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Regis Healthcare Ltd (ASX:REG) has seen its share price rise by 4% following the announcement of a significant acquisition and a response to recent aged care reforms.As one of Australia's largest aged care operators, Regis, an ASX healthcare stock, is positioned to enhance its offerings and respond to evolving industry demands.
Strategic Acquisition
Regis has executed binding agreements to acquire two residential aged care homes for a total consideration of $35.5 million. The acquisitions include a facility in Capel Sound with 170 beds and another in Mornington with 92 beds, both located on the Mornington Peninsula near Melbourne. These homes, purchased from Ti Tree Operations, are fully accredited and boast a strong market reputation, with an average occupancy rate of 96% in the fourth quarter of FY24.
This acquisition is anticipated to positively impact profit and earnings per share (EPS) in FY25. The integration of these facilities may also yield cost savings through improved procurement practices and reduced corporate expenses. The transaction involves assuming a refundable accommodation deposit (RAD) liability of approximately $68 million at settlement.
Upon completion of these acquisitions, Regis will expand its portfolio to a total of 68 aged care homes, providing approximately 7,660 beds. Additionally, a new 112-bed greenfield residential aged care home in Camberwell, Victoria, is set to open to residents by late 2024.
Response to Aged Care Reforms
Regis Healthcare has welcomed the recent bipartisan agreement on funding reforms aimed at creating a fair, equitable, and sustainable aged care system. These reforms are essential for addressing the needs of older Australians and restoring the sector's viability.
Key changes include the reintroduction of RAD/RAC retentions for new admissions after July 1, 2025, set at 2% per annum for a maximum of five years. The maximum room price has increased from $550,000 to $750,000, with adjustments made for indexation (CPI) on July 1 each year. Additionally, the introduction of DAP indexation, biannual increases to the hotelling supplement, and a higher everyday living fee are expected to enhance returns for the aged care sector.
CEO Dr. Linda Mellors expressed optimism about these reforms, noting the shift towards more predictable and sustainable funding will enable Regis to invest in high-quality services and new aged care homes. As a result of these developments, Regis plans to initiate three new greenfield projects in FY25, adding 323 high-quality beds to its portfolio.
Market Outlook
The Regis Healthcare share price has surged over 120% in the past year, reflecting positive investor sentiment. While profitability is expected to improve, concerns remain regarding the government's stance on allowing substantial profits within the sector. Nevertheless, Regis stands to benefit from Australia’s long-term demographic trends related to an aging population.
As the aged care landscape evolves, Regis Healthcare is positioned to capitalize on new opportunities while contributing to the broader goals of sustainability and quality in aged care services.
