Regis Healthcare Ltd
ASX:REG
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Regis Healthcare Ltd
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Welcome to the Regis Results Presentation for the period ending 31st of December 2019. Joining me today are David Noonan, our CFO; and Kirsty Nottle, General Manager, Investor Relations; and our Chairman, Graham Hodges.Our presentation today is in three parts: firstly, business and financial highlights; portfolio overview and growth strategy; summary and outlook. We have also provided some appendices with further details for your reference.Firstly, financial highlights. So during this period, the company's 35 Facilities performance reflected industry-wide challenges, and new Facilities are performing well. Revenue of $318 million is 8% higher than the results for the first half of FY '18. Normalized EBITDA of $57.5 million (sic) [ $56.7 million ] is 7% lower than in the first half FY '18, but 1% higher than in the second half of FY '18.NPAT of $24.7 million is in line with the guidance we provided at our AGM in October. We note that throughout this presentation, we will refer to EBITDA and NPAT on a normalized basis, which is net of the direct costs associated with the Royal Commission.The normalized EBITDA during this period reflects a solid performance from the group of new Facilities ramping up; industry-wide occupancy headwinds impacted the steady-state portfolio; a net improvement in earnings from the Facilities acquired from Presbyterian Care Tasmania; and federal government cuts to the residential aged care funding, indexation and the associated increase in expenses.As anticipated, normalized NPAT was $24.7 million, which was in line with guidance and 19% lower than the first half of FY '18. Net operating cash flow of $109.1 million includes net RAD cash flow of $72.1 million, which exceeded the full year FY '18 result of $62.6 million as a result of strong performance from the Facilities ramping up.Average occupancy was 92.8%, with the 31st of December closing occupancy of 92.2%. Our fully franked interim dividend of $0.0812 per share was declared by directors, which is 100% of reported NPAT.So now looking at our key operational statistics for the half year. The statistics as shown on Page 5 reflect our view that operations continue to perform well in the face of industry headwinds. Operational places increased by 389 from the 30th of June 2018 to 7,142 as a result of the delivery of 3 new Facilities. Average occupancy of 92.8% was slightly lower than the prior comparable period. Our steady state sites were impacted by the occupancy challenges across the industry, which have been well publicized. However, our ramping up facilities still delivered a solid performance. Occupancy was 92.2% at the end of the year.Government revenue per resident bed day was $201 for the first half FY '19 compared with $197 for the first half FY '18. This reflected the reinstatement of COPE this year, increased contribution from the Significant Refurbishment program, offset by the impact of the federal government funding cuts and associated expenses.Resident income per occupied bed day grew slightly from the previous comparable period at $81 per day compared with $80 for the first half FY '18. The staff costs per revenue ratio was 68.4% for the period compared with 66.1% in the prior comparable period. The difference is the impact of EBA increases being higher than the COPE increase. It also reflects the higher staff cost to revenue percentage in the ramping up Facilities.RADs held has increased during the period with circa 48% of the portfolio having paid a lump-sum payment in the form of a RAD, when looking at all RAD payers in part or in full. This reflects the high number of RAD payers in the new Facilities ramping up. The average RAD held per RAD paying resident increased to $392,500 for the first half of FY '18 from $367,300 for the first half of FY '18. The average incoming RAD of $478,700 exceeded the prior comparable period result of $464,800. This reflects the market pricing and location of these Facilities. You can also see that the average incoming DAP rate is $46.10 and that the average percentage DAP paid for the combination payments is 60%.I'll now hand over to our CFO, David Noonan, for the discussion on the financial results. David?
Thank you, Ross, and good morning, everyone. Turning to Page 6, I'll firstly step you through the waterfall bridge, which explains the key drivers of the EBITDA movement from $61 million in the first half of FY '18 to $56.7 million in the first half of FY '19. Our growth initiatives contributed $2.7 million of additional EBITDA, driven by our new facilities and also the Presbyterian Care Tasmanian portfolio, which continues to progress towards the steady-state portfolio run rate. Operating losses from our Facilities in the first year of operation were $2.1 million. Overall, the Facilities ramping up performed to expectations, from an occupancy and EBITDA perspective.Lower occupancy across the industry impacted the steady-state portfolio, particularly in several of the older facilities and those facilities with some shared rooms. The government cuts to residential aged care funding continued to also impact the EBITDA of our steady-state Facilities.This slide also includes some analysis of our staffing expenses for the year. Staffing expenses were higher than in the first half FY '18 as a percentage of revenue. The actual increase from the first half FY '18 to the first half FY '19 was $21.5 million in total. The key items in this include $5.3 million for the steady-state facilities, driven by the EBA increases, which averaged circa 3% across the aged care business; an additional $16.1 million of staff expenses that led to ramping up and acquired Facilities.Now turning to the waterfall chart on Page 7, where we note that the NPAT result of $24.7 million was in line with the full year guidance provided at the AGM, with EBITDA for the first half of FY '19 also broadly in line with guidance. Interest and depreciation expenses have both increased as a result of the completion of the greenfield developments. Our effective tax rate was circa 28%.I'll now take you through the cash flow movements for the period which are shown on Slide 8. Our net operating cash flow of $109.1 million was underpinned by EBITDA of $56.3 million (sic) [ $56.7 million ] and net RAD cash flow of $72 million. The net RAD cash flow for the half year to 31 December actually exceeded the full year FY '18 net RAD cash flow, which was $62 million. This reflected the contribution from the Facilities ramping up. We also note that the average incoming RADs in the steady-state portfolio also showed a modest improvement during the period.Our key investment activities during the period included total CapEx on development, significant refurbishment, land and other projects of $42.6 million. Consistent with our strategy, future RAD cash flows from development sites ramping up will continue to be used to repay debt drawn to development CapEx.I will now hand you back over to Ross, who will take you through Slide 9.
Thanks, David. So this slide shows that the profile of RAD/DAP mix and combination payments has continued to be consistent with prior periods. As at the 31st of December 2018, 47.7% of the portfolio were paying a RAD in part or in full, which was slightly higher than the 30th of June 2018, which was 45.9%.The pie chart at the top right of this slide show that for incoming residents during the 6-month period, the percentage of full RAD payers moved from 59% to 57% and the combination of RAD/DAP payments increased from 34% to 37%. There was also a minor decrease in permanent residents, who fund their own accommodation, electing to pay a full DAP from 7% to 6%. These choices depend on individual circumstances, including the resident's preference or ability to fund daily payments versus a lump sum.The change in resident profile, as shown in the column graph at the bottom of the slide, shows the following trends. The percentage of supported residents was broadly similar to prior periods, representing circa 45% of the resident base. The continuation of the significant refurbishment program means the company now has circa 2,488 eligible residents living in an enhanced environment. You can see that the tenure statistics have not materially moved.So in the next section, we'll look at the company's portfolio and growth strategy. So as at the 31st of December, the company had 63 Facilities with 7,142 operational places, of which 93% are single bedrooms and 21 are club services Facilities. So recent changes to the portfolio have included the opening of 3 new facilities during the first half of FY '19.You can also see in the table that the Significant Refurbishment program has now been completed at 41 non-club services Facilities, with a further 7 Facilities having been approved as significant refurbished at the end of the first half of FY '19. We continue to review the older facilities, particularly those where there are some shared rooms as a part of our asset renewal program.Now moving to our growth strategy and turning to Page 12. The company currently have 4 key areas of focus, and these are summarized on this slide. These are the performance of the ramp-up Facilities, the quality of the existing portfolio and continuing to deliver further growth via greenfield developments and acquisitions.The first area of focus is to ensure that the new Facilities ramping up achieve pro forma outcomes. The new Facilities, delivered from the development pipeline have created high-quality Facilities. So these are ramping up their operations with a focus on care, quality and compliance. So solid progress is being made towards achieving the company pro forma for EBITDA, net RAD cash flow and occupancy. The net RAD inflow from these facilities has been and will continue to be used to retire debt.The second area is our asset renewal plan. The asset renewal program has a focus on older Facilities and shared rooms. It also includes the extensions planned for several Facilities, where land is available and additional scale makes sense. You can see that 2 of these in the development program.The third area is continuation of our development pipeline of greenfield facilities. We have 2 greenfield development projects nearing their commencement of construction. The current greenfield pipeline will deliver circa 600 new places, and the focus continues to be on and has been consistently on our position on the urban locations, which can support a club services offer.Finally, continuation of our strategy to seek acquisition opportunities for single facilities and portfolios that meet our criteria. A number of aged care acquisition opportunities are being or had been analyzed over the period. Some have been of poor quality assets and had -- or had compliance issues. So market activity in the acquisition space appears to be increasing, although completed transactions are few, with the reasons for sale varied. The company anticipates acquisition opportunities to rise over the next 18 to 24 months, which will be assessed according to our usual criteria.So on the next slide, Slide 13, you can see an overview of Facilities ramping up that have been delivered from our development program. The program has delivered 1,247 new places by the end of the first half FY '19. So all of these Facilities, the Club Services Facilities in metropolitan locations, with the exception of Elermore Vale, which is in Newcastle, New South Wales. So these developments have been delivered on or ahead of schedule and are performing to expectations on key care, operational and financial metrics.As at the 31st of December, 2018, 663 or 53% of the 1,247 places were occupied and $176 million of net RAD cash flow had been collected. It is anticipated that a further $155 million to $205 million of net RAD cash flow will come from the completion of the ramp-ups.The next page, Page 14, shows the current development program. This table shows 6 aged care developments, of which 4 are greenfield and 2 are extensions, which are expected to deliver a total 655 new places. The timing for the first 4 projects anticipates first residents in FY '21 and FY '22. The Inala and Greenmount projects are part of larger site redevelopments. So the timing of these is yet to be confirmed due to other dependencies.As a reminder, our 3 criteria for including developments in the published pipeline are: firstly, the land is owned by the company; secondly, development approval has been granted or where we are reasonably certain as to the time frame within which we will receive this; and finally, licenses held or we hold sufficient licenses to commence mobilization.Now moving to Page 15, our retirement living update. So in our previous business updates, we introduced some detail around Regis's retirement living business. The company has 588 Independent Living Units across 6 Retirement Villages, each of which is colocated with Aged Care Facilities. Our experience shows that colocated Retirement Villages and Aged Care Facilities can be complementary, offering a continuum of care to residents. The Blackburn South, Victoria and Nedlands, WA locations are in the company's current development program.Stage 1 of the Blackburn South redevelopment is planned to commence in the second half of FY '19. The development will involve the construction of more than 350 Retirement Living units. Overall, the redevelopment will be in 9 stages over a 10-year period. The company has received planning approval for Stage 1 and has finalized the master plan for the site. Detailed design of Stage 1 is well advanced and civil works have commenced. In Nedlands in WA, master planning is underway for another 9-stage project, which the company has recently received planning approval.So I'll now hand back to David, who will take us through Slide 16. David?
Thank you, Ross. As anticipated, debt reduced during the period. Reduction in debt of $40 million since 30 June 2018, has been driven by the increased RAD cash flows, which was $72 million in the first half of FY '19. It is anticipated that a further $155 million to $205 million of net RAD cash flow will come from the completion of the ramp-up of the 1,247 new places. This will be used to pay down debt.As shown in the table, we have presented our debt in two categories: core debt and development debt. Development debt represents the cost of the land and buildings that are currently in our development pipeline and are yet to be opened. $131 million of debt has been moved from development debt to core debt, relating to the 3 new facilities that opened during the period. The total debt as at 31 December was $363 million, having reduced by $40 million from the 30 June position of $403 million. This is well within our covenants, with the current facility limit being $540 million.The core debt to EBITDA ratio as at 31st of December was 2.6x, having increased from 1.8x as at 30 June 2018. This increase is due to the $131 million of development debt being moved to core debt through the opening of the 3 new facilities.Total expenditures in the first half of FY '19 was $42.6 million, of which $41 million was associated with Aged Care and $1.6 million relating to the Retirement Living business. I will now hand back over to Ross.
Thanks, David. Now moving to our industry update on Page 17. So we provided Aged Care industry update. As most of you will be aware, a Royal Commission into the Aged Care Quality and Safety was announced on the 16th of September 2018. The Royal Commission's interim report is to be provided by the 31st of October 2019, with its final report no later than the 30th of April 2020. The Commissioners are the Honourable Richard Tracey, AM, RFD, QC; and Ms. Lynelle Briggs, AO, and the commission is based in Adelaide. The terms of reference were announced on the 9th of October 2018.A preliminary hearing about the operation of the commission was held on the 18th of January. The first hearings have been about key features of the aged care, quality, safety and compliance system, about how that system works in practice and at a general level. The first information requests received by Approved Providers in December. The 100 largest providers were invited to respond by the 7th of January, with smaller providers by the 8th of February. So Regis lodged its submission on time and in full. Public submissions are presently being invited.A further industry update is that on the 10th of February, the federal government announced a new $662 million package to support older Australians. The announcement stated that the $320 million residential aged care component equates to approximately $1,800 per permanent resident and will provide additional support to the sector over the next 18 months to deliver quality aged care services, while the government considers the longer-term reform funding options. We have yet to receive further detail on the timing and payment mechanisms for this increase. We have therefore assumed that this payment of $1,800 per resident will be received for circa 5,800 permanent residents and that half of this payment will be received in FY '19.Now moving to the FY '19 summary on Slide 19. The first half FY '19 is that the financial performance continues to reflect growth from Facilities ramping up, offset by government funding cuts and occupancy headwinds. The Facilities ramping up delivered solid performance against all key metrics: care, quality, compliance, EBITDA, occupancy and RADs. The steady state portfolio was impacted by industry-wide occupancy headwinds, which affected both income and the number of RAD payers. Despite the industry-wide residential aged care, government funding cuts and indexation freeze, revenue per occupied bed day of $287 was achieved compared with $284 in the first half of FY '18 as a result of growth initiatives. The reduction in EBITDA reflected the usual increase in staff costs from EBA increases as well as occupancy pressure and the impact of funding cuts.Net operating cash flow of $109.1 million and net RAD cash flow of $72.1 million reflects Facilities ramping up, delivering to expectations. First half FY '19 net RAD cash flow exceeded the full year FY '18 result. So directors declared a fully franked interim dividend of $0.0812 per share, which was 100% of reported NPAT. Development activities continue as per the company's growth strategy. The development program continues with circa 600 new places in the current pipeline. Acquisition opportunities continue to be assessed.Now moving to Slide 20, our outlook. As per previous guidance, FY '19 normalized NPAT is anticipated to be in the range of $47 million to $51 million. Second half FY '19 EBITDA is anticipated to be broadly in line with the first half FY '19. Now this includes income from the Significant Refurbishment program; an increased contribution from the Facilities ramping up; earnings growth from the PresCare Tasmania facilities as integration progresses; industry-wide occupancy headwinds affecting the Steady State portfolio; the further effects of the federal government funding cuts and its associated expenses with the changes to the ACFI tool; an expected contribution from the federal government funding package to support older Australians announced by the Prime Minister on the 10th of February. And we also note the direct costs associated with responding to the Aged Care Royal Commission will also be normalized in the second half FY '19 result.Aged Care CapEx spend is anticipated to be in -- to be circa $60 million for the year. We still anticipate that Facilities ramping up will contribute EBITDA of circa $25 million per annum when all the new developments reach their steady state in FY '21, growing from $5.5 million in FY '19.From second half FY '19 to FY '21, a further $155 million to $205 million of net RAD cash flow is anticipated to come from the completion of the ramp-up of the new Facilities, which comprised 1,247 new places.So in closing, I'd like to thank the board of Regis, my executive team, all of our employees for their support in progressing our growth plans, their contribution to our results and their ongoing commitment to resident care. Thank you.
[Operator Instructions] Your first question comes from Tom Godfrey from UBS Investment Bank.
If I could just start with full year '19 guidance. It looks like you're now assuming that you receive half of that additional funding payment from the government in the second half. Back of the envelope, on your numbers, it looks like around $5 million of revenue with very little cost attached to it. Does that not imply a reasonably large implicit downgrade to your NPAT guidance, Ross?
Yes. Tom, it's Ross. Your numbers are correct. This implies a downgrade to our guidance. A guidance is a guidance, so we guided to $47 million to $51 million, and we're still in the range. So...
And with that, the $5 million you've estimated, as we've said, we're not sure of the exact details of that or whether it does come with any conditions around what that money is going to be related to. So it is, obviously, still quite uncertain at the moment, but that's the assumption that we're putting there on the slide deck.
There was a secondary release from the government, stating that it would be a one-off 9.5% increase to ACFI for effectively fourth quarter fiscal '19. Is that what you guys have been hoping from government?
As far as we're concerned, Tom, there is one official announcement, it's the announcement from the Prime Minister's office. There's also other speculation running around the industry, but that's the only document that we're focused on at the moment. So I don't know what you've got.
Okay. No problem. Maybe just one more for me. Just trying to pin down what's happening with occupancy, given it was a relatively weak comparable period, given the severe flu headwinds you guys experienced. Can you just give us a bit more color off there and what you're seeing in the industry and what's driving that write down?
I think across the industry, Tom, industry occupancy is a bit softer. We've got a number the other day that was just a bit over 90%, not sure of the accuracy of that. The occupancy sort of comes and goes over time, and normally, it corrects itself. It's very difficult at the moment to sort of identify the impacts of occupancy. You've got new home care packages, and we operate a small home care business. And what we can say, a lot of those going to upgrade packages, either from Level 3 to 4 or 2 to 3. There are new packages, but not as many as you might read about in the press. So that Royal Commission is possibly having an impact on our people's mindset about coming into care, but we're just not sure. So what we do know is that there's been a great deal of new stock delivered over the last 12 months, certainly the last financial year, and some of our occupancy issue is related to new sites opening adjacent to our existing sites. And over time, that will normalize, basically. Yes, so what we're experiencing presently is expected to pass, and we look forward to improve the occupancy as we go forward.
Is that in terms of just the time line, Ross, that you see for that headwind passing? Is it still going to be an issue in the second half, presumably?
Well, it's hard to tell. Our occupancy at the moment are pretty flat from what we've disclosed with the -- into the first half, Tom.
Okay. No problem. I just want to try and squeeze one more in, just around your RAD inflows for the half. It looked like $64 million of the $72 million came from your greenfield pop on. Why don't you sort of give us any splits around that -- the balance of the $8 million in terms of what was sort of price or funding preference on your mature portfolio?
Go on, David.
We can say that funding preference really hasn't changed much. Our percentage of RAD payers and DAP payers and combo payers is pretty consistent. So it's not really a mix issue. It's really just the Steady State business as it has in the past. And getting a slight -- a slight uplift as new residents enter the facilities, so that's what's really driving that.
Your next question comes from Steve Wheen from Evans & Partners.
I was just wanting to again pick up on the occupancy. When you had a similar sort of situation with regard to flu, you had sort of been fairly deliberate strategies that you were going to put in place to actually recover that and which you were able to do to some degree last year. Is there anything else that can be done here? Any other sort of programs that can be put in place to sort of ameliorate that effect?
I think, for us, just make sure that the basics are in place across the portfolio. And we do that constantly, Steve. As I said, some -- we have some new Facilities adjacent in some of our existing Facilities and it takes time, though usually the time is [ weighed down ] with that 1,247 places to other providers, that's been done to us in 2 or 3 locations. That will pass. I think occupancy just -- it does come and go. It is a bit seasonable -- seasonal. And yes, we'll just -- we're doing everything we can to, obviously, improve it.
Okay. Secondly on the wage as a proportion of revenue. I take the point of it being inflated in the newer sites. But is there any portion of that as well, given how much focus there is on care with the Royal Commission? Is there any part of that where you're just having to increase some ratios of staffing in certain locations? Or could we expect that once those sites reach steady-state, we're just going to return to sort of EBA growth in terms of wage?
That's a correct assumption. It will come back and normalize here. Our labor expenses -- our expenses run ahead of our income in the mobilizations. So you move from tried-up losses to positive EBITDA into our pro forma run rates over time.
Okay. So there's no sort of agency cost -- agency nursing cost that's overinflating it for the time being?
No. Our rosters are the same. Our approach is same. We're always looking into innovative ways to improve the quality of our care outcomes to care recipients. At the moment, it's sort of business as usual for us.
Yes, got it. Okay. And with regards to your previous commentary around ACFI, in it being fully sort of grandfathered. I guess for the FY '19, does that still hold, based on the way your resident profile is?
The comment, I think, was that would substantially grandfathered in by the end of this financial year. And yes, that's still the case.
We still don't know heading into next year, and that was the comment last time and that hasn't changed.
It's not fully grandfathered in by the end of the year substantially, cramped up within. Sorry about that delicate language.
No, that's understood. And just lastly, there's obviously a lot of interest in health care assets at the moment. And Aged Care is no exception, particularly from a property perspective. Is that something that you could ever imagine Regis might sort of go down that path without doing -- take advantage of that interest? And do you sell and lease back half style arrangements with some of these interested property owners?
I think my answer to that is we looked at it, we looked at it. So we look at everything. So -- but at the end of the day, these are assets that are well-used and there is marriage in you earnings those assets from our perspective, but we'll -- we continue to review it over time.
I think the positive thing, Steve, and we put a slide in our last deck just to outline and just to -- I suppose the value of the assets we do hold, so that's one of the positive things at Regis. I think we have a very good asset portfolio and it underpins our business. And so I suppose that's at least one thing that people are looking at it positively from that perspective.
Your next question comes from Nick Legrand from JPMorgan.
Just if we could touch with the RAD inflows. So you saw significant inflows in this period, relative to that target over the next 2.5 or was over 3 years, just wondering how you were thinking about the likely spread of those inflows over the rest of that period, relative to the guidance you've got?
So we probably say we're probably trending a little bit better than what we though we might be at the moment. But it is a bit lumpy and it just depends on exactly which facilities are ramping up at which time. But it does come in sort of over the 18 to 24 months. And as Ross alluded to, depending on which region we're in and what other competitors we've got, and it is up and down a bit. But we are not pleased with that first half result, no doubt about that.
And just to add to that, too. Usually, January and February is a little quiet, just post-Christmas period. That's all. So a bit -- still, we're well on track to deliver those numbers we have given this guidance.
And just on the $70 million, what proportion of that would -- should I be comparing to that targeted rate? I mean, how much of it come from the new facilities?
I think the numbers we alluded to before are sort of in the mid-60s of that $70 million is coming from the new Facilities and then the other balance from the Steady State Facilities.
Great. Sorry, I missed that. And just switching to guidance, frankly, we have seen the statement come out with more information about how the funding is going to be distributed, and it does look like it's a significant increase in the last 3 and a bit months of the year. Just trying to understand, have you not seen that news? Or you don't treat that as official guidance?
Can you just explain to us what you have and where it's from?
Sure. Well, it came out earlier this week, I mean, AXA put it in their newsletter. There's a one-pager coming from the government, which effectively looks like an official government document, doesn't have a date on it, frankly, but it talks about the payment...
I have to say, I wouldn't rely on that, and that's all I'll say.
We don't believe there's been any other official announcements that we've seen from the government besides [indiscernible] in January [indiscernible]
You probably said yourself, it hasn't got a date on it. So I'm hesitant to alter on it, I think either, however.
Okay, fair enough. We will take it on that basis then.
[indiscernible], David.
Your next question comes from David Stanton from CLSA.
I wonder if I could follow up Steve's question regarding staff expenses as a percentage of revenue for FY '19. We saw it at 68.4%. Should we be thinking around that number for F '18? And then perhaps for the -- sorry, for the balance of F '19 and then perhaps normalizing after that?
So yes, for the FY '19 period, I suppose normalizing after that depends on, I suppose, what the income is doing and we've outlined here that our wage increases has been circa 3% for the period. Our EBA is probably running a bit lower than that. It is being impacted at the moment by the National Wage Case and it came out this year was 3.5%, so that does have an impact. In certain of our states, where we obviously can't formulate the modern award. So that's what's happening in some of the states. And going forward, actually, we've got our EBAs, which again, will be, we believe below 3%, but depends on National Wage Case and particularly the top line and the income, which is driven obviously by the government funding increases. So this is a percentage-to-income ratio, so you have to look at both the denominator and the numerator.
Fair enough. And you had talked previously, just similar housekeeping questions, about a depreciation expense of $32 million to $34 million for '19. Is that still hold for after today?
Yes. Correct. Depreciation expense will continue to increase. So it will be higher in the second half and the first half because as the Facilities are opening and ramping up, and the depreciation ramps up sort of in line with occupancy. So depreciation will continue to increase.
And then you've got interest expense you talked previously, that end of $15 million. Again, does that still hold after today?
Sorry. Interest expense, yes, to a similar range. Again, interest expense in the first half, if you're looking at our accounts, we have about $3 million of capitalized interest in our accounts. That will be a lot less in the second half because, obviously, we've opened the facilities, we put that CapEx into the balance sheet now, it's not a work in progress anymore so you can't capitalize the interest anymore. So capitalized interest drops off and that is obviously lower, so we're getting a saving there, but the capitalized interest will be a lot less in the second half, but those numbers you quoted before are still in line with that guidance we've originally given.
Fair enough. And then finally, tax rate, previously 29% to 30%. Again, does that still hold?
It does over the longer term, as you know. There's a bubble around it a little bit. There's no major sort of changes there around that number.
And finally, for me, while I'm on a roll, total debt of circa $360 million. Is that what you call in the near to medium term, that peak debt?
Yes. We said we peaked really around during last year. So it's obviously coming off at the moment. That's obviously subject to any acquisitions or anything we might do from a debt perspective. But yes, the development pipeline has peaked at the moment. We still got some more facilities to come online and that -- as we said the last time, we did peak in the last period, so.
And I guess, if I may just a general question. Again, you guys are doing what I think is a great job. But your Steady State EBITDA, continues to decline on a PCP basis. I mean -- and you guys are close to the best in the industry. What -- do you get any feedback from government about that kind of number? I mean, do you put it to government? And if so, what do they say in return?
I'll give you the response. It's Ross. Through the guild, we provide the government information and we provide the government information. So we spent a lot of time making sure government understand that information. So, yes. To answer your question, is yes, they have information.
[Operator Instructions] Your next question comes from Matt Johnston from Macquarie.
Look, I'll just start on sort of following on from the last question, your Steady State Facilities. When you are looking at M&A opportunities, are the opportunities like your Steady State Facilities or more aligned to newer facilities? And how do you assess that? You really don't want to take any more risk from Steady State Facilities at the moment?
Usually, they're from Steady State Facilities, Matt. Because if it's a newer facility, you'll have a very large red [ pool end ]. That preference will probably be to build it ourselves, to be quite honest. So how do we look at it? We looked at -- I think we said many times over the period that we look at the asset quality. We know what the funding is, we know what the cost side is, so we look very much at the asset quality from a -- a bit. The criteria that we've got in terms of our strategic overview into the document so, present time, -- our assessment hasn't changed, but it's very much about the asset quality.
I'd say critically, what we pay for the asset, asset quality and what we pay for it and then given the structure and the way we operate our business, we believe we can get those facilities up to our run rate. And historically, we bought a lot of not-for-profits that generally been so well below our run rate. So there is opportunity to get them up to our run rate. Then obviously, once they reach the run rate, and the current environment is challenging to keep them there, but -- and there is some opportunity if we buy right and to improve the -- those businesses over the short to medium term.
But I'd say, we're in operating EBITDA level and probably at the right cash flow level too. There's usually -- if you do it right, there's some small opportunities there as well. So we'll look to significantly refurbish those assets, so we'll -- our preference is truing up post, and that helps to improve earnings as well.
Okay. And just moving on to sort of second half long term RAD flows and thinking about where occupancy exited, and you sort of commented that it's probably similar to where it exited, first half '19. Is anything we should be wary of in the next second -- in the second half, in terms of a cash flow drag from occupancy pressure from flows?
Well, you saw that we put the occupancy number there for the first half and our occupancy is pretty flat at the moment. So it's a little bit in the first half, so will -- probably, there will be a small impact that will go through, but it's probably -- I think I said before our January, February numbers are usually a little softer, it's probably gone through in those periods, I'll suspect. So first half is strong, second half, January, February, seasonally a little softer. So that gives you some indication of where we think we might land.
And we said, it is a bit variable. We were pleased and with the first half performance, probably slightly exceeded our expectations. So we wouldn't be expecting that to happen again. But may or may not, but unlikely to be quite as strong in the second half.
I think the important point is we still got 553 new beds in the market. They're all in well-located, high median house price end. And as you can see, on every metric, our ramp-ups are doing well.
Okay. And just can you just clarify for me, I'm still a bit confused. When you said direct cost associated with Aged Care will be normalized in the second half, does that mean it's going to be part of your normalized EBITDA? Or is just normalized on the $800,000?
Sorry, just to clarify the number. So we put in our accounts and our slides, actual cost or we call them direct costs associated with Royal Commission, which direct cost associated with that, our team and our lawyers, et cetera, that was $400,000 to the end of December. There's a footnote in our slide deck that says at the end of January, it was $800,000. So as we did in the first half, whatever that number is for the full year will be normalized out of our results and it will come -- so shall, with or without that number. So you've got to identify exactly what the direct costs are of the Royal Commission. So as we said, the direct cost for us is really just the team and the lawyers, et cetera, and were supporting us through this process.
Okay. And just one last one for me, just on CapEx, obviously, you're pretty explicit with Aged Care, just on the Retirement Village and what I see 6 months ago, are you still sort of minimal CapEx the second half '19 and then the ramp up into FY '20?
So yes, there's only 4 months to the year left, so -- well, yes, they will be very small. So we'll be mobilizing construction. So there is no large expenditure for the first few months.
[Operator Instructions] There are no further questions at this time. I'll now hand back for closing remarks.
Thanks, everybody, for participating in our call today. And we look forward to catching probably a lot of you over the next week. Thank you