The Regis Healthcare Ltd (ASX: REG) share price is up 4% after announcing an acquisition and responding to aged care reforms.
Regis Healthcare is one of the largest aged care operators in Australia.
Acquisition
Regis announced that it has executed binding agreements to acquire two “high-quality” residential aged care homes for a net consideration of $35.5 million.
It’s buying a location in Capel Sound with 170 beds and a location in Mornington with 92 beds. These two aged care homes are located on the Mornington Peninsula near Melbourne.
Regis is buying these homes from Ti Tree Operations, a privately-owned residential aged care provider. They are fully accredited and have a “strong reputation” in the market with an average occupancy of 96% in the fourth quarter of FY24.
This is expected to add to profit / earnings per share (EPS) in FY25, with potential cost savings including procurement and reduced corporate costs.
As part of the transaction, the refundable accommodation deposits (RAD) liability assumed at settlement is expected to be approximately $68 million.
This deal will increase Regis’ aged care portfolio to 68 homes with approximately 7,660 beds. The new 112-bed greenfield residential aged care home in Camberwell, Victoria will open to new residents by late 2024.
Aged care reform
Regis said it welcomed the bipartisan agreement on funding reforms to make the aged care system “fair, equitable and sustainable”. These changes were seen as essential to meet the needs of older Australians and to restore the sector’s viability.
There were a number of changes including the reintroduction of RAD/RAC retentions for new admissions after 1 July 2025, set at 2% per annum for a maximum of five years.
It increased the maximum room price from $550,000 to $750,000 before approval is required from the IHACPA as well as indexation (CPI) going forward on 1 July each year.
Regis also pointed to the introduction of DAP indexation, twice per year, increases to the hotelling supplement, a higher everyday living fee, among other changes.
The ASX healthcare share said the expected changes will “improve returns for the aged care sector and enable providers like Regis to invest in further greenfield aged care developments.”
The Regis CEO Dr Linda Mellors said:
After many years of chronic underfunding with a significant portion of the sector operating at a loss, we are now expecting more predictable and sustainable funding to invest in high-quality services and aged care homes that Australians expect.
Regis is pleased that the Government and Opposition have cooperated to progress critical aged care reforms. As a result, Regis will now commence three greenfield developments in FY25, which will add 323 high quality beds to the portfolio.
Final thoughts on the Regis Healthcare share price
The Regis Healthcare share price has soared over 120% in the past year. I wouldn’t call it a good value opportunity. Profitability seems destined to improve, but I’m not sure the government will want to see the company or sector make too much profit. The company can benefit from Australia’s long-term ageing demographics though.
There are other ASX growth shares I like the look of more at a better valuation.
