The Economics of Getting Old

Good morning, Armchair Army,

Welcome to today's edition of The Armchair Analyst, a 5-minute daily update on the ASX life-sciences sector.

Australia has an aging population.

(we all know this… we’ve heard it all before)

BUT…

The consequences are sooner than we think.

Regis is already at 96% occupancy, and aged care centres have to turn people away because they’re full.

Australians are wholly unprepared for what’s coming…

A silver tsunami.

A few months ago I profiled three tech companies that service the industry:

Today is PART TWO of my deep dive into the aged care sector.

This time, a look at the aged care businesses themselves.

The main ASX-listed company is Regis Healthcare (ASX: REG).

But integrated retirement villages also include:

(knocking off four companies from my Biotech 165 Challenge at once)

Aged care is not your typical healthcare investment.

It is a regulated, infrastructure-like business with healthcare demand, property exposure, and a highly unusual funding model.

So, to unpack it all, I’ve enlisted an expert… Michael Horin.

Michael is the director of a family business, Clarity Aged Care Advisors, that helps families transition a loved one into aged care and navigate the complex funding options.

He has a DEEP understanding of the aged care sector…

Its pitfalls and its opportunities.

… and, importantly, what investors need to know.

Take it away, Michael.

But first…

Mayne Pharma (ASX: MYX) completes post-marketing safety study for IMVEXXY®, confirming no cancer risk from its low-dose estrogen. (MYX)

🪑 Milestone ticked.

Genetic Signatures (ASX: GSS) quarterly report reveals a $20.9M cash position. (GSS)

🪑 Burn has slowed for sure. Cash box still remains.

Ceryvyn Therapeutics (ASX: CYV) has published two “change in substantial shareholder” notices over the last few days. (CYV, CYV)

🪑 This is the old Opthea. Still trading at $10M under cash backing. 

Looks like the big shareholders don’t want to be the next “cash box” target after Genetic Signatures.

Caribou Biosciences (NASDAQ: CRBU) has shut down, failing to raise money for its late-stage allogeneic (off-the-shelf) CAR-T therapy. (Stat News)

🪑 The industry has been moving away from allogeneic (off-the-shelf) and toward in vivo for some time.

Morning, Armchair Army. 

Michael Horin here, Director of Clarity Aged Care Advisors.

Around 15 years ago, my family went through the process of moving our grandmother into aged care. 

It was overwhelming and complicated (at a highly stressful and emotional time). 

That experience ultimately led us to build Clarity, a family-run service that has helped over 1,000 families transition a loved one into aged care and navigate the complex funding options.

A couple of weeks ago, I went for coffee with the Armchair Analyst, and we talked about the aged care sector.

Specifically, what it looks like through an investment lens.

After working in this space for so long, I've developed a deep understanding of the sector, which can be confusing and is often overlooked.

Aged care is one of those industries that most Australians know exists, but relatively few people understand…

…or want to think about.

Most people have heard that Australia has an "ageing population".

But aged care as an investment isn't as simple as:

Ageing population → More demand → Great investment.

The industry is complex.

Aged care sits at the intersection of healthcare, property, government policy and consumer finance.

Businesses in the sector must manage all four.

The main ASX-listed company is Regis Healthcare (ASX: REG).

But integrated retirement villages also include Ryman Healthcare (ASX: RYM), Summerset Group (ASX: SNZ), and Oceania Healthcare (ASX: OCA).

Today, I want to cover some fundamentals of the aged care industry, but here is the quick summary:

As the Armchair says - let’s dive in.

Aged care is NOT a typical consumer business.

It is heavily government-funded.

Government funding accounted for roughly 79% of residential aged care provider revenue in 2024–25, with residents contributing the remaining 21%.

Government spending on aged care reached almost $39.8 billion in 2024–25, including approximately $24.2 billion on residential care.

This creates an unusual business model.

Demand is growing, but providers don't have pricing power.

The government has significant influence over the industry's top-line revenue through funding rates, indexation and resident care classifications.

However, the government does not control the cost base.

Last week, the government's AN-ACC price (government funding per bed) increased by 2.55%, from $295.64 to $303.19 per resident per day.

Compare this to the 2026 Annual Wage Review, which increased award wages by 4.75%.

As the AN-ACC price increase came in well under cost inflation (and expectations by the market), the stock price of Regis fell sharply:

The key takeaway?

Aged care operators have far less control over revenue than a typical consumer business.

Overheads can rise while “revenue per bed” is capped.

Aged care homes are highly fixed-cost businesses.

Whether a home has 80 residents or 100, the operator still has a building to maintain, kitchens to run, managers to employ and substantial staffing requirements.

That means an additional occupied bed can be valuable once a home is operating at scale.

The national residential aged care system has 224,500 operational places (as of June 2025).

Their occupancy?

90%.

For large private operators, this number is even higher.

Last financial year, Regis reported average occupancy of ~96%.

When I started in the sector five years ago, facilities were happy if occupancy was close to 85%.

Now, with mature homes operating around 96%, many facilities are effectively at capacity.

I'm seeing this on the ground too.

For the first time in my time in the industry, I'm seeing facilities reject residents because they are full. 

Some are even telling families to contact competitors simply because they need to find a bed somewhere.

This creates a problem for large operators that are essentially full.

Growth is capped.

Aged care facilities can only generate so much additional revenue by filling empty rooms.

This leaves only two ways to grow the number of beds (and therefore revenue): build a new facility or acquire an existing one.

Aged care is a fragmented industry with significant regulatory and compliance requirements.

Over the last few years, I’ve seen larger players acquire smaller operators, driven by the economies of scale that come with running more beds.

Between 2017 and 2025, small residential care services fell by 32%, while large services rose by 37%.

In other words, scale is becoming increasingly important.

And the economics are tough.

StewartBrown's FY25 financial performance survey covered 1,206 aged care homes representing 100,109 beds/places. 

It found that 55% of the homes in its survey operated at a loss.

That creates potential acquisition opportunities for larger operators.

Scale can spread corporate overheads across more beds, increase purchasing power, make technology investments more economical, and create the balance sheet capacity needed to acquire or develop new homes.

(Basic economies of scale stuff)

This is what Regis has done in the last three years.

Acquisitions include:

Regis announced another acquisition in August with Royal Freemasons Home Care (expected to close Q2 FY2027).

Australia's population is ageing. 

The number of people requiring higher levels of care will increase significantly over coming decades.

(It’s inevitable)

The government estimates that the number of people requiring aged care could reach 350,000 by 2040.

Against roughly 225,000 operational residential places currently available.

But aged care facilities aren't cheap to build.

A new facility requires land, planning, construction, staffing, regulatory approval and significant upfront capital.

The long-term need for more beds is strong, but the economics of building and operating them constrain supply.

And we're already seeing the consequences.

Aged care providers are telling hospitals to keep residents longer. 

Hospitals are telling families to take elderly patients home. 

Meanwhile, families are struggling to find available beds.

The government's response has been to introduce the new Aged Care Act, which came into effect on 1 November 2025.

In very simple terms, the reforms increased government investment in the sector while also asking residents to contribute more towards the cost of their care.

Will this work?

To answer this question, we first need to understand who actually pays for aged care, and how much.

When someone enters residential aged care, they may have to pay a range of fees.

Some are set by the facility. 

Some are determined by the government. 

All operate within the Aged Care Act framework.

These include means-tested fees, government care subsidies, accommodation payments, daily living costs, higher everyday living fees, and other charges wrapped up in acronyms.

A resident's fees can depend on their assets, income, when they entered care, the type of accommodation they choose, and the level of care they require.

But the most important influential cost is the Refundable Accommodation Deposit (RAD).

This is a refundable, lump-sum, bond-like payment from the resident to the provider, and at some facilities it can exceed $2 million.

The other side of this coin is the Daily Accommodation Payment (DAP).

This is a pay-as-you-go alternative (almost like rent).

For the aged care provider, the RAD creates a very significant source of cash.

But, and here is the catch for investors...

A RAD is not ordinary revenue. It is generally a liability that must ultimately be repaid to the resident or their estate.

This matters enormously when analysing aged care companies.

Regis had a RAD liability of approximately $2.2 billion at December 2025, while generating $178.5 million of net RAD cash inflows in the first half of FY26.

That cash can be extremely valuable to a provider because it can help fund acquisitions, developments and capital expenditure.

But investors should not mistake a large RAD balance for free cash.

It is effectively a very large pool of resident accommodation funding, sitting alongside a corresponding obligation that must be repaid.

That makes an aged care provider's balance sheet quite different from a typical healthcare company.

So, how should investors think about the sector?

I like to put this into the “bull case” / “bear case” scenario:

So aged care is not your typical healthcare investment.

It is a regulated, infrastructure-like business with healthcare demand, property exposure and a highly unusual funding model.

Demand for aged care services will be there.

It is whether the regulatory infrastructure and incentives will be enough to drive the investment needed to meet that demand. 

Hi there Armchair Army, I’m back.

A big thank you to Michael for putting all of that together.

I’ve heard about the “aging population” theme, but I enjoyed learning about the industry's nuts and bolts.

(I still can’t believe the government sets the price of beds for everyone)

The consolidation piece is very real.

But the sector's economics are getting increasingly squeezed. 

Something has to give.

(and honestly, it’s all government-driven)

It will be interesting to see how the sector plays out, and I’ll be keeping a close eye on some of those listed players.

Also…

Michael has helped over 1,000 families navigate the financial complexities of aged care.

For many families, that's the reality of the “who actually pays for aged care” conversation.

Means testing, selling vs renting the family home, DAP vs RAD, government subsidies, financing options…

You know…

All of the stuff that you DON’T want to be worrying about as your loved one is entering aged care.

(Especially under super stressful circumstances)

No one “teaches” you the aged care sector.

But eventually we have to confront it.

If you (or someone you know) is in this situation, reach out to Michael at [email protected] or give him a buzz on 0408 347 413.

Just tell him The Armchair Analyst sent you.

See you all next week.

The Armchair Analyst.