Thanks for standing by, and welcome to the Regis Healthcare FY 2022 1/2 year results briefing. All participants are in a listen only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by 1 on your telephone keypad. I would now like to hand the conference over to Dr. Linda Mellors, Managing Director and CEO. Please go ahead.
Thanks very much, Darcy. Welcome everybody to the Regis Healthcare Results presentation for the 1/2 year ended 31 December 2021. My name is Linda Mellors, Managing Director and Chief Executive Officer of Regis. I'd like to begin today by acknowledging the Boonwurrung people of the Kulin nation, traditional custodians of the land on which we meet today, and pay my respects to the elders past and present.
I extend that respect to any Aboriginal or Torres Strait Islander peoples joining us on the call. With me today is Rick Rostolis, our Chief Financial Officer. Rick will take you through the detailed financial information later in our presentation. Our presentation today is in 5 parts. I will start with updates in relation to sector reform activity and the ongoing COVID-19 pandemic.
We will then provide a summary of our financial and operational performance for the 1/2 year, followed by some other matters and the company strategy and outlook. We'll be pleased to take any questions at the end of the presentation. Starting with aged care sector reform. The extremely challenging conditions of the aged care sector over the last 6 or more years have again intensified.
The sector's challenges are broadly known and have been documented over many years in multiple reports, including the reports of the Royal Commission. The sector was already under considerable pressure before the COVID-19 global pandemic, which is now in its 1/3 year.
Long-term underfunding of the sector has had predictable outcomes in terms of workforce design and pressures, pay rates that are too low to be competitive with other sectors, declining profitability across all provider types, an increasing proportion of non-viable operators, and closures of residential aged care facilities. Regis strongly supports the need for sector reform and commends the government's expressed commitment to an appropriate funding model, quality and safety improvements, and workforce support.
Many of the reforms are complex and require deep consultation with the sector to avoid unintended consequences and return the sector to certainty and a sustainable footing. While the first bill arising from the Australian government's response to the Royal Commission was passed, the second bill has been before Parliament since September 2021 and may now not be settled before the federal election.
This substantial delay puts the timing of key reforms at risk, including the Independent Hospital Pricing Authority expansion to include aged care and the changeover in care funding from ACFI to AN-ACC. The sector is making positive progress towards the establishment of a single industry body. Transformation of the sector's representation is an important step to a stronger industry voice to support the sector's purpose, performance, needs, and aspirations.
Regis notes a range of cumbersome, duplicative, and inflexible government reporting and regulatory systems as key issues to be addressed by government, which will allow us to meet our compliance and other obligations efficiently.
Meanwhile, Regis continues a proactive approach to review and reform internally using best practice information and evidence as guidance where sector-specific information is not available. Our strategic plan contains clear goals related to the reform agenda, and we are well on track despite the pandemic pressures.
I'll speak more to this later in our presentation. Moving now to COVID-19. Regis continues to maintain all necessary support to protect residents, clients, and employees from the threat and impacts of COVID-19. The key features of our response remain our Pandemic Planning Committee, PPE hubs, testing protocols, and outbreak management plans.
Sector improvements over the 1/2 and since include better balancing of infection prevention and control responses with the overall needs and preferences of residents, including in relation to their physical and mental health, socialization, and wellbeing.
From mid-2021, community transmission increased in New South Wales and Victoria, with resultant increases in exposures and outbreaks at our homes in those states. Around Christmas 2021, the Omicron variant took hold, bringing increased transmission rates across all the jurisdictions in which Regis operates, with the exception of Western Australia.
Regis managed a significant number of exposures and outbreaks from late December until the end of January. Regis managed this period as well as could be expected, in large part due to the extraordinary sacrifices and changes that our workforce made to ensure our homes operated effectively, and this was despite many of our employees being impacted through infection, furloughing, or caring for their own family members.
Since the beginning of the pandemic, Regis has paid employees a supplement to work in a home in outbreak, and our PPE hubs ensured we could quickly provide safety equipment as needed across our portfolio. Regis has coordinated a national program to provide vaccinations to our residents, employees, and volunteers.
Our program for doses one and 2 were successful, with full vaccination compliance achieved for the Regis workforce and more than 90% of our residents receiving both doses. Noting that residents have a choice about whether to be vaccinated. Our booster vaccination program is largely complete, with homes receiving 2 On-Site clinics and now more than 94% of residents eligible for a booster dose having received one.
Regis achieved full compliance with our COVID-19 vaccination policy for our workforce. This policy has been updated to include booster doses, and we expect full compliance again. Our experience, consistent with other reports, is that the Omicron wave has resulted in less severe illness and a much lower case fatality rate, due in large part to high vaccination rates and new treatments.
Regis has maintained a constant focus on care and service levels through well-considered and executed outbreak management and business continuity plans. The board and executive have paid particular attention to care outcomes, workforce pressures and wellbeing, PPE availability, and of course, our operations revenues and expenses.
Moving now to our financial and operational results. Revenue from services was AUD 364.2 million, up 3.1% on the prior corresponding period. The company delivered a 1/2 year Adjusted EBITDA of AUD 44.1 million, and NPAT before amortization of operational placements of AUD 10.6 million. This result is a strong one given the environment we currently face, but is below reasonable expectations in a properly funded environment.
Adjusted EBITDA includes additional revenue provided through a AUD 10 per resident per day uplift in the basic daily fee, but excludes COVID-19 expenses of AUD 4.5 million. Rick will explain these factors in detail shortly. The key highlights of our results include increased average occupancy over the period and across the entire portfolio to 89.3%, which is a pleasing result in the current operating context, but below our internal targets.
The overall improvement is the result of strong management focus and strategy execution despite the challenging times. Net RAD cash flow of AUD 47.1 million is again a strong result for the group. Net debt reduced by AUD 82.7 million, or almost 58% to AUD 60.8 million at 31 December.
The board has declared an interim dividend of AUD 0.0352 per ordinary share, 50% franked and payable on the 8th of April, 2022. I'll now hand over to Rick to discuss the financial and operational performance of the business in greater detail.
Thanks, Linda, and good morning, everyone. Just turning to Slide 7 of the deck. The first 1/2 of FY 2022 has once again been challenging for the business, with COVID-19, including the Omicron variant, ongoing funding shortfalls, and workforce supply constraints being key issues confronting the company.
The additional government-funded basic daily fee from 1 July 2021 was welcome, but was absorbed by enterprise agreement wage increases that were only partially offset by indexation, increased consumables, and the significant burden of additional non-value regulatory compliance and reporting.
Notably, and most disappointingly, there was no government support by way of additional funding to combat the substantial cost associated with the COVID-19 preventative and protective activities put in place by the company. Notwithstanding the many issues faced by the business, management has remained focused on improving occupancy through the provision of quality care, service, and accommodation.
As Linda has mentioned, revenue from services of AUD 364.2 million was up 3.1% on the previous corresponding period, or 5.5% when excluding the previous year's COVID funding. With the additional government funding basic daily fee revenue of AUD 11.6 million, the most significant contribution.
Government revenue of AUD 260 million was up 3% on the first 1/2 of 2021 or 6.3% excluding the prior period COVID funding and made up 71% of revenue from services. The increase in government revenue also included the 1.1% CPI indexation. As already mentioned, the government did not provide any COVID funding to the sector during the first 1/2 of 2022.
I note in the first 1/2 of 2021, Regis received AUD 7.7 million of COVID-19 funding. Resident revenue of AUD 100 million was up 3.8% on the prior corresponding period, reflecting increased DAPS and a small recovery in additional services fees. The increase in average occupancy to 89.3% is across the entire portfolio of 64 homes, and I'll come back to occupancy in a moment.
Other income is comprised of RAD imputation of AUD 31.4 million, as required by AASB 16 leases. There is no impact on overall profit from AASB 16 adjustments. Staff expenses of AUD 260 million, which excludes AUD 3.7 million of direct COVID-19 staff expenses, accounted for 71.4% of revenue from services.
The increase in staff expenses was primarily due to enterprise agreement wage increases, which averaged circa 2.5%, as opposed to indexation, which was only 1.1%, and once again, clearly inadequate to absorb the EA impacts despite the Royal Commission recommendation to address this, significant overtime and agency fees due to continuing workforce supply constraints.
Adjusted EBITDA of AUD 44.1 million excludes the impact of AASB 16 and direct COVID costs, and is up 13% on the previous corresponding period. EBITDA was influenced by a number of factors, including higher average occupancy across a number of our homes as we recovered from the lows of the second wave of COVID-19 in the first 1/2 of 2021.
Depreciation was slightly down in the previous corresponding period, while finance costs, excluding the impact of AASB 16, were lower in line with a significant reduction in the net debt level. As a result of the Australian Government's decision to discontinue operational places from 1 July 2024, and in accordance with accounting standards and guidelines issued by ASIC, the company has commenced amortizing the value of operational places from 1 October 2021 on a straight-line basis to 30 June 2024.
This was flagged to the market back in December. As a result, the company has incurred a non-cash amortization expense of AUD 20.3 million, with a partial reversal to the related deferred tax liability of AUD 6 million, therefore a net AUD 14.3 million.
Accordingly, the company will report net profit after tax before amortization, which I'll refer to as NPATA, going forward as this better represents the financial performance of the business. NPATA for the 6 months ended 31 December 2021 was AUD 10.6 million. Let's move into Slide 8. Average available operational places across all homes were reduced to 7,104 1/2-on-1/2, mainly due to the closure of one of our Melbourne-based homes in September 2020.
As mentioned, average occupancy was up from 88.3% in the prior first 1/2 to 89.3%, with Victoria's occupancy improving from the lows of the COVID-19 second wave. Western Australia also showed improvement, with Tasmania and South Australia relatively flat. New South Wales occupancy was down 1/2-on-1/2, with that state the most impacted by COVID outbreaks and lockdowns.
Pleasingly, spot occupancy across all Residential Aged Care homes improved to 90.7% at 31 December 2021, and remains at 90.4% at 18 February. We expect that COVID-19, whether it be Omicron or other emerging variants, will have an impact on occupancy during the second 1/2 of the financial year, with Western Australia now clearly front of mind.
We have a continued focus on improving occupancy across all homes and the result reflects in part the positive effect of targeted management initiatives, as Linda mentioned, despite the impact of COVID-19. Aged care revenue per occupied bed day was up 5.4%, with government revenue per occupied bed day up 6.3% on the prior corresponding period, supported by the additional basic daily fee, CPI indexation, and influenced by the increased acuity of residents.
Aged care resident revenue per occupied bed day was up 3.8% with a recovery in additional services fees and increased DAPS, the main contributors. Staff expenses per occupied bed day increased primarily due to the impact of EA increases and the significant cost associated with additional overtime and agency fees.
This was a result of workforce supply issues that were already prevalent in the sector, but exacerbated by border closures and direct COVID-19 impacts. The number and value of RADs held increased during the 1/2, with the average RAD held now at AUD 436,000, up 2.4% on the prior corresponding period. Over to Slide 9. We presented on this Slide the impact of one-off and normalization items during the 1/2. Of note are the following items.
Again, no COVID-19 funding received in the 1/2 compared to the previous corresponding period where AUD 7.7 million was received. Direct COVID-19 expenses of AUD 4.5 million that included staff expenses of AUD 3.7 million and AUD 800,000 of other costs, including PPE and infection prevention and control.
As we've previously mentioned, COVID-19 protection measures are now ingrained in the business with a level of ongoing infection prevention and control included in our cost profile and not included in the AUD 4.5 million mentioned as one-off.
I would also like to note that the company has applied for several grants under the government's aged care support program that total in excess of AUD 3 million. Should the grants be approved, we will recognize this as income in the second 1/2 of the financial year.
We also expect to apply for further grants as a result of the Omicron outbreak, which hit the sector hard in December, with ongoing financial impacts expected throughout the second 1/2 of the financial year. The normalization adjustment relates to the non-cash amortization of operational places that I've previously mentioned.
This will be a recurring normalization adjustment from 2022 through to 2024. On Slide 10, net debt and cash flow. Given the ongoing and prolonged funding uncertainty surrounding the sector, the company continues to take a conservative and disciplined approach to managing debt.
Net operating cash flow of AUD 126.7 million includes government funding received in advance for January 2022 of AUD 40.1 million. It was underpinned by EBITDA and despite the negative impacts of COVID-19 lockdowns, net RAD cash inflow of AUD 47.1 million.
Importantly, I note that RAD cash flows for the 1/2 year were positive in most states and came from mature homes as we currently have no Ramp-Ups in the portfolio. A very strong result. Total net debt at 31 December 2021 of AUD 60.8 million, including government funding received in advance, was well within our bank facility limit.
The total reduction in net bank debt over the last twelve months has been AUD 82.7 million or 58%, and is now reflected in a significantly reduced leverage ratio of 1.3 times. The extension of a 150 million dollar tranche of our syndicated debt facility will occur prior to 30 June 2022. As Linda has mentioned, the board of directors resolved to pay an interim dividend of AUD 0.0352 per share, 50% franked, payable on 8th April.
The interim dividend represents 100% of NPATA. Over to Slide 11. During the 1/2, the company spent AUD 30.7 million on capital expenditure. This is significantly up, almost 4 times up, on the AUD 7.6 million in the first 1/2 of the previous corresponding period, and includes a AUD 15 million purchase of land in Belrose, New South Wales, with approved plans for a future Residential Aged Care home.
The current level of expenditure continues to reflect the board's decision to pause a number of planned development initiatives until the policy and funding environment is more certain and supportive of appropriate returns on investments in new developments.
For Residential Aged Care developments in the pipeline, including Camberwell, Toowong, and Belrose, activities such as preparing land for commencement, development approval, and design documentation are underway in readiness to commence construction once conditions are favorable to do so. I'd also like to note that the intended deregulation of operational places presents new market opportunities for Regis to invest in geographic areas previously not open to the business.
The removal of operational places will increase competition around quality of care, service, and accommodation, which should be an advantage to providers such as Regis, that have a strong balance sheet and access to capital to further develop the sector. Certainty around future funding needs to be addressed as a key government priority, including the transition from ACFI to AN-ACC.
COVID aside, the sector, including Regis, expects more from government, including urgent action to fix the known and long-standing underfunding of care needs and the workforce supply issues. Over to Slide 12.
As you can see on the Slide, the move away from RADs to RAD/DAP combos continued during the 1/2 year, with 100% RAD payers now representing 56% of non-concessional residents. Residents paying a RAD/DAP combo have increased during the 1/2 year, while DAP payers, as a percentage of permanent residents, remain steady.
With the MPIR attached to DAPs at a low 4.04%, it is likely that the industry trend preferencing DAPs will continue to be favored in the second 1/2 of the financial year. Notwithstanding this, the December 31, 2021 paid-up RAD balance of AUD 1.2 billion was up on the balance at June 30, 2021, despite the COVID challenges.
With that, I'll hand you back to Linda.
Thanks very much, Rick. Moving now to some other matters that I wish to draw your attention to. Firstly, the potential underpayments of employee entitlements was announced to the ASX on the ninth of August 2021. The provision remains at AUD 35 million as at the 31st of December 2021. With the assistance of external counsel, Regis continues to strongly defend the Oneview Healthcare PLC matter.
I've addressed the impact of the widespread Omicron variant and note that we expect ongoing clinical, operational, financial, and workforce impacts in the second 1/2. I'd like to move now to some updates on our strategy and key elements of our progress. By way of context, I note that the pandemic has forced greater focus on tactical management of clinical and business outcomes.
Notwithstanding this, management has ensured appropriate attention has been given to our important strategic goals and improvements. Successful execution of the 3-year strategic plan will keep Regis at the forefront of the best industry providers and place the company in a strong position in a post-reform environment.
As an almost 30-year-old company dedicated to the care and service of older people, our purpose is clear and remains completely centered on providing personalized and respectful care that embraces the experience of aging. I've provided this strategy Slide previously, so I'll now go to the key updates over the 1/2. The first pillar I'd like to speak to is our Regis culture of care. You can see on the left-hand side of the Slide the initiatives that Regis had in place prior to this reporting period.
Importantly, Regis has a strong and improved clinical governance program in place, nurses rostered 24/7 across all our homes, a range of In-House senior clinical and operational support teams, an electronic clinical management system, Market-Leading additional services offerings, and a range of research projects with leading universities and partners.
These are all important structures and platforms to underpin High-Quality care and service experience for our residents and support for our frontline workers. We have added to our clinical care and research partnerships, prioritizing translational research that will have rapid positive impacts on our resident care outcomes and workforce engagement.
We are also prioritizing quality and safety data insights and predictive analysis, digital technology improvements, and additional board quality and safety indicators that are also reported throughout our business. These improvements will support the transition to the coming star rating system and new care reporting requirements back to consumers.
The second of our 3 pillars is positive people and practice. Regis is a people and service business, and the company has a long history of investment in teaching, training, and support programs for our workforce.
A valued workforce supports attraction and retention of capable and engaged people, again, leading to better care and service outcomes. Regis's investments in this area contributed to the discretionary effort of our workforce throughout the pandemic, which has allowed Regis to reduce disruptions to our residents and clients.
Management is progressing well through the strategic initiatives for the year, including a new workforce strategy, an updated learning and development framework, and our recently launched leadership capability framework. These are all essential programs of work to respond to the supply constraints and the training and development needs of the workforce going forward.
Management is also executing our new safety strategy called the Regis Circle of Care, with employees guided to consider those in their circle, including residents, clients and their families, colleagues, visitors, and of course, the employee themselves and their family and friends.
Our 1/3 pillar is ensuring our future. The Regis board and management team have prioritized keeping ahead of sector reforms as far as possible, noting uncertainty regarding the details of some key reforms and dates in areas that are major operational changes facing the sector.
Some examples include the AN-ACC shadow assessment outcomes, the new funding algorithm, and the new Aged Care Act. Management has completed as much preparation as possible for the new Activity-Based funding program and will continue to prioritize this area over the next 1/2 when we do expect additional information to come from the Commonwealth Department of Health.
The finance system upgrade is on budget and on schedule, with completion expected in early March. This is a critical system update to accommodate the pending care payment changes and ensure automation of key workflows associated with the bulk of our revenue streams. Management completed a brand refresh, which is guiding our marketing and promotion activities and supporting our occupancy improvements.
Our sales and marketing strategies are very much driven by data insights and monitored for efficiency and effectiveness. Management has also reviewed and updated the Regis design standards, which are our specific requirements for our partner architects and builders. The latest version pays particular attention to the future needs of residents living with dementia, infection prevention and control, efficient workforce management, and building cost control.
Moving now to our environmental, social, and governance programs, and these are summarized on this Slide, which is now Slide 21. Overall, Regis is proud of our history and our work to create not only happy and safe Residential Aged Care environments for residents, families, and employees but also shared value in an essential industry for the Australian community. The board of management have recommunicated our purpose to our stakeholders in response to the negative sector sentiment over recent years.
Aged care plays a vital role in the broader Australian social landscape and is a critical part of the service economy, with Regis providing an important opportunity for a wider investment community to support the sector. Regis has strong governance and transparency in place and continues to ensure our systems and processes are contemporary and fit for service.
The company is in a strong position to meet the post-reform requirements in this area. Regis has continued to make gains in environmental sustainability, but this has been countered by an increase in single-use disposable item waste due to the pandemic. The company is reviewing waste management to see whether improvements can be made in our pandemic response, as well as our longer-term program of work.
Our solar panels, lighting changes, produce gardens, worm farms, and recycling programs are all meeting expectations in terms of cost savings, environmental impact, and resident and employee engagement. I'd now like to move to our aged care developments on Slide 22, and Rick and I have both spoken of the company's core fund developments due to the ongoing uncertainty around future funding and return on capital.
The company is certainly expected by now to have clarity on the funding model and its impact on profitability. In the background, management continues to plan for future developments, and we have projects ready to commence as conditions improve. We're particularly keen to progress our development projects in Camberwell, Victoria, and Toowong in Queensland.
In line with our plan to derive benefit from the deregulated license conditions from 2024, the company acquired a parcel of land in Belrose, New South Wales in August 2021 for a new residential aged care home. As we've mentioned in prior presentations, we know that a substantial number of aged care homes in Australia are well beyond end of life and contemporary standards.
With the right conditions, Regis will continue to build contemporary, fit for purpose, and desirable aged care homes for older Australians with high care and service standards.
From an investor perspective, these homes are expected to have higher occupancy and rates than older homes. I'd like to finish today by providing some brief statements about the outlook and the areas that Regis sees as urgent priorities. We will continue to prioritize our key drivers of quality care, service, and accommodation.
As I've said many times, high performance in these areas will support the continued improvement in occupancy, which is a key focus for us. Key drivers of success over this next 1/2 and beyond are a valued, supported, and appropriately paid workforce, a transparent and sustainable funding model, and appropriate funding for the real ongoing cost of COVID-19 preparation and prevention activities. Regis continues to focus on the levers within our control while pressing for change in other areas, particularly relating to national policy and funding reform.
The company remains positive about growth prospects, including better conditions to recommence our development program, execution of our home care expansion strategy, and coming market opportunities. At this point, the board remains of the view that it's not prudent to put forward any earnings guidance given the ongoing policy and funding uncertainty and the ongoing impact of the COVID-19 pandemic.
On behalf of the Regis board, I would like to thank the entire Regis workforce and our executive team. Their extra diligence and care over the recent challenging period have contributed to better outcomes for our residents, clients, and business. With that, I'd like to thank you very much for joining us this morning, and I'll now hand back to our operator, Darcy, to open the meeting to questions.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Tom Godfrey from MST. Please go ahead.
Oh, good morning, Linda and Rick. Thanks for taking my questions. Can you hear me okay?
Yes, perfectly. Thanks, Tom.
Great. If I could just start with occupancy. Just, I just wanted to clarify the bed count number you're using in the denominator for the 90.4% spot occupancy in February. I think the number you quoted for 31 December in the January trading update was 7,059. Can I just clarify that, Rick?
Yeah. That's the same number at Feb, Tom.
Perfect. On that basis, you've sort of, it looks like you've only really lost 20-odd residents through the last couple of months, which feels like a pretty solid outcome given the operating conditions and the Omicron disruptions you've faced.
I'm just sort of playing that through to profitability. Has it really just been a step-up in costs? Have you actually seen a significant sort of step-down in your EBITDA run rate through Jan and Feb? If you just sort of speak to profitability through the first couple of months and then what you're seeing on the occupancy side.
Sorry, the first couple of months of the second 1/2?
Yeah.
I don't think we're here to talk about that, but I'll just make a general comment that it's more cost related than occupancy related. As you can see, occupancy pleasingly has held in there, notwithstanding all the issues. I'm not here to comment on the first couple of months of the second 1/2.
Okay. No, understood. I suppose maybe just thinking or looking forward, I suppose Omicron's had a bit of an impact just in terms of the demand environment and the willingness for people to put family members into care. I suppose just some more comments around how you see that playing out through the second 1/2 and how quickly the sector can sort of bounce back sentiment-wise.
Sure. I'm happy to take that one, Tom. I think the Omicron peak was very fast, and it's coming off just as quickly. I think that's really important compared to some of the longer waves that we saw earlier in the pandemic. We're seeing good inquiry levels and tour levels and interest. You will also have seen and read in the media the pressure that hospitals have been under as well. I think you know, none of us can sort of predict the future in this pandemic environment, but things are steady.
Got it. No, that's good color. Thanks, Linda. Maybe just next question, just around the purchase in Belrose. I suppose I'm keen to sort of more understand the thinking around that one, just in the context of your current sort of pause on development and aged care investments and also, you know, keeping in the context of selling Palm Beach a year or 2 ago, just the decision to purchase there.
Yeah. Look, I'm happy to take that one as well, Tom. We are very much looking ahead to the deregulated license environment and looking at regions and suburbs where we'd like to build but we haven't been able to before now. We do still bank land. The Belrose opportunity was a land banking opportunity. It does have development approval for a Residential Aged Care facility. As I said in my presentation, we're really keen to recommence development pending the certainty around funding and the return on capital.
Got it. Maybe just last one for Rick, just around the sort of sequential step-down in depreciation. Is that purely just tied to some of the home closures and what should we sort of expect into the second 1/2?
I'd expect similar in the second 1/2, Tom. The step down looked, to be honest, a bit of just clean up in the prior year, which was my first 1/2 year. You'll see a similar number come through in the second 1/2 to what you're seeing in the first. Easy. Thanks for taking my questions, guys.
Thanks, Tom.
Thanks, Tom.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from Vanessa Thomson from Jefferies. Please go ahead.
Morning, Linda and Rick. Thank you for taking my questions. Just to follow on from Tom's question about depreciation in the second 1/2. If we think about amortization in the second 1/2, given the 1 October start, will we have that kind of, one-1/3, 2-1/3s kind of skew? Is that the right way to think about amortization in the second 1/2?
Look, Vanessa, we actually declared those numbers back in December to the ASX. If you look at that, I haven't got the appendix in front of me, but amortization, very separate to depreciation. You're right, we're basically taking the balance of what was AUD 223 odd million of operational leases on our balance sheet and amortizing over 33 months on a straight line basis.
Okay. Thank you. Sorry. On development, I appreciate the uncertainty, and you've spoken about return on capital and funding clarity. I guess it's a bit pie in the sky, but how, like, would it be conceivable that you could start construction in the second 1/2?
Yes, absolutely, Vanessa.
Okay.
The funding certainty we've been waiting for a while now for some more detail. It was certainly expected before now and it has been delayed. Yes, we have projects ready to go.
Okay, great. Good to hear. My last one was just about the increase in combination funding. I was just wondering if you think that that's a change in preference. I know, Rick, you spoke about the MPIR. I was just thinking about that going forward.
Look, I think as much as, the MPIR has dropped away significantly, we know interest rates are about to rise. My view for what it's worth for the second 1/2 is that we won't see any further drop-off in RAD. I suspect we'll see a similar profile of residents in the second 1/2 of the year.
Thanks very much.
Thank you. There are no further questions at this time. I'll now hand back to Dr. Mellors for closing remarks.
Thanks very much, Darcy, and thank you to everyone who's joined our call today. It's been good to share our 1/2 year results with you, and we look forward to the meetings that we'll have over the rest of the week. Thank you.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.