Regis Healthcare: A Capital Preservation Case Study

Why rising rates help Regis Healthcare

Most companies do not like high interest rates, but Regis Healthcare, which is one of the leading providers of aged-care services in Australia, is among the few that benefit from them. In order to understand this, you also need to consider the risks associated with this situation.

Two funding streams tied to rates

New residents have two options when paying for their room: they can pay a single sum, known as the Refundable Accommodation Deposit, or they can pay on a daily basis. Although both methods are affected by interest rates they do so in different ways.

The daily fee is determined using the Maximum Permissible Interest Rate, which the Department of Health, Disability and Ageing reviews and updates quarter by quarter. This rate is based on the 90-day bank bill yield plus four percentage points, meaning it follows the cash rate. The MPIR increased from 7.61% in January 2026 to 8.43% in July. If the average lump sum is $697,200, a new resident will now have to pay around $58,800 per year or $161 each day should they select the daily fee. The rate is established when a resident moves in, and it is only changes that affect new residents.

Another way in which the lump sum is of assistance to Regis is that it involves a Refundable Accommodation Deposit, which is money that earns no interest. When the yield on bank bills is 4.4 per cent, the amount of $697,200 saves Regis approximately $30,900 each year on interest or borrowing costs. This sum varies according to interest rates. Additionally, for residents who joined after 1 November 2025, Regis retains 2 per cent of the deposit each year for a maximum period of five years, amounting to about $13,900 per year; this portion does not depend on interest rates.

In 2026, the total lump-sum inflows amounted to $250.5 million, an increase of 28 per cent on the previous year. The main reason for this rise was higher room prices, rising house values and the reforms of November 2025, not higher rates. These deposits also represent liabilities, as Regis must repay them when residents move out.Regis held $2.28bn of them at 30 June 2026, up from $1.83bn a year earlier. It also held $173.8 million in cash and $362.1 million in unused debt, sufficient to meet repayments.

What could go wrong

The situation applies equally to both sides: if the rates decrease, the new residents pay less per day and their deposits therefore have less value; Regis gains the most when the rates remain high.

Higher rates can also have a negative effect on house prices since most residents pay the lump sum by drawing down on their home equity; if the property market weakens, enrolment slows, deposits decrease, and more residents opt for the daily fee.

The greater risk is different since most of Regis's income is derived from government care funding rather than from accommodation. On 3 September the government increased this year's rate by 2.55 per cent, raising it to $303.19 per day from 1 October. This was below what had been expected and as a result the share price dropped. Even if the rates change, margins will still shrink if funding continues to rise more slowly than wages. While income from accommodation is helpful, it cannot by itself cover the gap.

Demand and pricing

Only when the beds are full does the rate setup become important. In 2026 the occupancy rate in Regis's mature homes was 96%, which is an increase on the 95.6% recorded the previous year. StewartBrown states that the sector reached about 95% for the nine months ending March 2026, although the periods covered by the figures are different. New beds have not kept pace with the ageing of the population, as the 2023 Intergenerational Report indicates that the number of Australians aged 85 and over will more than triple in 40 years.

Regis has a higher price than its competitors, resulting in a more significant rate effect, since a larger lump sum translates into a higher daily fee at any given interest rate. The advertised amount for Regis is around $747,000, compared with $669,000 for Opal, $644,000 for Bolton Clarke, and $620,000 for Estia. According to Datt Capital's analysis as of 7 September 2026, Regis charges approximately 16% more than its peers in the same area, before accounting for room quality. These are the advertised prices. In reality, residents paid an average of $697,200, which is about 7% less.

What private buyers are paying

In December 2023, Bain Capital took Estia Health private at $3.20 per share and subsequently expanded the business through acquisitions. In May 2026, Bain agreed to sell Estia to a group headed by Stonepeak, an infrastructure investor that manages about A$125 billion, for about $2.5 billion. Stonepeak regards aged care as an essential service. The typical target for infrastructure investors is a return of 6% to 8%, whereas private equity firms generally aim for returns of 15% to 20%. This difference enables them to pay a higher price for the same number of beds. Regis, which is similar in size to Estia, is one of the few ways to invest in this sector on the ASX.

Why Regis is in the portfolio

The venture involves certain risks, primarily connected with government financing and the housing market, but the main source of return is the opposite of the typical impact of interest rates on share prices. Datt Capital looks for such imbalances; Regis makes more money from new residents when rates rise and also holds more valuable deposits. There is a long-term shortage of beds, which supports the demand, and private buyers have paid prices comparable to those charged for infrastructure projects for similar assets. The downturn on 3 September was due to an unimpressive funding decision. Although that decision is important, it does not affect how Regis's accommodation income reacts to changes in interest rates.

To learn more about how Datt Capital evaluates positions like this, visit our investment philosophy page or contact our Distribution Manager, Daniel Liptak, at 0419 004 524 or by email at daniel@datt.com.au.