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Regis Healthcare (ASX:REG) share price down despite paying a HY21 dividend

ASX aged care shares

The Regis Healthcare Ltd (ASX: REG) share price has fallen after reporting its FY21 half-year result.

Regis is one of the largest aged care providers in the country with more than 7,000 operational places.

What did Regis announce?

In the Regis FY21 half-year result it reported that its revenue from services rose 6.3% to $353.1 million.

The revenue included $6.8 million of one-off COVID-19 government funding, $0.9 million of a temporary uplift in the aged care funding instrument (ACFI) and $7.9 million from the acquisition of the business and assets of the Lower Burdekin Home for the Aged Society (LBHA).

The aged care business said that its average occupancy improved to 88.3%, up from 87.9% in the prior corresponding period. It achieved growth in its average available operational places to 7,170. The average occupancy rate improved with increased contributions from the WA ramp-up homes and the number of mature homes. The ending occupancy at 31 December 2020 was 89.7%.

Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) fell by 1.2% to $42.6 million and net profit after tax (NPAT) dropped 8.9% to $11 million.

The net profit included COVID-19 costs including staff expenses, protective equipment and other related costs of $9.7 million. It also included the profit on the sale of passive assets of $2.5 million.

Regis blames lack of funding

Regis managing director and CEO Dr Linda Mellors said:

Our half-year financial performance, in part, reflects management initiatives to preserve profitability in the face of an unsustainable residential aged care sector landscape.

Inadequate Commonwealth Government funding and prevailing uncertainty across the sector needs to be urgently addressed in order to ensure provider viability and build adequate capacity for the future. We look forward to the findings of the royal commission into aged care quality and safety including positive recommendations relating to the future financing and funding of the sector.

Balance sheet and growth plans

Net cash flows from operating activities for the half-year were $49 million, down from $74 million in the prior corresponding period. Net cashflows were impacted by COVID-19, particularly in Victoria.

The refundable accommodation deposits (RADs) and accommodation net cash inflow was $4.7 million – down from $46.6 million in the prior corresponding period. It managed to achieve positive inflows despite COVID-19 lockdowns that impacted community confidence in the sector and a number of Regis homes.

Regis said that the balance sheet was strengthened by the sale of a parcel of land at Palm Beach, Queensland, which was sold for approximately $21 million.

During the half-year, the company repaid $43 million of bank borrowers. Net debt at 31 December 2020 was $183.1 million, which represented a 35% reduction of net debt from $281.5 million last year.

The commencement of the greenfield development in Camberwell, Victoria, is planned for later in FY21.

Regarding the remaining developments in the pipeline, activities such as preparing land for commencement, development approvals, design documentation and arranging licences required are underway in readiness to commence construction once conditions are more favourable.

Regis Healthcare dividend

The board of Regis Healthcare has declared an interim dividend of 2 cents per share, which is franked to 50%.

Regis Healthcare share price

The Regis share price is down 18% over the past year, which includes the effects of COVID-19. However, it has actually risen more than 75% since the world learned of the effectiveness of the COVID-19 vaccines in November 2020.

Outlook

Regis Healthcare says that it continues to focus on business performance improvement relating to occupancy and earnings uplift strategy.

The royal commission report will be a significant impact on the industry, which is due to be released this week. It’s confident that the acquisition and development opportunities will arise after the royal commission and it said it’s well placed to take advantage of the opportunities.

Regis decided not to give any guidance because of the imminent release of the report.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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