recommendations from the Royal Commission into aged care quality and safety as well as the aged care task force. A key feature of the new act is the separation of care into clinical and nonclinical activities. The government fully funds clinical care activities for all residential aged care residents through the AN-ACC funding model. Residents with means now co-contribute to nonclinical care and everyday living. The introduction of the higher everyday living fee or health, replaces the previous additional and extra service frameworks. The health program allows providers to offer services and products above those that are charged through the basic daily fee and includes items like premium meals, beverages, hair and beauty, companionship and concierge services. A material change under the act is the reintroduction of RAD retention, allowing providers to retain 2% of new RADs for up to 5 years. This is in addition to the increase to the maximum room pricing from $550,000 to $750,000 without IHACPA approval. The change to room pricing took effect from 1 January 2025 and is already driving strong increases in market pricing. Stuart Brown forecast room price growth of around 8% annually for the next 5 years, which should support growth in RADs, operating cash flow and RAD retentions. In addition to these changes, the government is conducting an independent review of the accommodation supplement, which will be completed by 1 July 2026 and will be important for the viability of supported residents, as I will talk about shortly. Moving to sector funding, which remains a critical issue shaping both sustainability and future investment in aged care. The new Aged Care Act reinforces that funding needs to be delivered holistically across 3 key components: care, everyday living and accommodation. Care funding via AN-ACC and its supplements continues to provide the foundation for clinical care. But as all operators know, the model needs maturing to fully reflect the true cost of delivering contemporary clinical and care services. A contemporary funding model needs to include an appropriate and sustainable margin to support quality improvement, staff training and development and technology improvements, especially in light of greater resident complexity. The model should also provide some flexibility around care minute targets rather than the current binary settings, whereby providers are penalized for under-delivery and not funded for over-delivery. The realities of the complex operating model in an aged care home make 100% delivery every quarter against a target that changes every quarter extremely difficult. Other publicly funded services contain sliding scales around targets to accommodate the operating environment. Under everyday living, residents continue to pay the basic daily fee and the hoteling supplement if they have means. Again, the sector must be fully funded for everyday living expenses, which continue to rise above CPI across food, cleaning, laundry and essential services. According to Stuart Brown, most providers continue to lose money providing everyday living services in the first quarter of FY '26. The introduction of health provides an opportunity for a more transparent and simplified structure that fails to account for the fixed building and operating costs that providers incur to include health offerings. Accommodation funding remains the area of greatest imbalance. Supplements, RADs and DAPs are vital to funding the sector's capital cycle, including new builds and refurbishments. What we see today is a significant gap between what non-supported residents can contribute through the DAP and what providers receive through the government's maximum accommodation supplement. Based on a $600,000 room price, that gap is more than a $50 loss of revenue per supported resident per day. That shortfall materially impacts sector profitability and ultimately restricts the level of investment operators can make in improving and expanding accommodation. Reform should consider increasing the RAD retention to 4% and lifting the accommodation supplement to restore equilibrium between supported and non-supported residents. The replacement of the MPIR with a sector-wide weighted average cost of capital is also important, aligning funding settings with real capital costs. Funding and profitability must be reviewed at a whole of sector level. Without an appropriate care margin, fully funded everyday living costs and sustainable accommodation funding, the industry cannot deliver the service quality, workforce investment and infrastructure renewal that older Australians deserve. Moving now to our financial and operational performance for the half year. I'm pleased to report an improved first half FY '26 operating result with strong growth in operating cash flow. Revenue from services increased 18% to $668 million and underlying EBITDA rose 4% to $70.6 million. Operating cash flow increased 40% to $291.7 million, supported by strong net RAD cash inflows of $178.5 million. We ended the half in a net cash position of $198 million. At the statutory NPAT level, the result was impacted by one-off costs, mainly from recent acquisitions. The Board has resolved to pay an interim dividend of $0.09 per share, 100% franked, representing 92% of the underlying first half FY '26 NPAT. Our star ratings have improved again, increasing from 3.56 in the first quarter of FY '25 to 3.92 in the first quarter of FY '26, and average care minutes increased from 210.1 minutes in the first quarter of FY '25 to 220 minutes in the first quarter of FY '26 -- I beg your pardon, the second quarter of FY '26 as we continue to invest in our direct care workforce to meet the higher mandated care minutes targets. I'll now hand over to Rick to discuss further details on the results.

Thank you, Linda. Good morning, everyone. Thanks for joining us today. Starting with revenue on Slide 10. I'll take you through the key drivers behind the headline increase of 18%, noting that government revenue continues to make up around 75% of our total revenue. Acquisitions accounted for 55% of the uplift, contributing $57 million. This includes an additional 5-month contribution from Ti Tree acquired in December '24, 4 months of Rockpool and 1 month of OC Health. These acquisitions have strengthened the long-term resilience of the portfolio by expanding our residential aged care footprint across high-quality, long-life assets. AN-ACC indexation contributed $30 million to revenue, with increases of around 2% from 1 October '24 and 1 March '25, followed by a 2.6% increase from 1 October '25. Unfortunately, there was no margin accompanying the latest uplift. And as we announced back in September '25, the AN-ACC changes, net of hotel supplement increases have cost the business around $10 million of earnings in FY '26. I will come back to margin in a moment. The hoteling supplement added $9 million to revenue as the average rate per resident per day increased by circa 60% from $12 in H1 FY '25 to just over $19 in H1 FY '26. The current rate of $22.15 commenced on 20 September '25 and is now means tested. Revenue also benefited from the opening of Camberwell in November '24, offset by a decline in revenue from the closure of our Bulimba home in April '25. Other income grew 31% to $77 million, including $72 million of RAD imputation. This significant increase was due to a higher number of RAD-paying residents. Other income also included $3 million of interest and a one-off government grant of $1 million relating to the Fair Work, Work Value Case. In terms of major expenses, staff costs increased by 22%, with the main drivers being acquisitions, which accounted for 42% or $39 million of the increase, higher wages for direct care workers under the Fair Work, Work Value Case, the 3.5% increase to minimum wages and EBA increases and additional hours worked to meet mandated care minute targets. With respect to care minutes, on average, we have met mandated targets across the first half of the year. Note that care minutes reduced in Q2 to 220 minutes, reflecting the change in AN-ACC from 1 October '25. Pleasingly, we saw a meaningful reduction in agency usage and overtime, supported by improved workforce planning. Agency hours were 0.5% of total worked hours, down from a peak of 6% during COVID. Occupancy costs increased by $7 million due to one-off stamp duty costs relating to the recent M&A transactions. In addition, we have experienced CPI plus related cost pressures in utilities and consumables, while we continue to invest in our homes, including improvements to our catering offering and technology solutions to enhance the resident experience. As Linda mentioned, underlying EBITDA, which excludes the impact of one-off items, increased 4% to $70.6 million. I note that the FY '25 first half EBITDA margin of 12% benefit from AN-ACC indexation received in advance of the Work Value Case, which commenced from 1 January '25. As a result, the EBITDA margin for the half moderated to 10.6%, which was an improvement on the 9.7% margin generated in H2 FY '25. Depreciation increased to $26.5 million, with the increase primarily due to Regis Camberwell, which opened in November '24 and recent acquisitions. Excluding noncash imputed interest under AASB 16, finance costs were $5.1 million for the half, up $1 million on the prior period with interest paid on RADs awaiting probate accounting for the increase. The effective tax rate for the half was 44%, reflecting the impact of the nontax deductibility of stamp duty on acquisitions. Excluding this one-off item, the underlying income tax rate is circa 31%. The company held net cash of $198 million at 31 December '25, an increase of 10% on the prior first half. Net operating cash flow of $291.7 million was up 40%, with net RAD cash inflows increasing 108% to $178.5 million, driven by the ramp-up of Camberwell, recent acquisitions, increases to room prices and a higher number of RAD-paying residents. Our portfolio mix continues to shift towards higher-quality homes with stronger demand fundamentals and cash generation, supporting more resilient and predictable earnings and RAD cash flows over time. The paid-up RAD balance increased by $390 million to over $2.2 billion at December '25, with acquisitions contributing $239 million of this increase. Capital expenditure increased 212% to $102.1 million as the company settled a number of land acquisitions and continued construction of the Toowong and Carlingford greenfield sites. Turning to Slide 11. During the half year, average available beds increased 7% to just over 8,000 beds, reflecting the contribution from recent acquisitions and the opening of Camberwell. Average occupancy at mature homes increased from 95.7% to 96%. Average occupancy has continued to build through FY '25 and into FY '26. In the second quarter of FY '26, mature home average occupancy reached 96.2%. For clarification, at 31 December '25, 73 of the 74 homes in the portfolio were considered mature, with Oxley and Brisbane the only home in ramp-up. Aged care revenue per occupied bed day increased 9% to $460.60, of which government revenue increased by 8.5% and resident revenue increased by 11.8%. The government increase reflected AN-ACC price indexation, the Work Value Case and the increase in hoteling supplement, whilst resident revenue was supported by the biannual indexation of the basic daily fee, increases in DAP revenue and means tested care fees. As previously reported to the market in September last year, the October 25 AN-ACC price increase did not fully offset the wage cost pressures arising from the Work Value Case, annual wage review, annual increases to direct care workers under enterprise agreements. As a result, aged care staff expenses of $340.30 per occupied bed day increased by 12%, well ahead of the revenue increases. The next AN-ACC funding increase is not expected until 1 October 26. Going forward, we should expect to see further margin contraction from AN-ACC pricing. However, we remain confident that the phasing in of the RAD retention, the expected uplift in the accommodation supplement and operational efficiencies driven by recent technology investments will improve our operating margin in the medium term. Assuming no change to the resident mix and maintain the current RAD pool of $2.2 billion, the annual earnings contribution from RAD retention when fully phased it could reach around $44 million per annum. Importantly, we have increased room prices over the past 18 months, lifting the average incoming RAD by 32% to $710,000. Given the increasing strength of the portfolio, we would expect to see further increases in the average incoming RAD during this financial year, which will further support capital allocation and the RAD retention income stream. Turning to one-off items. This page sets out the impact of one-off items that are excluded from the underlying EBITDA. Firstly, acquisition and integration costs of $12.8 million reflected the significant level of M&A activity during the half. This included stamp duty on the transfer of assets as well as other one-off acquisition costs. Secondly, the increase in employee entitlements associated with the Fair Work, Work Value Case was $2.5 million, net of the government grant. Thirdly, professional service costs of $1.9 million related to the remediation of historical employee entitlement to payments. We retained a provision of $22 million in the accounts at 31 December '25. And lastly, we incurred $1.6 million in relation to the implementation of our new clinical management system that will be rolled out across the business this calendar year. On to Slide 13. At 31 December '25, we had 8,025 residents, an increase of 734 over the prior corresponding period. We have continued to see growth in 100% RAD residents increasing to 2,838, a key driver of the $178.5 million of net RAD cash inflows in the half. We've also seen an increase in the number of DAP payers, which provides an incremental contribution to earnings. The increase comes mainly from acquisitions with a number of DAP paying residents added from OC Health in December '25. Supported residents represent 41% of permanent residents, down from 43% on the prior corresponding period, with recent acquisitions primarily contributing to the reduction. In terms of RAD pricing, our advertised room prices have increased significantly over the last 18 months, reflecting the increase in the room price cap, improved market dynamics, the strength of our portfolio and contributions from acquisitions. Overall, the combination of higher advertised pricing, a greater proportion of incoming RAD residents and a stronger mix of premium homes is expected to underpin robust growth in accommodation revenue through RAD retention earnings. These settings will also support operating margins, increase cash generation through higher RAD inflows and contribute to long-term capital sustainability. In December '25, we completed a partial refinance of our syndicated debt facility. We elected to reduce the facility by $5 million to $362 million and maturity dates for the facility B and D now extended through to March 29. We ended the half in a strong net cash position of $198 million. The key drivers of cash movement are outlined in the waterfall chart. Net RAD cash inflows totaled $178.5 million, supported by higher room prices, an increased proportion of RAD-paying residents, the continued ramp-up of Camberwell, which contributed $36 million and recent acquisitions, including Rockpool that contributed $32 million from the Oxley ramp-up post-acquisition. In terms of cash flows, we invested $183 million for the acquisitions of Rockpool and OC Health and a further $102 million in capital expenditure. We also paid $24.5 million in dividends. Our strong balance sheet and significant undrawn debt facility, together with an ability to generate substantial and predictable operating cash flow provides the company with considerable capacity to deliver on its growth plans. Total CapEx was up $69 million to $102 million, driven by our investment in greenfields and land acquisitions. We settled 5 sites at Coburg, Essendon, Seaford and Newport in Victoria and Parkside in South Australia. We also continue to progress construction activity at Toowong and Carlingford, investing almost $20 million in greenfields. The combination of land acquisitions and active construction takes the greenfield pipeline to 9 at 31 December '25. Maintenance and refurbishment spend increased to $26 million, consistent with our strategy of reinvesting in the existing portfolio to improve occupancy, attract higher RAD prices and allow for high everyday living fees to be offered. With average occupancy remaining strong and resident acuity continuing to rise, these refurbishments ensure our homes remain contemporary, high quality and aligned with consumer expectations. Technology one-off capital investment was $2.5 million, primarily supporting the rollout of a new clinical management system that will improve workflow efficiency, data quality and importantly, the experience of residents and staff. On Slide 16, as mentioned in September 25, we completed the acquisition of Rockpool with 4 premium residential aged care homes in Southeast Queensland with 600 beds. The homes are all opened in the last 6 years, including Oxley and Brisbane that was opened less than 12 months ago. The net cash investment in Rockpool was $138 million at completion. This cash outlay has reduced to $102 million at 31 December '25 once we factor in $36 million of RAD inflows collected post-acquisition. This means that the net price paid per bed was $170,000. In December '25, we completed the acquisition of 2 premium homes from OC Health with 230 beds in Drysdale and Torquay in Victoria. Both homes have been built or extensively refurbished in the last 8 years and offer 100% single on-suite rooms. The net cash investment was $45 million or $195,000 per bed. Beyond the quality of the assets, the OC Health acquisition brings clear earnings and RAD price upside in the short term. As shown on Slide 17, our acquisition strategy has been a major driver of growth over the past 2.5 years. Through 4 transactions, CPSM, Ti Tree, Rockpool and OC Health, we have added more than 1,700 quality beds and 13 homes. Importantly, these homes are concentrated in metro and high-growth corridors, strengthening our portfolio mix, improving the overall RAD profile and enhancing long-term earnings growth. A key feature of these acquisitions is the combined $80 million in net RAD cash inflows received post completion. This represents around 27% of the net investment in the 4 acquisitions, significantly improving returns by reducing the capital deployed. This additional liquidity has also enabled a portion of committed funds to be reallocated to other growth and investment opportunities. Earnings contributions and cash flow generation have been strong across the recently acquired homes. Incoming RADs from acquisitions were approximately 10% higher than the average of the base portfolio, reflecting both the quality of the acquired homes and the attractive markets in which they operate. Integration has progressed in line with plans with both revenue and cost synergies identified and being executed. This includes RAD price optimization, procurement benefits and integration of operating models and technology platforms across the expanded portfolio of homes. Looking ahead, we have an active M&A pipeline focused on providers that align with our culture and meet our strategic and operational standards. Financial discipline remains fundamental, prioritizing assets that are newer, well located and deliver immediate earnings with clear upside potential. Our acquisition strategy is driving earnings growth and stronger cash flows while leveraging scale and improving the quality of the overall portfolio to meet and exceed the demands of residents today and into the future. And with that, I'll hand you back to Linda.

Thanks very much, Rick. And I'll move now to the update on strategy, growth plans and outlook. So starting with our strategic priorities. Our focus remains on driving operational excellence, strengthening financial performance and positioning Regis for sustainable long-term growth. Providing high-quality care and services to our residents and clients remains core to Regis with measures in place to target continued improvement in resident experience, quality of life and care outcomes. Our strategy is focused on disciplined strategic acquisitions, complemented by greenfield developments and refurbishment of select homes. We continue to pursue operational efficiencies through leveraging technology and redesigning our work processes, including the use of AI as well as supporting our people through innovation in education and training. This balanced approach ensures that we continue to scale sustainably while delivering exceptional care and services to our residents and clients. In terms of our achievements across the half, we have implemented a best practice palliative care model that supports consistent high-quality end-of-life experience. We embedded the strengthened quality standards ahead of the new Aged Care Act, and we rolled out a new digital catering and food safety program, improving meal ordering efficiency and reducing waste. In terms of our workforce, we reduced our reliance on agency and overtime and brought our employee turnover down to 20.2% from 25.6% in the prior half. This represents a significant improvement compared with FY '23 when turnover exceeded 40%. We were delighted to be recognized as the community engagement winner and to receive a highly commended award in health and well-being at the 2025 Future of Aging Awards. In terms of digital innovation, we selected a new clinical management system for rollout across all of our homes in this calendar year. We continue to leverage technology and generative AI to improve care delivery and efficiencies across all parts of our business. Our new AI clinical tool, Regis Care Assist, has been named a finalist in 2 categories at the Asia Pacific Eldercare Innovation Awards. In terms of growth, we completed the acquisition of 6 premium homes from Rockpool and OC Health during the period. Our Camberwell Home, which opened in November 2024, reached 94% occupancy in its first year and closed the period at 96%. Camberwell has generated $56 million in net RAD cash inflows since opening. We also advanced construction on 2 new developments at Toowong in Queensland and Carlingford in New South Wales and refinanced our debt facility to provide greater flexibility to support future growth, including potential M&A activity. Moving to the greenfield development pipeline. As Rick mentioned, Regis has 9 development sites with capacity for almost 1,200 new beds. With a strong track record in delivering greenfield developments, Regis remains committed to building modern purpose-built aged care homes that uphold high standards of care and service for older Australians. Given the current tight supply environment, we anticipate strong consumer demand for these new homes. Our target is to bring 2 to 3 new developments to market each year with Toowong and Carlingford due to be completed in FY '27. Construction of the new 123-bed Toowong residential aged care home in Queensland is progressing well and is on track for completion by the end of this calendar year. The 5-level home will have 117 single on-suite rooms and 6 couple rooms with a comprehensive range of care options, including a dedicated memory support unit. Our second development under construction is in Carlingford, New South Wales. This home will comprise 101 beds across 3 levels with a mix of standard rooms, suites and couple rooms and is scheduled to open in mid-calendar year '27. Both homes are located in high-demand areas with an undersupply of quality aged care beds and are positioned in higher socioeconomic catchments with median house prices around $2 million, supporting premium room pricing. Each development has been designed to meet evolving resident expectations, enhance our accommodation mix and strengthen our RAD generation capacity. Together, they reflect our disciplined approach to capital allocation and our commitment to growing and modernizing Regis' asset base. Regis is targeting 10,000 quality beds by FY '28, up from approximately 8,400 beds today. We expect to deliver 3 to 4 greenfield developments by FY '28, and we'll continue to pursue the acquisition of high-quality businesses to achieve the balance of our growth target. Our acquisition program and greenfield developments are designed to enhance scale, lift portfolio quality and deliver stronger economics through technology investment and operating efficiencies. Together, these initiatives position us to expand margin over time, supported by additional levers such as RAD retention, greater economies of scale and expected increases in RAD pricing. I'll turn now to our sustainability progress, which continues to strengthen our long-term resilience and aligns with emerging regulatory and stakeholder expectations. During the half, we completed our readiness assessment under the new climate reporting standards, and we will publish our first climate report under these standards later this year. This positions us well ahead of regulatory time lines and demonstrates our commitment to transparency. We finalized our climate scenario analysis, identifying both transition and physical climate-related risks and opportunities across our portfolio. From an energy resilience perspective, we progressed our diversified energy strategy, including electrification programs to replace end-of-life gas assets with electric alternatives. We were pleased to receive external recognition for our progress. Regis is now formally recognized as a reporting entity under the National Greenhouse and Energy Reporting Act, and we achieved the Excellence in Sustainability Award at Bunzl's Inaugural Healthcare Awards for our work in reducing waste to landfill and more sustainable product use at Regis Camberwell. Overall, our sustainability agenda is strengthening operational efficiency, reducing long-term risk and positioning Regis to meet both regulatory expectations and investor standards while delivering meaningful environmental and social outcomes. Moving to the outlook. Regis remains well positioned to benefit from structural tailwinds, including recent funding reforms to accommodation and everyday living, favorable demographic trends and improved workforce availability. The reintroduction of the RAD retention for new residents is expected to support stronger earnings over time and the core business, which generates substantial operating cash flow is expected to support Regis' M&A and greenfield pipeline. With a strong balance sheet, substantial undrawn debt facility and disciplined financial management, Regis will continue to actively pursue further material strategic acquisitions and greenfield developments that drive long-term value for shareholders. I would like to sincerely thank our more than 13,000 employees for their unwavering dedication, commitment and compassionate care provided to our residents and clients every day. Regis remains dedicated to enhancing the quality of care and services for our residents and clients and supporting our people to achieve this. And with that, I'll now hand back to our operator so we can take questions.

[Operator Instructions] The first question today comes from Steve Wheen from Jarden.

I just wanted to start with the guidance. There's a number of very positive factors that are on display in your result, not only the underlying result, but also things like the strength in your RADs, occupancy and even that guidance was issued before the acquisition of OC Health. So just trying to understand why you're keeping the guidance to where it currently sits at this point.

Steve, been waiting for this one. It didn't take long, did it. So I think if you go back in time, and when I say from 2020 through to '25, unless I'm mistaken, the split half-on-half on underlying earnings has been around 54% first half, 46% second half. And the reason for that is that we funded on a daily basis. We have less days in the second half of the year, but importantly, a lot more public holidays, so our cost increases in the second half. So I start with the premise of 54%, 46% is my sort of guidance point. To answer your question, the negatives in the second half for us is 6 months of this AN-ACC degradation of margin. So we've only incurred 3 months of that in the first half of the year, given the downgrade that we did in September. That's the major sort of negative going the other way, counted to a certain extent by 6 months contribution from Rockpool and to your point, a small contribution from OC Health. RAD retention is still ramping up. I wouldn't think it's going to be material going into the second half, be far more material going into FY '27. So if I look at the combination of all of that, $130 million to $135 million, maybe looking at the top end of that range is probably how I see it today.

Okay. That's clear. Second question, just trying to understand the movement in the care minutes second quarter on first quarter. And I heard your comment about it reflecting the AN-ACC. Could you just explain that sort of relationship between the care minutes to the AN-ACC and why it is actually stepping down from first quarter?

Yes. So I'll take that one, Steve. So every resident is provided with their own assessment under the AN-ACC classification system, which then comes along with the care minutes requirements. So it changes as your resident mix changes. So we are meeting our care minute requirements. So what that shows you is that the care minutes targets came down in that second quarter. And that's just a resident mix issue, along with the changes that were made to the classifications with AN-ACC when we came out with that announcement in September.

Okay. And so does that mean that from all things staying equal, that, that actually just contributes to a potential margin improvement?

No, it doesn't. So the government has a philosophy that there should not be margin in AN-ACC funding. So they are matching the AN-ACC funding to the care minutes requirement.

Got it. Last one for me. Just wondering if you could share the multiple that you might have -- that you look like you're going to receive on the divestiture of is -- I don't know how to say, Ayr and Home Hill sites.

We're not going to disclose that, Steve, that's commercially sensitive information. But suffice to say, I think we've gone out with an earlier announcement that says we'll probably be making a one-off profit of over $20 million on the transaction. Hopefully, it settles in the next week or so.

The next question comes from Tom Godfrey from Ord Minnett.

Can I maybe just start with some of the operating efficiencies you're looking to drive through the business. It sort of looks like outside of staff and resident costs, the other cost buckets reduced as a percentage of revenue. Can you maybe just sort of talk to where you're seeing some of those operational efficiencies and whether we can continue to see operating leverage around those cost lines?

Yes. I think the comment I made, Tom, was that if I look over the journey of Linda and me being in place here, we've made now over $30 million of investments in technology, financial platforms, clinical platforms, back-office platforms, starting to see now the reality of all that is and with the advent of AI as well and more automation that we should be able to become more efficient in the back office end of the business. So we're not talking about the homes here. We're talking about the administration of the business, and that's where we see the opportunity going forward.

That's clear. Second one for me, just around room prices and obviously, a material uplift on the average incoming RAD pricing we're seeing for you guys. How -- I suppose the question is just really how are you seeing the broader market there? Are your competitors behaving in a similar way? How do you sort of think about room price increases moving forward given what you've already taken? Just any sort of comments around that?

Yes. Thank you, Tom. So yes, our competitors are also increasing their room prices. And just a reminder that room prices were suppressed during COVID and when occupancy went down. So there's been quite a bit of catch-up pricing movement to be made as well.

Great. And then maybe just last one for me. Just around Camberwell, so the $56 million of RADs you've collected there from memory, the build cost for that site was around $40 million. Like is that sort of the rule of thumb we should be expecting for Toowong and your other greenfields that you're going to get more than your build costs and potentially your land costs back through RADs relatively quickly?

Yes. Your numbers aren't quite right. So the total cost of Camberwell including land was about $70 million. And if you back the land out, I think that the construction cost was about $47 million. Now I'll just hasten to add that we locked in those prices through COVID. And I think looking at where the cost of construction is today, we did pretty well. When we model these things up, I'll say this, we model up to have about a 75% return on our total cost to build. That's how we model it. Now that could change going forward with RAD prices going up. Maybe it's going to gear towards 80%. But certainly, from a modeling perspective, we rely on a 75% payback.

The next question comes from David Stanton from Jefferies.

I have taken myself off mute. Can you hear me okay?

Yes. Thanks, David.

Look, we've seen quite an increase in the half in resident revenue per occupied bed day. Will this level of percentage growth continue into the second half and beyond, please?

I won't talk about beyond. We will continue to monitor pricing as we've done throughout the whole of FY '26 and prior. To Linda's point, we were hamstrung to a certain degree through COVID. So a lot of what you're seeing is a recovery through that COVID period and the fact that the room pricings were capped at $5.50 for a long time there. We will have a look into March. And if the market can sustain it, we will go again. But I don't want to put a number on it at this stage.

And I think the other part, which is around the increasing resident revenue per occupied bed day.

Yes. So again, what you're seeing there is a shift from 1 November to residents around hoteling supplement and nonclinical care. So you're going to naturally see an increase in resident revenue contribution to the overall pie as we go forward.

Understood. And I noticed that you're getting higher RADs compared to DAPs in the period. I understand some of that's due to acquisitions. But as a general statement, do you think that will continue as an industry trend?

Well, I can't answer for the industry, but that -- I think that's the trend we'll see continuing on at Regis, yes.

Understood. And 2 more perhaps for Rick. Second half one-off costs, you've mentioned you're going to have an acquisition gain of about $20 million. Can you give us sort of the balance of what you're thinking for one-off costs in the second half?

Well, David, the bulk of the one-off costs in the first half were M&A related. So unless we manage another one, I suspect there will be very little one-off costs coming through in the second half, apart from the things that are already there like the remediation payments that we continue to make on historic on the payments. Outside of that, you're probably looking at a net gain based on that Ayr and Home Hill divestment.

Understood. Understood. And finally from me, compared to the first half $48.2 million, can you give us some color around second half F '26 CapEx, please?

CapEx in the second half, I suspect now that the land acquisitions are done for this half, you've got $102 million in the first half, you probably should be expecting $50 million to $60 million in the second half.

The next question comes from Craig Wong-Pan from RBC.

Look, great achievement in that staff turnover rate. Just wanted to understand what's driven that? And if you could also describe the broader aged care labor market.

Yes. Very happy to. Thank you, Craig. So we've applied enormous effort to getting that turnover rate down. So when I started in this sector, the average turnover across the sector was 35% per annum. And across the sector, it went up in excess of 50% during the Royal Commission and COVID. So terrible from an operating perspective and a resident and client experience perspective. So we've worked hard to drive it down. So we're doing things like providing better systems and tools for our frontline workforce. We've done a lot around our employee value proposition. The Fair Work changes to the modern awards through the Work Value Case was absolutely critical in making sure that we could attract and retain more people in the sector, and we were very heavily involved in that process. So we're really supportive of the higher wage rates and making sure that people are compensated for the complexity of work that they actually deliver. So it's been a range of things. We've also changed our learning and development programs and just working really hard to make sure that people have a great experience while they're working here.

And just to follow up to that. I mean, do you think the industry -- like yours has improved, your rates improved and the industry is like probably improved as well from those higher rates. But do you think they've kind of done as well as you? Or have you kind of outperformed your peers in this metric?

I think it's a mix. So there's no doubt that turnover has come down across the sector. To what degree, we don't have line of sight to the metrics of our competitors. What I can tell you, though, is that our employee engagement, the sustainable employee engagement rate of 87% absolutely outperforms the sector and other sectors. So critical in delivering really positive work experience to people in bringing down that rate. And apologies, you also asked me about availability of workforce. That has definitely improved, again, with the higher wage rates, but also with other sectors struggling and laying people off, that certainly puts more people into our pool. However, there remains a global shortage of registered nurses. And if you look at the numbers around the increases that we need for residential aged care beds and home care, it's going to be very difficult to have that many nurses, and that's something that we do talk to government about extensively because those workforce settings, migration settings, what they do with the tertiary education sector, et cetera, really makes or breaks the workforce for us.

And just last question. On that 10,000 bed target by FY '28, I believe the amount of contribution from greenfield developments has been tightened, that kind of -- I think the top end has come down a bit. Just wanted to understand what's kind of changed or made or led you to narrow that range?

Craig, nothing really substantial, just timing. The range was 300 to 600. To be fair, what we're trying to say is what will be done and complete by 30 June '28. I think 1 of the 4 that were in there might be July to September sort of completion.

[Operator Instructions] The next question comes from David Low from UBS.

I noticed in the written commentary that there's a comment that government funding must advantage new developments given the lack of new building, which is all very sensible. But is there any sign that, that's actually on the cards at the moment?

Yes. David, so the review that the government is -- has commissioned and is currently underway around the accommodation supplement, that's where we would expect to see some differentiation between existing builds and new builds.

And what's the approximate timing of that?

So that's due to be delivered by 1 July. I know there's a lot of pressure on that group to deliver early. So I have a look at that as 1 July at the outside.

Okay. And the other question I had just on the outcome in September and the AN-ACC settings. How confident are you now that the independent pricing authority will -- is managing to set payments in line with where costs are actually moving?

So yes, it's a really good question. And I still have high confidence that they've got the right tools to be able to do that job effectively. The difficulty that we had was that the minister had issued an instruction to that pricing authority to remove the margin from AN-ACC. And that was unexpected in the way that they did it. And so the whole sector was blindsided by the AN-ACC funding changes last year. So I think I would say to you that IHACPA will cover the costs. What we're saying is that there should be an appropriate margin included in that care funding. It doesn't make sense to have a 0 margin care funding environment.

And do you have any sense as to whether that view is being listened to or that this could change? Or is your expectation that it stays as is?

Look, the entire sector is advocating. But like everybody else, we'll have to wait and see what the decision is.

Okay. And look, the last one for me, just the mix of supported residents is declining, and I understand some of the trends there with M&A, et cetera. But if we were to project into the future, do you think that Regis will have less supported residents in future?

So I think that one of the issues that government has, and it's again something that we have obviously brought to their attention, they have set pricing signals away from supported residents and away from complex residents. From a government policy perspective, I would consider that to be a bit of a disaster. So the people who end up sitting in hospital beds unable to be discharged are often people with low or no means and really complex health conditions. So again, I think it's something that they will have to fix. Otherwise, in an environment where you still have so many operators losing money, they will force the sector to move away from supported residents.

Sorry, I did say last question, but just my understand -- my memory is that there were some regulations in place that required certain levels of supported residents and it was attached to the way funding was provided, and there was some complication as to how it was enforced or if it was enforced. Sorry, long-winded, what's the status of regulation that affects how many supported residents Regis still have?

Yes. So you're absolutely right, David. There were those settings in place. They ceased to exist with the commencement of the New Aged Care Act on 1 November. So we don't have those minimum supported ratios in place any longer. However, there are still some accommodation supplements that do turn on the proportion of supported residents. And again, I think we need to wait and see what comes out of this review of the accommodation supplement to see what settings they put in there.

At this time, we're showing no further questions. I'll hand the conference back to Dr. Mellors for any closing remarks.

All right. Thank you very much. Thanks, everybody, for joining us this morning, and we look forward to catching up with many of you over the coming week. Thank you.