Regis Healthcare Limited (REG) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Regis Healthcare H1 FY '25 Results Presentation. [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 2025 Half Year Results. I would like to begin by acknowledging the Wurundjeri, Woiwurrung 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 Islander peoples on the call today. I'm joined by Rick Rostolis, our Chief Financial Officer. So to begin on Slide 2, Regis is one of the largest and most geographically diverse providers of aged care in Australia, operating residential aged care homes, home care service hubs, day therapy and respite centers and retirement villages. Regis has a team of more than 11,500 dedicated people delivering care and services to more than 9,500 residents and clients. Regis owns and operate 69 residential aged care homes across all states of Australia and the Northern Territory with 7,740 available beds as at the 31st of December, 2024. All homes are owned freehold with substantial real estate value. Our homes offer a variety of support options tailored to individual care needs together with a range of additional service programs that provide varying levels of personal services and amenities. Across the 69 homes, 93% of our rooms are single rooms, a key requirement for many current and future residents. We retain a small proportion of double rooms to cater for couples. Moving to this morning's agenda. I'll start with an update on the new Aged Care Act as well as other significant changes and reforms in the aged care industry. Following that, we will discuss the financial results and operating highlights, provide an update on our strategic priorities, growth plans and outlook. Then lastly, we will open the call for questions. So if I move now to the aged care industry overview. We were very pleased to see the Aged Care Bill 2024 passed both Houses of Parliament with bipartisan support in November, 2024. The support from both major parties provides confidence to the aged care sector that they understand the critical importance of aged care to Australia. Subject to transitional arrangements, the new Aged Care Act is expected to be operative by 1 July, 2025. The new Act will establish a modern rights-based framework focused on the safety, health and well-being of older Australians and the strengthened quality standards will set clear expectations for providers in delivering quality care and services. The new Act reflects the government's response and support for many of the recommendations from the Royal Commission and separately, the aged care Taskforce, including funding proposals. There are 3 primary sources of revenue for providers to deliver residential aged care services separated into care, everyday living and accommodation. I'll spend some time now explaining the impact of the reforms on these revenue lines. The new arrangements will separate care into clinical and non-clinical activities. In terms of clinical care, the government will fully fund these activities for all residential aged care residents through the Australian National Aged Care Classification, or AN-ACC funding model. The Independent Health and Aged Care Pricing Authority will continue to recommend the AN-ACC base price to government each year. The means tested care fee will be abolished and replaced with a new means tested non-clinical care contribution with a lifetime cap. Non-clinical care includes bathing, mobility assistance and lifestyle activities. Today, providers receive 2 payments for everyday living activities: the basic daily fee which is set at 85% of the single basic age pension, which is paid by the resident; and the hotelling supplement paid by government. On average, residential aged care providers are losing money providing these everyday living services. A key element of the Taskforce recommendations which has been legislated by the government was that residents with means should make greater contributions to non-care components such as everyday living and accommodation costs. The hotelling supplement will now be means tested with consumers who can afford to making a larger contribution. From 1 July, 2025, a higher everyday living fee can be charged by providers for services that are clearly of a higher standard or different from those funded by the everyday living fee. The higher everyday living fee would be paid by consumers directly to the provider. Additional services and extra services currently offered by providers for a fee will be phased out. No new agreements for additional or extra services can be made after the 30th of June, 2025. Providers have until the 30th of June, 2026 to transition residents from additional services or extra services to the higher everyday living fee. In terms of accommodation, from the 1st of January, 2025, there was an increase in the maximum room price from $550,000 to $750,000 before regulatory approval is required from the pricing authority. This is in line with the price threshold recommended in the 2017 June review. A refundable accommodation deposit retention scheme will recommence for new resident admissions from the 1st of July, 2025, set at 2% per annum up to a maximum of 5 years. This means providers will be able to retain a portion of incoming RADs and potentially use this to build new homes or refurbish existing facilities. The accommodation supplement which is paid by government for concessional residents will be independently reviewed over the next 2 years to ensure sufficient incentives are in place for providers to improve the quality of accommodation for lower means residents. By 2030, the government will commission an independent review of sector readiness to consider the phasing out of RADs by 2035. This review will determine whether the sector can secure adequate levels of capital from alternative sources and if the removal of RADs would make residential aged care unaffordable for many consumers. We understand there is resistance to this recommendation from the large banks who currently finance the sector. The Department of Health and Aged Care hasn't released all of the draft rules yet, with the remaining rules expected in March and April 2025. The consultation period is very short with a large volume of new material to consider. Given the pace of reform required with the new Act effective in just over 4 months, a transition Taskforce has been established to support the aged care sector through this period of significant change to the requirements of the new Act. The government appears committed to a commencement date of the 1st of July, 2025 for the new Act. Also from the 1st of July, 2025, the Support At Home model replaces home care packages and the short-term restorative care program with the Commonwealth Home Support program to follow from the 1st of July, 2027. Support At Home will see the expansion from 4 levels of home care packages to 8 classification levels. The pricing authority will advise the government on pricing services and support with price caps and participant contributions to be set by government. This next slide outlines some of the key government reforms, which are having a meaningful impact on the sector. Care funding, which is primarily comprised of AN-ACC funding from government, saw a 10.3% increase in the industry starting price from the 1st of October, 2024. This increase will cover the Fair Work, Work Value Case Stage 3 uplift in staff wages from the 1st of January, 2025, the 3.75% annual wage review increase to minimum award wages from the 1st of July, 2024 and the increase in mandated care minutes from the 1st of October, 2024. Providers are now required to achieve an average of 215 care minutes per resident per day, including 44 minutes from registered nurses. Pleasingly, the government has recognized the important work of enrolled nurses in the sector with enrolled nurse minutes now able to contribute up to 10% of the registered nurse minute requirement from last October. The government issued enforceable undertakings to 11 providers with homes in metropolitan locations that were well below their care minute targets. The government also announced that providers failing to meet care minute targets will have AN-ACC funding reduced by up to $31.64 per resident per day from April 2026. Many aged care workers have received or are soon to receive pay rises, including the Fair Work, Work Value Case Stage 3, which increased eligible care and support worker wages by up to 13.5% phased in from 1 January and 1 October, 2025. Additionally, in December, Fair Work announced changes to the nurses' award where eligible registered and enrolled nurses will receive wage increases of up to 25.5% to be phased in over 3 tranches commencing on the 1st of March, 2025. The government has just committed to fund these increases through an increased AN-ACC price from this date. In October 2024, the Department of Health and Aged Care launched an advertising campaign to raise awareness and promote the benefits of star ratings to the public. The department commissioned an evaluation report into star ratings, which was prepared by Allen and Clarke Consulting and was published in November, 2024. This highlighted a number of areas for improvement, including comparability of homes, usability of information, lack of market differentiation between homes and accuracy perceptions of star ratings in the community. Broadly, the report found that there was support for star ratings from many stakeholders, but that improvements were required to maximize the benefits across consumer groups. Moving now to market dynamics on Slide 7. The residential aged care market remains highly fragmented with more than 700 providers and approximately 450 of those operating just one home and another 200 providers operating 2 to 6 homes. Smaller operators are exiting the sector as many are loss-making and challenged by the increased regulatory and compliance burden and finding staffing. The release of draft liquidity rules last week has caused further speculation that the pace and degree of sector consolidation may increase. There remains a significant and growing shortfall of suitable residential aged care beds across Australia. The aging population headlined by the baby boomer generation is forecast to drive significant growth in demand for beds. Only 6,546 net new beds were added across the last 4 financial years, well below the replacement rate and growth required to support demand. The Productivity Commission's report on Government Services 2025 highlighted a sizable increase in aged care assessment times. The data also show that in FY '23, older Australians waiting for a place in residential aged care used 438,779 hospital days in total. The government Taskforce response is designed to encourage providers to build new beds and replace existing stock. Regis is well placed to do this with its access to capital, development and property management capability. Moving now to our financial and operational performance for the year. I'm pleased to report a strong set of financial results this half with continued growth in key metrics, including occupancy, revenue, underlying earnings and cash flow. Revenue from services of $564.2 million was up 18% on the prior corresponding period. Underlying EBITDA of $68.1 million was up 31% and net profit after tax of $24.4 million was up 301%. The improved financial results were driven by higher occupancy, additional government funding through AN-ACC increases, contributions from recent acquisitions and increased resident outcome. Net operating cash flow of $208.6 million was up 37% on the prior corresponding period, and the company ended the year in a net cash position of $179.9 million. The Board has resolved to pay an interim dividend of $0.0809 per share, 60% franked, which represents 100% of net profit after tax. Average occupancy in our mature homes increased to 95.7%, up from 93.6% in the first half of FY '24. Spot occupancy on the 21st of February was 96%. Our star ratings have continued to improve, increasing from 3.32 in quarter 1 FY '24 to 3.56 in quarter 1 FY '25. Total average care minutes have also increased from 210.1 minutes in the first quarter of FY '25 to 215.3 minutes in the second quarter of FY '25. Regis has continued to invest in our direct care workforce and increased work hours to meet the higher government mandated care minutes. I'll now hand over to Rick, who will provide some further details on the results.

Thanks, Linda, and good morning, everyone. As Linda has mentioned, revenue from services increased to $564.2 million, up $84 million or 17.5% on the prior corresponding period. I'll now take you through some of the major components of the uplift in revenue. Government revenue increased by $68 million, mainly driven by the AN-ACC care funding increase on 1 December 2023, followed by the 1 October '24 increase, which was accompanied by the need for increased care minutes. Importantly, a major portion of the care funding was and will be absorbed by direct care wage increases resulting from the annual wage review, the major uplift in mandated care minutes from 1 October 2024 and the 1 January 2025 Fair Work Commission, Work Value Case Stage 3. We also saw an increase in average occupancy at our mature homes from 93.6% to 95.7%. Pleasingly, occupancy once again improved across all states and the Northern Territory. We also saw an incremental contribution from both the CPSM and Ti Tree acquisitions. Resident revenue increased by $16 million compared to the previous period, driven by indexation, occupancy uplift and acquisitions. Additionally, the daily accommodation payment, or DAP income, increased due to the higher maximum permissible interest rate, the MPIR. Other income of $58.6 million primarily consisted of $51.7 million of RAD imputation under AASB 16 leases and $3.7 million of government grant income through the aged care Outbreak Management Supplement. In terms of expenses, staff costs increased by $59 million or 16% on the prior corresponding period, with the main impacts being: additional worked hours due to the increase in mandated care minutes as well as higher average occupancy levels; the annual wage review increase of 3.75% to minimum wages; Enterprise Agreement increases; and the employees we welcomed the CPSM and Ti Tree acquisitions. As Linda has mentioned, Regis's average care minutes per resident per day increased from 210.1 minutes in the first quarter of FY '25 to 215.3 minutes in the second quarter. The business has employed various workforce strategies during the 6-month period to increase employee numbers in response to care minutes and occupancy. Underlying EBITDA, which excludes the impact of one-off items, increased 30.7% to $68.1 million. The H1 EBITDA results and increased margin of 12.1% was aided by the AN-ACC increase from 1 October '24, which was paid in advance of the Work Value Case pay increases, which commenced from 1 January, 2025. The first half benefit will be less evident in the second half of the year as the cost of care minutes will be higher in H2, and we will see the impact of Fair Work increases applying from 1 January. Depreciation for the half was $24.2 million, up $1.8 million with the increase primarily attributable to the CPSM portfolio purchased in December 2023. We should expect to see an increase in depreciation in the short to medium-term following the opening of Regis Camberwell in November '24, the Ti Tree acquisition in December '24, and we continue to invest in further greenfield, brownfield and refurbishment projects. Excluding non-cash imputed interest under AASB 16, finance costs were $4.3 million for the half, in line with the comparative period. Interest paid on RADs awaiting Probate increased and was offset by lower interest and commitment fees. Statutory NPAT was $24.4 million, an increase of $36.5 million from a statutory NPAT loss of $12.1 million in the comparative period. Please note that the prior period was negatively impacted by the amortization of bed licenses of $28.5 million after tax, which were fully written off at 30 June, '24. Taking into account one-off items, underlying NPAT for the half was $29.6 million. The H1 FY '25 effective tax rate was 35.4%, primarily due to $3.2 million of stamp duty on the Ti Tree acquisition, which is nontax deductible. Net operating cash flow of $208.6 million was up 37.3% on the comparative period, with the net RAD cash flow increasing 100% to $85.8 million, driven by an increase in the average number of residents as well as a shift in consumer preference towards 100% RAD payers as the MPIR remains high. I note that from 1 July this year, we will see the benefit of RAD retention on this higher RAD pool. Capital expenditure increased 7.2% to $32.7 million as the company completed and opened the Regis Camberwell Home, progress other greenfield development projects and increased investment in home refurbishment to keep the portfolio fit for purpose and in keeping with our brand. The company held net cash of $179.9 million at 31 December. This included $73.3 million of government funding for January '25 received in advance. This is an increase of almost 1,000% against the prior period. Our strong cash position continues to allow us to invest in growth initiatives, including M&A and property development. Just moving to drivers of shareholder value. During the half year, average available beds across the portfolio increased to 7,493. Consistent with our strategy to improve the overall quality of our portfolio, MacLeod in Victoria was divested in June '24 and Weston in Western Australia was closed in September '24. In addition, we recently announced to residents and staff that our home in Bulimba, Queensland will be closed later in the calendar year. Importantly, the pipeline for M&A is active, and we are engaged at different stages with various providers to acquire quality homes. This, together with our greenfields program, will ensure increased bed volume in the short to medium-term. Average occupancy at mature homes, which excludes Regis Camberwell, increased from 93.6% to 95.7% during the half. Mature home spot occupancy at 31 December was 95.1% and improved to 96% at 21 February, '25. Our increased occupancy reflects in part the ongoing capital investment in our existing homes and management efforts to build stronger connections with local communities through fostering relationships with health care providers and aged care bed consultants. Aged care government revenue per occupied bed day averaged $313.70 and was up $34.90 or 10.9% on H1 FY '24. This increase largely reflected improved care funding through an increase in the industry AN-ACC starting price of $10 per resident per day on 1 December '23 and a further $26 per resident per day on 1 October '24 as well as increased resident acuity. Aged care government revenue per occupied bed day for Q2 FY '25 was approximately $327.70. The Australian government has recently committed to funding the Fair Work Commission's increase to the Nurses Award through an increase in AN-ACC from 1 March '25. This is expected to be the primary driver of government funding increases in the second half, which will be 100% pass-through to eligible nursing staff. This is a good outcome and reinforces government's commitment to fund direct care costs, which in turn, derisks our P&L. Aged care resident revenue per occupied bed day of $107.60 was up $4 per resident per day or 3.9% on H1 FY '24. This increase was mainly driven by the basic daily fee indexation in March '24 and September '24. Aged care resident revenue per occupied bed day for Q2 FY '25 was approximately $108.30. In the second half, resident revenue is expected to benefit from indexation of the basic daily fee in March '25. Aged care staff expenses of $299.60 per occupied bed day increased 8.3% due to the items previously mentioned: Recruitment of frontline staff and higher worked hours in response to the increased care minutes mandate; the annual wage review decision to increase minimum award wages; as well as EA and salaried staff pay increases. Aged care staff expenses per occupied bed day for Q2 FY '25 were approximately $307.20. This is expected to increase in the second half as a result of the Fair Work Commission's increase of the nurses award, additional worked hours to meet the increased care minutes mandate, EA increases and higher costs associated with additional public holidays. Total RAD liabilities have increased from $1.58 billion to $1.72 billion, with the Ti Tree acquisition adding $63 million of RADs together with very strong RAD cash inflows across the business. Importantly, the average income RAD increased 5.5% during the half to $537,000, following room price increases across the portfolio. This increase occurred ahead of the government's changes to the maximum room pricing without regulatory approval from $550,000 to $750,000. The business has a robust and mature RAD pricing process, and we should expect meaningful increases in the average incoming RAD over the coming 6 months and beyond. Just turning over to one-off items. We incurred $3.9 million of one-off acquisition and integration costs relating to the Ti Tree acquisition, mostly comprised of $3.2 million of stamp duty. We also recognized $3.7 million of government grant income from the aged care outbreak support. And the impact of outbreak expenses [indiscernible], which is mainly agency fees, was around $2 million, following the Fair Work Commission's Work Value Case decision, we increased wage rates -- which increased wage rates by up to 13.5%. Regis incurred a one-off increase in employee entitlements of $2.6 million that was not fully funded by the AN-ACC increase last October. Importantly, upgrades to human resources software systems, including time and attendance and recruitment, are now operating after several years of investment. Over to cash, capital management. In December '24, Regis conducted a part refinancing, extending maturity dates with better terms while repurposing facility C to provide more flexibility for ongoing working capital and investment requirements, including M&A. Strong cash flow generation, including net RAD cash flow, has allowed Regis to improve its cash position to $179.9 million of cash. In terms of cash outflows, Regis paid a net $40.3 million for the acquisition of Ti Tree in December '24. As with the CPSM business acquired in December '23, Ti Tree is another great example of the type of business Regis is looking to acquire. The homes are relatively new, situated in desirable locations with excellent compliance record and great reputation in local communities. In terms of the go forward, a majority of the government's response to the Taskforce recommendations will be effective for the New Aged Care Act from 1 July '25 for residents entering care from that date. Regis expects to benefit from increased funding to everyday living through a higher hotelling supplement. With respect to accommodation funding from 1 July '25, Regis will benefit from the reintroduction of a 2% RAD retention with the full benefit realized by the end of FY '28. Last week, the Aged Care Quality and Safety Commission held a webinar where they laid out proposed minimum liquidity standards under the new Act. We are in active discussions with the commission and our peak body, Ageing Australia, to ensure that any proposed liquidity standards do not work against the government objectives of ensuring that providers are more financially viable, including incentives to build the much needed 80,000 beds over the next decade. The consultation period will occur throughout March, and we expect to know more at that time. Notwithstanding any new liquidity standards, Regis's strong balance sheet and significant undrawn debt facility provides the company with considerable capacity to aggressively pursue its growth initiatives, including greenfield developments, brownfields, major refurbishments and acquisitions. Regis has access to capital markets, be it debt or equity, that many other providers do not have. As mentioned earlier, the M&A pipeline is strong, and we are in discussions with various parties to acquire quality homes. Just over to capital expenditure. Development CapEx of $16.6 million primarily relates to the completion of the Camberwell Home, which opened to new residents in November '24. Regis has made considerable progress with other greenfield development sites with construction underway at Toowong, Brisbane and soon to commence at Belrose and Carlingford. Linda will talk to this shortly. Maintenance and refurbishment CapEx increased as the company continues to invest in existing homes, improving the customer experience for current and future residents. Investment in maintenance and refurbishment programs directly benefit the business by enhancing occupancy and RAD pricing. By creating more desirable living environments for residents and better working spaces for our staff, we boost our reputation in local communities. The resident profile. The increased number of RAD-paying residents was a key driver of the $85.8 million of net RAD cash inflow during the half. We had an additional 254 100% RAD-paying residents in our care at 31 December '24, including residents from the Ti Tree acquisition. The MPIR rate at over 8% since 1 October '23 has driven a shift in consumer preference towards RAD payers. And with that, I'll hand you back to Linda.

Thanks very much, Rick. So I'll move now to the strategy update, our growth plans and the outlook. So on Slide 17, I wanted to briefly speak to our new 3-year strategy that we introduced in August. Our strategy is focused on leveraging our culture of excellence and emphasizing growth and innovation. Our growth efforts are targeted around 5 key areas: expanding our residential aged care footprint through acquisitions and greenfield and brownfield developments; offering top-tier lifestyle and additional services to enhance the well-being of our residents and clients; exploring innovative and more efficient aged care models; providing an exceptional concierge and dining experience; and accelerating home care to meet growing demand. One example of continuous improvement to market differentiation is our dining experience. The dining experience provides nutritious food with seasonal menus as well as social interaction with our employees and fellow residents. Our catering team source a healthy array of fresh foods and prepare the vast majority of meals and snacks in our on-site kitchens. We are also improving our molded food options for residents who require them to ensure texture-modified food is visually appealing, nutritious and satisfying. We continue to pursue operational efficiencies through leveraging technology and redesigning our work processes as well as supporting our people through innovation in education and training. We are already making good progress towards meeting our growth targets set out in our strategic plan. This includes acquiring the 2 homes from Ti Tree operations in December, announcing the BodeWell Community Care Home Care acquisition in January and securing 2 future greenfield development sites in Coburg and Essendon. These are in addition to the growth delivered by our new home in Camberwell and the current building programs in Belrose and Carlingford in New South Wales and Toowong in Queensland. Regis is committed to investing in our people, care outcomes, homes and development pipeline as well as our systems and processes. Our commitment to providing exceptional care and service to our clients and residents is the cornerstone of our reputation and ongoing success. Regarding our workforce, we have continued to invest in talent acquisition capability and learning and development to attract, retain and nurture skilled employees. Regis has enhanced health and safety measures in both physical and psychosocial risks, and we have seen a reduction in our lost time injuries by over 30% across the past few years. Our diligent focus has resulted in our claims lost time injury rate dropping below 6 for every million hours worked. This is a market-leading result and compares highly favorably to the average rate for our sector at 26%. Our workers' Compensation premium rate is below the industry rate in all states and the Northern Territory. Across the past 3 years, we have reduced average claims costs by 55%. We have also hired qualified experts in areas such as wound management, palliative care, infection prevention and control and behavior management, to provide ongoing guidance and support to our frontline workers. Increased levels of permanent staff have strengthened our continuity of care model, allowing staff and residents to spend more time together, which builds rapport and improves the overall experience. This also reduces our reliance on agency staff who are more expensive and may be unfamiliar with the home, their colleagues and residents. Regis provides our employees with extensive career progression opportunities and diverse career pathways that are not available at smaller providers in the sector. Many of our management roles are proudly filled by individuals who started their careers in frontline positions, showcasing our dedication to nurturing talent and offering internal progression within our company. Our team members are gaining benefits from new technologies and systems, including AI and machine learning, which enhance the employee experience, increase productivity and support clinical decision-making. We plan to expand these programs in the coming years. We continue to focus on our clinical care approach, which has greatly improved through various targeted initiatives and a strong clinical research agenda. As a result, we have seen advancements in several key indicators, including the prevention and management of pressure injuries, decreases in weight loss and a lower incidence of falls with injury. We recently introduced a new enterprise-wide people information management system, again, to enhance the employee experience, boost efficiency and ensure accuracy and compliance in reporting. Like our other technology investments over recent years, this new system is scalable to support our planned growth. Our disciplined financial management has concentrated on cost efficiencies and productivity outcomes. We can leverage our substantial technology investments to reduce the administrative burden on our employees, making tasks more efficient and effective. This frees up time for employees to spend with residents, thereby lowering risk and enhancing the experience for both workers and residents. Regis has earned a reputation for building, owning and operating premium purpose-built and desirable aged care homes, exemplified by our recent development and opening of Regis Camberwell. Our strategy focuses on continued growth through strategic acquisitions with this inorganic growth being supplemented by greenfield and brownfield developments. We've recently added 2 more development sites to our land bank in Melbourne and have several brownfield projects underway. We have increased our investment in refurbishing our existing homes to ensure they remain attractive to current and future residents with part of this investment recoverable through higher RAD pricing. Moving to the Ti Tree acquisition, where in December, we completed the acquisition of 2 premium residential aged care homes on the Mornington Peninsula in Victoria, coming with 262 beds, which were opened in 2014 and 2018. These 2 homes are consistent with Regis's acquisition criteria to broaden our residential aged care footprint in metropolitan locations with quality and contemporary homes, with an excellent compliance history and solid reputation in the local community. The Ti Tree transaction increased Regis's beds in Victoria by 15%. Regis's organizational governance and processes are in place and the integration is progressing well, leveraging key learnings from the successful CPSM acquisition. In January, Regis announced the acquisition of the BodeWell Home Care business, which provides home care services in Melbourne and Southeast Queensland. This acquisition adds scale to our existing home care business, doubling revenue to around $30 million and increasing the number of clients to around 2,500. BodeWell builds upon our Melbourne business and expands operations into Southeast Queensland. Efficiencies are expected through leveraging operational and support teams as well as technology infrastructure. This transaction is expected to complete by the 1st of April, 2025. Moving now to Regis Camberwell, which opened to new residents in November 2024. This home is expected to ramp up over 12 months and will be a valuable asset for the company and the local community for many decades. The ramp-up is progressing well and is ahead of plan with 42 residents living in the home as at the 21st of February, 2025, which is well ahead of our target occupancy at this point in the ramp-up. Moving then to our greenfield development pipeline, where we are progressing our plans and project activities as construction costs moderate and investment returns improve. Regis owns 3 greenfield developments with construction underway at Toowong and soon to commence at Carlingford and Belrose. Collectively, these 3 homes will add 323 high-quality beds to our portfolio. During the half, Regis secured 2 additional sites in Essendon and Coburg, which are both in Victoria. Contracts have been signed and settlement will occur during the first half of FY '26. We will use this time to obtain and progress development approvals with construction estimated to commence in FY '27, adding approximately 240 new beds to the portfolio. With a long history of delivering greenfield and brownfield developments, Regis remains committed to constructing modern purpose-built aged care homes that meet the high standards of care and service for older Australians. As Rick mentioned, Regis Bulimba in Brisbane is planned to be closed later in the 2025 calendar year with new construction options under consideration. With the tight supply market, we expect that new developments will have strong consumer demand. We continue to actively seek additional development sites to build our land bank and expand our development pipeline. So moving then to Slide 23. Regis welcomed the passing of the new Aged Care Act, which is expected to improve sector returns. Regis continues to adapt to a changing regulatory environment and expects to benefit over time from new funding arrangements and increased aging population, improved workforce availability and strategic growth initiatives. Regis will continue to use its strong balance sheet, substantial debt facility and disciplined management of the business to support the active pursuit of further material strategic acquisitions and greenfield developments to drive increased shareholder value. I'd like to sincerely thank our more than 11,500 employees for their unwavering dedication, commitment and compassionate care provided to our residents and clients every day. Regis is dedicated to enhancing the quality of care and services for our residents and clients and supporting our people to achieve this. And I'll now hand back to the operator, and we can open the meeting to questions.

[Operator Instructions] Your first question comes from David Low with JPMorgan.

Just if we could start with minutes of care and just a quick update or a quick understanding of where Regis is versus what's required or how much is there still to go, please?

Yes. I'll take that one. If you look at where we started the financial year, and we called out -- this is before the uplift in October, we were tracking just over 210 minutes, I think, against the requirement of around 212. So we're pretty close. And again, this narrative will be consistent where we're seeing issues and they still remain today is around regional areas and in regional areas, it's mostly registered nurses. So that's probably the theme of it. When you move from Q1 to Q2, we saw that significant uplift. And I'll go back to what I said on the call that we're still playing a bit of catch-up on care minutes because of the significant uplift. And we have now -- so the short story is that for the second quarter, we averaged about 215.3 and the target was around 222, which included the acquisition that we made at Ti Tree, which boosted it up a bit, which only had for 1 month. The good news is the target for Q3 is still around 222, which is no surprise to us, and we're tracking close to 222. So we're effectively there, and we've been there really from about mid-December.

That helps. So it doesn't sound like there's a big uplift to come from that. And then, Rick, if I could get you to talk about the Fair Work increases, nursing, what we should expect with wage increases there and therefore, what's required with AN-ACC in March, please?

Yes. So I can't quite give the absolute number for the nurses because we're still working our way through the mapping process. But [ probably ] increases are varied. I think the full year impact -- and just please take this and we're happy to find it up later, but I think the full year impact of the nurses increase could be as much as $10 million. So we would expect the AN-ACC increase that comes from 1 March, now the government said they're all fully funded, will -- that AN-ACC increase will take that 10 million into account over the period.

So that's $10 million per annum potentially?

Per annum.

Look, last one for me. So usually seasonal weighting to the second half. I mean I know this is a bit unusual with the increase in October versus the uplift in costs coming through a little later. Just how do we think about the seasonality -- how do you think about the seasonality...

So I would think about the seasonality no different to any other year except for 2 things. So there's the seasonality, if you look, for the record here on underlying EBITDA, it's 53-54, 46-47 split, give or take. Now this time around, what you've got is the Fair Work increases kicking in from January, but the AN-ACC increase occurred from October. So we sort of had a bit of a free kick for a quarter on AN-ACC until the cost kicks in, in Jan. And to your point around care minutes, because we've been pushing the care minutes up and effectively getting to target mid-December, there will be extra cost impost in the second half on care minutes over first half.

Your next question comes from Tom Godfrey with Ord Minnett.

Just first one, can I just pick up on how well Camberwell is ramping up in the 2 new sites in VIC? Has there been any changes? Or is that giving you more confidence around the development pipeline? Is there any changes to your buy versus build sort of capital allocation thinking? And maybe just in the context of how strong the balance sheet is, what we should expect for the year ahead?

Yes. Thanks very much, Tom. So I think it gives us great confidence to pursue both. So I think the Camberwell ramp-up will end up being well ahead of schedule right through to completion. So to be where we are now only sort of 3 months in is a really pleasing result. It gives us a lot of confidence around other greenfield sites. But there's still a really strong case, and we've got the financial capability for more acquisitions as well. So I think we can do both.

And the closure of Bulimba, like are there more of these sites that you're looking at over the next sort of 12 to 18 months where you could actually sort of recycle capital and close at a lower occupancy or lower quality? Should we expect more of that? Or are you sort of through that tail now?

I think we're mostly through the tail for now. It's something that -- obviously, with a business with 69 homes, the buildings age over time. So it's something that we need to keep a really close eye on through the decades really. But for now, we're pretty much done.

And just last one for me, picking up on Rick's comment around the increase in the soft cap on 1 Jan this year. Can you maybe give us a bit of color in terms of what you're seeing in the market around RAD price increases from competitors? Should we be expecting high single-digit increases or just any sort of way to frame that for us?

I might take that one, Tom. So I think it's very, very early. We've gone out pretty quickly 1 Jan where we can, where it's below $750,000. We've got approval processes in place for those over $750,000, still collating a lot of data from the market. So hesitant to say much else other than that. So we'll probably know more in the next couple of months, given it's really only a couple of months old now.

Your next question comes from David Stanton with Jefferies.

Firstly, perhaps we could talk to -- give us some color around regarding expected occupancy for second half FY '25, given the exit rate so high? What should we be thinking really for second half '25 so we can plug that into our models?

I might take that one. Linda may want to add. So we've made a point that at last Friday's date, our mature occupancy -- so the only home we're excluding, and we want to be transparent about this. Our mature homes are at 96%. If you throw Camberwell into the mix, I think you're 95.3%, 95.4% with their 40-odd residents. My expectation is that we will trend slightly up in the second half. And I say slightly up because failing an M&A transaction, the greenfields won't kick in until the next year, whether they be Carlingford or Belrose, et cetera. So 96% plus on occupancy on mature homes is our expectation for the second half.

Yes, David, I'll just add to that, that we -- obviously, we're continuously refurbishing rooms. We don't actually take them off the base in general, unless we've got a really large refurbishment underway. So that puts a bit of a cap on occupancy. But we're really pleased with 96%. We'll obviously keep trying to push it. But I think relatively flat from here is the right answer.

And I think you're intimating from the government revenue of [ $327.70 million ], it sounds like it won't be flat in the second half. Approximately, what should we be looking at for that number in the second half? Just to follow up on, I guess, on David's question.

We're not going to provide that information, David. The only point I want to make about government revenue, the only driver that I can see of government revenue increase in the second half, given we had a significant AN-ACC uplift in October, which remember was there to absorb Fair Work, care minutes, annual wage review, will be the 1 March increase, which will be passed through 100% to nurses.

And then finally, perhaps you could talk to -- give us a bit more color about CapEx that you expect for the full year, please?

I think you can take those first half numbers and add a bit to them. I think we're just playing a bit of catch-up with the refurbs for whatever reason. So take those numbers for the first half, which I think in total, excluding the technology, is around $32.5 million. I'd expect maybe $35 million to $40 million.

Your next question comes from Craig Wong-Pan with RBC.

Just wanted to understand what the current market is for recruiting staff? Like you've been able to lift your care minutes and with the sort of, I guess, backdrop around nurses in general. Could you just talk about what the market is like now?

Yes, I'm happy to take that. Thanks, Craig. So the market has definitely improved. So the higher wage rates that have been funded by government have been pivotal in changing the supply of labor. So we're really pleased about that. The area where we have the most trouble in general is still registered nurses. So all of the data will tell you there remains a global shortage and an Australian shortage of registered nurses. And then the other aspect is around the regional homes and trying to source enough local workforce for those regional homes. That continues to be a challenge right across the sector.

And then just wanted to touch on the new liquidity rules. I'm sorry if I've missed this on the call, but if that was to be implemented today, does that impact how much cash you have to carry? Or is the amount of cash that you've got now on the balance sheet already meet that [ 35 and 10 ] rule?

We would be compliant today based on cash that we're holding and the facilities we hold.

And then -- sorry, I just wanted to touch on sort of EBITDA and the expectations for the second half. The government you said has committed to funding those higher Fair Work nurse increases. Is that -- from 1st of March, is that to recuperate all of the increase? Or would that just be pro rata so that the 2 months difference where you're incurring the additional wage costs from nurses? There is that kind of 2-month impact where you'll get...

We're talking -- I think we're talking 2 different things, Craig. So there was a Fair Work increase on 1 Jan for workers other than nurses that was funded through an AN-ACC increase started in October. The nurses increase, which is effective from 1 March, will be funded by an additional increase to AN-ACC from 1 March. But the important point is, as we're seeing with the previous funded Fair Work increases by government, it's 100% pass-through to staff.

Your next question comes from Steve Wheen with Jarden.

Just wanted to touch on the higher everyday living allowance that you'll be able to get from residents from 1 July. What sort of proportion of your facilities would already qualify for providing those services? And is that a net benefit to you given what you're currently receiving on that front from residents? Just trying to understand what that -- how that phases across the 2 financial years?

Thanks very much, Steve. So we're still working this through as is the department in terms of the release of the rules. So to answer the first part of your question, we could technically have a higher everyday living fee on every bed across the portfolio. So there's no restriction in terms of being able to do that. So you either have to have a service that is far better than the funded service or something that's completely different and obviously desirable to residents. In effect, that's what we're doing with our additional services. So we can charge that again, across the board. We don't charge it everywhere because there are some markets where it wouldn't be taken up. But we certainly offer those programs where we can. The extra services component is actually around the built form. So we have very few beds that attract an extra services fee today. So again, it's an opportunity moving across to the higher everyday living fee. But we can't actually model up any numbers at this point until we have more information.

Okay. But obviously, that's an opportunity for you. And to actually qualify for that opportunity, does it require a significant investment? Or -- trying to understand what sort of investment in CapEx would be required to achieve that?

So we've already got a rolling program around refurbishment. So I don't think that we would need to do anything different in that regard. Then the other component of our current additional services program comes through staffing costs, food costs, additional transport costs. So they would all stay relatively consistent.

Okay.Understood. Second question I had was, just trying to understand the benefit of the maximum RAD price per room lifting to $750,000. Is the benefit really just -- I mean, you've always been able to apply for a higher rate or RAD for rooms. But is the benefit of that cap lifting, is it just the speed with which you can do that now?

Yes. That's obviously a huge benefit. So remember that David Tune made that recommendation back in 2017. So if you think about the movement in house prices over that period of time, where our cap has stayed static since introduction, so it should always have been indexed. So $750,000 is a much better threshold for the sector to be managing. We already have a number of beds with approval over $750,000, particularly in our newer facilities. And we monitor our room pricing against the market on a regular basis. So we'll just continue to do that as well.

Okay. Understood. Last question is just with regards to the 11 homes that that are struggling to meet those care minutes. Just wondering whether or not they represent opportunities for you? And then if you could just also just touch on your star rating? Is there anything that's sort of dragging that down over the last 2 quarters?

So if I take the first question, which I think is you're asking about the homes that have in forceful undertakings?

That's right.

Yes. And sorry, what was your question about those ones, Steve?

Just whether or not they represent opportunities for you, if they're struggling to actually to be compliant, whether or not they are sort of something that would be of interest to you as part of your M&A profile?

So there are different reasons for the shortfall in performance. So we would continue to use the criteria that we use today. Certainly, we are seeing that there are more providers who are struggling overall with the compliance obligations. So that might present more M&A opportunities for us. And to address the second part of your question around the star ratings, they're actually flat. I know it looks like there's movement. When you look through the detail, they're really small changes across the 69 homes that contribute to what looks like it's a small decline, but really it's pretty flat.

There are no further questions at this time. I'll now hand back to Dr. Mellors for closing remarks.

Thank you very much, and thanks, everybody, for joining us this morning. And we look forward, as always, to having lots of conversations with you over the coming days and weeks. Thank you.

That does conclude our conference for today. Thank you for participating. You may now disconnect.