Welcome to the Oceania Healthcare Limited Half Year Results Announcement. All participants are in a listen only mode. First, we will hear a presentation, followed by a question and answer session. If you're participating in the teleconference, please ensure your webcast audio is muted to avoid an echo. You can mute the sound in the lower corner of the video player. If you wish to ask a question, you will need to press the star key followed by one on your telephone keypad. I would now like to hand the conference over to Brent Pattison, Chief Executive Officer, and Kathryn Waugh, Chief Financial Officer. Please go ahead.
Good morning, everybody, and welcome to Oceania's interim result for the financial year 2023. It's been a busy and productive period for Oceania, as we have made solid progress towards our five-year strategic plan with further growth in our greenfield build capability, our CareSuite innovation, which offers current and future residents the very best of convenience and outstanding care in a premium residence. The introduction of ambitious targets to deliver the very best in sustainable practices and observe strong resales and attractive development margins on new product delivery over this interim period. The macroeconomic conditions here and globally have created much publicized near-term headwinds for the sector, with a noticeable softening in the New Zealand residential housing market as interest rates climb.
We continue to see competition for certain key roles like registered nurses, with borders just starting to reopen and note the inflationary pressure on some of our key inputs. Despite this backdrop, the business is well underway in achieving its ambitions for full year 2023. It's being delivered by a dedicated and fantastic team of over 2,900 employees and our 4,100 much-loved residents. Turning to the highlights, the interim results include a 6% increase in underlying EBITDA on a PCP basis, 226 total sales, significant growth in our premiumization strategy for care, and a strong resale result, both revenue and margin, as we successfully have sold down the larger levels of resale stock we had on hand from our 31 March 2022 year end.
There are certainly some areas of pressure, and while staff shortages are moderating, key nursing roles continue to be in high demand across the sector. These clinical shortages and DHB resident admission policy settings have reduced our near-term resident occupancy by 1.6% - 91% overall. We welcome the Green Bay and Remuera Rise residents to the Oceania family and note that this increased our financing costs for the period as these acquisitions were debt funded. With a softer residential housing sentiment, we have seen an increase in days to sell and a slower than expected uptake of new apartment sales at Awatere in Hamilton. They came on stream around March, April of this financial year and a later-than-planned new care building at Lady Allum Milford, which opened in September versus expected in July of 2022. On the positives, Oceania is a portfolio business.
Most sites provide the full continuum of product to cater for the independent resident through to a higher level need of care in our CareSuite offering. Our sites have a smaller, more intimate resident population with an eye to key locations, boutique and well-designed living spaces and a great community feel. We've continued to grow our DMF revenue over the period. Oceania has a seasoned portfolio with strong embedded value capture and resales and increased sales prices achieved from first time new sales as key developments come on stream. We have been able to maintain pricing across our portfolio. The care premiumization is well established and we are delighted with the accelerated growth in our CareSuite product innovation. CareSuites now make up 40% of our total offering, and we have seen a 211% increase in premium care revenue over the last three half year periods.
Our CareSuite proposition has proved its value by accommodating resident need in a cooling housing market versus the more traditional house sale decision of an independent living resident. This has been further enhanced as we are now observing presale activity for new CareSuite development. Turning to slide three. Oceania has a solid pipeline of 1,836 units in CareSuites, and importantly, the strength of the consented pipeline is not just in its size, but also the optionality of our pipeline in terms of the number of key locations available, the smaller resident size and decreased complexity and variability of product mix. In these more uncertain times, we can accelerate key developments with tailored product delivery. For example, villas, which we traditionally presell.
This assists casual cash recycling and capital efficiency, as well as supporting our annual growth aspirations of circa 300 units in CareSuites per annum. Over the last calendar year, we've invested in our property team capability across the design, delivery and development functions. Additionally, we have largely seen no disruption to timetabled delivery expectations of the 519 residences under construction nationwide. Our build program has benefited from fixed term contracts, and this has preserved development margin in a market with increased input costs observed from inflation or supply chain disruption. In this interim period, our new product delivery of 127 residences has largely and exclusively been our CareSuite offering, and I'll touch on this in the coming slides. We've certainly made good progress on our greenfield integrated retirement and aged care village development at Franklin in Auckland.
Resource consent is in place and earthworks are underway. We are also inundated with new greenfield land opportunities, some offering better locations and stabilized pricing as larger land bankers find their projects more challenging in the near-term property cycle. We expect to add additional greenfield to our pipeline in the coming period, including the exercise of an option to acquire 6.7 hectares at Green Bay once the plan change is operative, likely early 2023. Our Remuera Rise acquisition rationale is showing the first fruits in providing a care feeder for those residents. We have had a Remuera Rise resident purchase and transfer to a lovely CareSuite at our Meadowbank village. The family have commented on the ease of this transition and the benefit of having this continuum to care by becoming part of the Oceania family of sites.
We've continued our exec team capability build with Anita Hawthorne joining the team. Anita comes from a senior and accomplished career in operations, infrastructure, sales and marketing, and delivery of exceptional customer experience. Anita is also a qualified accountant to boot. Turning to Oceania's strategic pillars. Oceania has four strategic pillars to support our ambitions of outstanding financial performance and sustainable growth over the next five years. By way of a simple example of each pillar, if we think about our offer, it's a resident-focused and evidence-based approach to our properties. Right product, right place. Two recent examples include Lady Allum Care in Milford in Auckland, which is adjacent to a major hospital and in a high socioeconomic demographic with an older population, and The Helier in St Heliers Bay, Auckland, which offers the highest quality apartments and amenity in an attractive residential suburb.
If we think about resident experience in an example, we offer a continuum of living, independent living to care, a smaller resident population, greater connection, and greater independence. People capability, we've certainly observed staff shortages, especially clinical. Oceania offers a career pathway for registered nurses to become clinical managers and ultimately nurse practitioners, the highest level of nursing leadership practice available. If we think about growth, simply put, it's about adding value to everything we do. Our focus as a business has been to take a disciplined approach to capital allocation across our brownfield and greenfield development portfolio. This started by building resilience in our balance sheet. We secured attractively priced seven-year corporate debt. We extended our banking facilities, both tenure and capacity, and raised equity capital for M&A when trading at a premium to Net Tangible Asset backing.
This has provided a good platform to support our growth ambitions while maintaining lower levels of overall gearing in the business to support this growth. Our brownfield pipeline is well established. Future capital allocation does not require the complexity and disruption to earnings of the past. With reduced buyback of units and decommissioning of rooms, which is the equivalent of foregoing earnings, to make the site available for new development. In addition, the brownfield investment can be staged to meet market conditions and to meet resident requirements at these key sites. Greenfield ambitions in M&A. Let me firstly say on M&A, we don't see any attractive M&A in the near to medium term, and it has only ever been an accent to our overall strategy.
The addition of Waterford, Green Bay, and Remuera Rise have added accretion and importantly, high-quality sites and key locations with future development potential and ILU residents that will benefit from our adjacent care offering. We are well underway on greenfield development and have two contrasting examples. One is a broad acre master planned site at Franklin, one a more boutique premium retirement living environment in St Heliers Bay. As part of our capital allocation and rep-return profile, we also look at those sites we own that may not offer us the same future development potential or may be geographically remote from adjacent cluster sites or offer less optimization for premiumization. Lastly, we continue our quest to innovate by delivering reimagined resident services. We are pleased with the adoption of the CareSuite offering and in higher socioeconomic catchments, we are pivoting towards full resident-funded care services.
This allows us to tailor our key service moments around resident need through our highly professionalized model of care and staffing, and to move away from dependency on government funding for a portion of our care residents. If we think about our future development pipeline, as guided, we are well underway on the premiumization of the Oceania portfolio and future development pipeline. We do not intend to build standard care beds. In fact, with decommissions and conversions, the standard care bed proportion of our fully developed portfolio will be 10% smaller than it is today. By contrast, our CareSuite portfolio will increase by more than 72% as we develop out the existing pipeline. The midterm new product delivery will be ILU focused at a circa 1.5x ILU to care ratio across a mixture of brownfield and greenfield sites.
This ILU development will also include a greater number of villa product versus apartment. The pipeline does not include the Green Bay land acquisition option, with circa 113 villas contemplated for stage two post the plan change. The future composition of the development pipeline when completed, will continue to position Oceania as the premium provider of retirement and aged care living, with circa 75% of all product attracting premium pricing and the commensurate growing deferred management fees. What have we completed in the period? In interim period, first half 2023, we have delivered 127 CareSuites across two sites. Lady Allum is 113 CareSuites split across three floors. It comprises 96 CareSuites and 17 dementia rooms. The Lady Allum care building is impressive at over 7,831 m² .
It has been well received by the Milford community and broader North Shore catchment areas and offers a quality product, lots of amenity, including café, hair salon, open to both care and village. Since opening the doors in September, we have already secured 10 sales with several pre-sales. For a product that has not traditionally achieved pre-sales, these will fall in the second half 2023. The area highlighted in blue on the graphic is a large future development site, it provides a compelling footprint to design and construct premium apartment and community amenity with little disruption to existing residents and occupation. The aerial photo shows the proximity to Milford, the hospital, and the lovely vistas of the lake in Rangitoto Island.
Woodlands, which is located in the regional setting of Motueka, is a further proof point of market adoption of the CareSuite product and demonstrates efficient site optimization. Originally, the site was standard care beds, which is the green roof, and villa product, which looks like it's a combination of colors from blue to red, to gray. The site has undergone care room conversion to CareSuites, and the additional 14 CareSuites that have been delivered, which is the gray roof, demonstrates a strong resident preference to premium with four pre-sales already secured for the second half 2023. We've got a lot of development under construction. We certainly have an active construction program underway with 519 units and CareSuites to support our targeted annual growth.
The development and property team, led by Andrew Buckingham, continue to demonstrate their capability in designing, developing, and delivering premium living spaces for future residents across the product spectrum and multi-site management across 10 sites nationwide. Scheduled completions for the second half of 2023 provide over 130 units and 44 CareSuites. This includes the boutique premium village at The Helier in Auckland, offering both apartment and private care, which will be delivered. The private care will be delivered in full year 2024. Stage two apartments at our The Bellevue in Christchurch, some villa product in Stoke and Nelson, and the completion of some CareSuites. What's also important, and not necessarily evident from the slide, is that the future construction includes both greenfield and brownfield.
The brownfield sites like Elmwood, 106 CareSuites, Bayview stage three, 28 units, Waterford stage one, 50 units, can all be constructed with minimal to no impact on existing residents and occupation, nor their community amenity at those sites. In the past, our brownfield pipeline has had greater disruption and short-term impact on financial performance. On contracting and supply chain, Oceania has selected key construction partners, which have managed the supply chain disruptions incredibly well. Most project delays have been because of COVID absenteeism rather than the availability of materials. GIB remains the commonly discussed material shortage, but this is much about the lack of competition as it is a supply chain issue. Shipping costs, we're pleased to see, are coming down. Inflation is driving up other building inputs.
Competitive tendering by main contractors is largely dead, and 100% fixing of construction pricing is becoming challenging to achieve. Separate contingencies are being carried for escalation risk on the non-fixed price elements, and we engage early with our construction partners through an ECI process which results in a negotiated contract, and this will become the norm. Greenfield and M&A. Waterford has settled well into the Oceania portfolio following our acquisition in full year 2022. It has a vibrant resident population, high quality community and amenity for those people that have visited it, and we are underway on the next phase of growth for the site. Stage one in the foreground is the construction of an additional 50 apartments, which is up from the originally 24 consented. Aspect Construction has been selected as the main contractor for the works.
The ECI methodology I touched on earlier has been used with initial contractor input into the design and construction methodologies. Aspect will be familiar to callers as they have previously constructed The Sands and Meadowbank stage one to five, delivering these projects on time and to a high level of quality. Aspect have been working with preferred subcontractors to eliminate cost escalation exclusions. We have been able to achieve a 73% fixed price contract. Green Bay, on the right-hand side of the graph, we discussed the acquisition at our full year 2022 results in the AGM. Since that time, we have acquired an additional half a hectare of development land, you can see that highlighted in pink.
To complement the existing site and to protect the beautiful amenity bowling green, swimming pool and spa complex, resident workshed, and clubhouse, we will build villa product on this vacant land. We have an option to acquire a further 6.7 hectares of neighboring land. This is subject to a lodged plan change that has been approved by the Whangarei District Council, subject to hearing and the settlement of appeals. The last of the appeals relevant to this land at Green Bay Village is in the process of being settled. We expect a result in quarter one, 2023. Once operative, Oceania will be able to lodge a resource consent application for stage two. Stage two is likely to comprise approximately 113 villas, new community facilities, and potentially care.
If Oceania exercises its option for this development plan, then building would likely to begin in 2024. Final slide for me. Franklin, in Auckland, we've made significant progress with our broad acre greenfield site at Franklin. We've received consent for circa 246 villas, apartments, CareSuites, and wonderful community living space. This site consent allows us to build across the broadest range of options, and it's likely we will start the community hub and villas, extending in stages to higher density apartment and CareSuites at the later stages of development.
I've seen the early-stage design imagery and renders, and the built form will indicate a new style direction for Oceania, with a focus on curating a wonderful living experience for future residents, adding significant value to the local area, including a grand entrance through the heart of the site, leading to amenity and the care center in time. We are underway on the groundworks and expect to lodge building consents in full year 2023. Lastly, The Helier, which is in St Heliers Bay in Auckland. We're well underway on the construction of The Helier, as you can see from the graphic. The crane in the photo is gone and the scaffolding is coming off. We are delighted with the impact of this highest quality boutique apartment and private care residence. It offers unmatched 360 degree views and a bespoke resident experience.
We have seen unprecedented demand for this unique offering, which is the first of its kind in New Zealand. The design approach was based on a two-story scale of the existing houses along the residential street, supported by a W-shaped building to remove the perception of scale and deliver an enduring and well-admired property. Our construction team at Argon and our architects, Peddle Thorp, have worked tirelessly alongside our expertise to deliver this vision. I'll now hand over to Kathryn Waugh, our CFO.
Thank you, Brent, and thank you again everyone for dialing in today. I have a handful of slides to run through before we will open for question time. Sustainability and ESG is an area that we have invested in significantly since the last reporting period, and which we will continue to do so. Sustainability is integral to everything that we do, integral to our future strategy, and in every decision that we make. During the last six months, we have made a strategic investment in this area with the onboarding of our Head of Sustainability and Corporate Responsibility, the establishment of an Executive Sustainability Committee, and the establishment of a subcommittee of the board, which is chaired by Rob Hamilton and will oversee our sustainability journey. You can expect to see rapid adoption and increased reporting from us moving forward as we push more and more into this area.
In June 2022, we announced a Sustainability-Linked Loan that links our NZD 500 million, five-year banking facilities to achieve an ambitious environmental and social goals. Linking our borrowings to our sustainability vision was one of the first signals that we are committed to driving our performance even further and with great ambition. On the left-hand side of the slide, we provide the high-level details of the three KPIs to which we have linked our loan: around greenhouse gas emissions, diversion of construction waste from landfill, and improving the experience and well-being of residents through our excellent quality of care and resident well-being. We have also detailed our focuses for the next six to 12 months. A look to what you can expect from us as we move towards the full year results in March. There are three main priorities for us in this space.
In the coming months, we will be finalizing our full values chains emission inventory. For those familiar with this language, it's Scope three. Drafting our emissions reduction plan, as well as committing to the Science Based Targets initiative. This is something that not many NZ companies have completed to date, but something that will really set us up in the best possible position for the future. Preparing for climate reporting requirements will be a huge learning curve for us all, as we will be asked to look at climate risk and opportunities, how those will impact our strategy, and what mitigants we have in place to manage risk. As part of this work, we will also be looking at how resilient our strategy is under different warming scenarios across different time horizons.
The final and extremely key piece of work is the refresh of our ESG framework. As a business, we are undertaking a review of our sustainability aspiration and framework. This exercise will provide us with a really clear sphere on our priorities over the next few years, and will bring together all aspects across our business that deliver on ESG, framing our integrated reports moving forward. Moving to trading highlights. We have seen continued increase in our total assets. The acquisition of Remuera Rise in Green Bay added around 2% to our total asset position, with a further 17% increase from positive fair value movements and additional development spend at sites like The Helier and our other recent developments, which are maturing.
Our disciplined approach to capital allocation, more specifically, ensuring with each build we are focused on the right product in the right place, translates to an improved asset base. This considered approach to development has not only increased our total assets by almost 50% over the last two years, but also shows in our future earning streams. Despite the tough market, we have achieved an underlying EBITDA increase of 6% to the prior comparative period. We will come on to the components of that in my next slides, but we are continuing to see further fruits of the premiumization of care and the embedding of recent developments and acquisitions.
Sales volumes are in line with the prior year. We have seen the emergence of strong resales, especially with the CareSuite model, which we are seeing being accepted by the market more and more as we move through reporting periods. This great uptake of CareSuites, more and more a choice-based product, is being seen directly in the positive increase in premium revenue, which has almost doubled in two years. On my next slide, I focus on total sales across the portfolio. Total sales volumes have been consistent with the PCP, and we've experienced a significant increase in demand for our CareSuite model across the country.
Prior periods saw a strong delivery of apartment and villa product, with the last apartments coming on stream in March 2022 at Awatere in Hamilton, and the last villas coming on stream being those at Gracelands in September and October of 2021. Villa delivery has not been a feature of this interim result, a product that was previously pre-sold, noting that the two comparative results include the benefit of approximately 32 villas. Over the last six months, our delivery of product has focused on Care Suites. We largely sold through the resale stock, which we had on-hand at 31 March and experienced strong resales in our first half. Assessing the applications that we have secured for new ILU and new Care Suites over the last six to seven weeks, we have seen a pleasing uplift in volume while maintaining price despite the residential housing market sentiment.
Even in a falling housing market, our disciplined approach to setting sales prices and rolling out developments of right product, right place, and our disciplined approach to capital allocation has meant that we have been able to continue to dynamically price product with reference to housing pressures and affordability ratios, maintain and set price on a premium product across the portfolio, and continue to observe strong resale and development margins. My next slide, premium care revenue. As signaled in March, we have come through peak-to-trough care margins, and we are now observing an uptake in the EBITDA per bed. Heading towards the full year results, we expect to see an average EBITDA per bed in excess of NZD 10,000 achieved. It's worth noting that this EBITDA per bed rises to over NZD 17,000 per bed when we include CareSuite resale gains and development margins.
Funding increases received during the period help in driving those margins as we see increased contribution to our service costs. The uplift in bed day rate funding for July and September has helped support increases in care revenue and will be further recognized in the next six months with an expected NZD 4 per bed per day positive impact. The sector still faces staffing challenges, with nursing shortages still ongoing and with pay parity and pay equity for nurses still outstanding and a future upside. Another major contributor is the ongoing acceptance of the CareSuite model. Premium care revenue continues to offer an established earnings stream, which is recognized directly to the bottom line and provides a meaningful benefit to supporting our margins in care.
PAC revenue and CareSuite DMF have improved from a strong base in the first half to now more than triple the level at the time of the IPO in 2017, demonstrating the effectiveness of our disciplined approach to investment in the premiumization of care. Looking to our future pipeline, we will see less disruption to our earnings from a major whole-of-site brownfield development and continue to see the upward momentum of EBITDA per bed and margins, with 16 of our sites currently achieving above NZD 12,000 per bed. As I have just noted with our premium revenue growth, embedded value provides a sign of what is to come. With recent acquisitions coming online, the embedded value in our portfolio is also increasing, and we are confident that the disciplined approach to capital continues to improve our portfolio.
We have seen a total increase in embedded value of just under 14% since this time last year, supportive of our overall premiumization of the portfolio through DMF growth and ongoing capture of embedded value. Our current embedded value includes NZD 232 million of accrued DMF cash flows to be realized and NZD 220 million of resale gains. I end today with a look at our balance sheet position with a comparison to the 31 March 2022 position and a net adjusted value view. At March, the acquisitions of Waterford and Franklin allowed us to break through the NZD 2 billion mark, this trend has increased further with the acquisitions of Green Bay and Remuera Rise, along with further fair value increases to our total assets, bringing total assets just shy of NZD 2.5 billion.
In the appendices, we include details of our cash flow movements in the period, and I note that operating cash flow is reduced by approximately 40% or NZD 20 million when compared to the six months to September 30, 2021. There are two main components to this. We have used operating cash in the current interim period to buy back product to facilitate future brownfield development growth, and this in itself has been at approximately 2x the level of prior periods. In addition, we saw lower than anticipated new sales capture, particularly at Awatere. This, coupled with the NZD 60 million drawn down to execute the acquisitions in the period, has resulted in a NZD 120 million increase to our drawn debt from March. This has increased our gearing to around 35%.
It is important to note that on the opening of the Helier around March 2023, we expect to see significant cash recovery for the investment made. Our balance sheet is strong, and we have worked hard to ensure we are well positioned financially to enable growth. We are focused on securing tenure of funding, diversification of debt, and securing a low blended fixed interest cost. The bonds we secured early at an attractive interest rate, and these, along with the swaps on our extended banking facilities, are enabling us to keep our interest costs low. This upfront effort has set us up to succeed, and we have significant headroom to enable future growth through greenfield land acquisitions.
Our net asset value per share, excluding the assets held for sale, has decreased slightly from NZD 1.38 per share at March to NZD 1.34 per share at September as a result of the increased borrowings which enabled acquisitions in the period. Including the assets held for sale in the current period, the net asset value per share as at 30 September is approximately NZD 1.42, an increase on that from March. When considering the unsold stock on hand, this increases our net assets per share a further NZD 0.11 - NZD 1.53. Finally, dividends. We have always looked to reward our shareholders through our dividend program in accordance with our payout ratio, which is 50%-60% of underlying impact.
We have announced today an interim dividend of NZD 0.019 per share, which is at a level of 50% of underlying impact. We have enjoyed strong reinvestment through our DRP program in the past. The DRP is in place for this interim dividend, offering a discount of 2%, and we again expect a good uptake, which in turn supports our future balance sheet growth. Thank you everyone for your time. We'll now return to the operator for questions.
Pardon me. You're now reconnected. Please go ahead.
I think we dropped off the call, so we certainly apologize if that was the case. Hopefully, we got through all of Kathryn's presentation before we dropped off the call. In any event, please feel free to ask us some questions and let's use the this next time to catch up on any of the matters that people didn't hear from Kathryn's presentation.
Thank you. A reminder that if you're participating in the teleconference, please ensure your webcast audio is muted to avoid an echo. You can mute the sound in the lower corner of the video player. 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 two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Andrew Sills from Jarden. Please go ahead.
Good morning, guys. First one for me is just on saleable management. You're now two months into the second half. How many units have you sold in the half to date? Based on the saleable management, how do you expect sale of that saleable management?
That's good question, Andrew, and I'm sure it's on people's minds if we think about some first half delivery. If I think about what we had available for sale from a new product delivery, our ILU products make up about 30% of our unsold stock. Our care product deliveries on a new sale basis make up, you know, a slightly smaller proportion, about 25%-30% of unsold stock. What we have observed is from the first half results, we had 28 new ILU sales, as recorded in our results. We're up, sort of 64% from a net applications point of view on ILU, and we're up about 55% on a net application basis with Care Suites.
We made mention of the softer sales uptake we've seen at Awatere. That's starting to turn the corner. It had quite a material bearing on the first half. We brought 63 apartments to the market. It represented about 40% of the unsold stock available from a new ILU basis. We are seeing that days to sell is taking a bit longer, Andrew, and that's, you know, been observed across the market as people consider, you know, rising interest rates and housing, residential housing sentiment generally. Care Suites continue to sell through the cycle well, as we know. They have more of a needs-based accent.
Great. Thank you. Just the next one from me is on head office costs. This increased year over in the half by nearly NZD 2 million. What does this increase relate to, and should we be thinking some of the quantum of cost growth in the second half?
Yeah, thanks, Andrew. It's Kathryn here. It's a similar story to what we would've said at March, with kind of inflationary increases that we're seeing coming through. There are kinda your usual suspects of, you know, increased IT and staffing costs, and insurance. We have, of course, made some extra people investments in the 12 months to March that we're seeing coming through in this six months. Coupled with that as well, the acquisitions of Remuera Rise and Green Bay, because we didn't raise capital at that time, those costs are unfortunately straight to the expenses lines for us. There are some kind of advisory, consultants, and due diligence costs that we've seen coming through that won't repeat. Whereas you'll see an elevated cost, you won't see it to that level.
Thanks, Kathryn. With the next, you call out the quantum of those transaction-related costs. What's your expectation for underlying inflation, across, you know, inflation cost pressures across the business as well for the full year?
I didn't call out the quantum of the manager. Unfortunately, that's something that we're not disclosing, and it was a one-off cost. Going forward, as we move into greenfield acquisitions, there'll be a certain level of kind of advisory costs that come through as well. Wage cost inflation we had in the prior year, we're seeing inflation around New Zealand's obviously peaking in the over 7%. We'll see that coming through in some of our main lines. The biggest cost for us at support office is obviously the wage cost. What you're seeing in the first half will be relatively consistent with what you'll see in the second with that regards.
I guess I would just add, Andrew, that from my perspective, Oceania has taken the approach of rewarding key roles, building a good value proposition for our staff. As a consequence of that, we had invested ahead of the curve, as it related to retaining and rewarding, key roles, particularly clinical staff. So we're not seeing the same wage pressure increase, you know, accruing in that part of the sector where, you know, others may have some catch up in the next half.
Great. Thank you. Just one last one from me. You saw EBITDA per bed increase in the period. I was, you know, there's some moving parts within this. Could you highlight on a, I guess, a like-to-like bed basis what happened to profitability per bed?
That's quite granular. We might have to take some of that offline, Andrew. What I will say is we had a funding increase that came through partway through the second half. That increase only impacted us from kind of July, August onwards, so we are expecting more of an increase in the second half. In my notes, I think I kinda called it out as being what we're expecting going forward from that increase is $4 per bed per day. We can certainly go through a bit more of the granular items off the call.
Do you have a sense at the moment as to whether, you know, that you would be on a like-by-like basis care profitability would be up or down? Could you give us to how much that might be?
Yeah. Well, I think what we did, Andrew, is we commented on EBITDA margins. What are we seeing as the input costs? What are we seeing as our labor pool? How are we thinking about margin improvement? Kathryn has just referenced sort of the revenue line, if you like, so $ 4 per bed per day. We still have ahead of us Pay Parity and Pay Equity to solve for nurses. Oceania has a disproportionate amount of nurses relative to others in the sector. There's about 4,500 nurses in New Zealand. We have about 460 of them. You know, that would make a material improvement to our business if we thought about getting anywhere near pay equity as it relates to nurses in a DHB setting.
It's about $ 20,000 per employee, you can do the math on that. Additionally, we're just starting to see the model of care deliver us an improvement in operating leverage. We've learned a lot through COVID about rostering, about workforce dynamics, we've also learned a lot about just, you know, the optimization of that staffing. It's not material improvements in margin, Andrew, but it is. We feel like we are lifting off the trough as it relates to those kind of EBITDA, you know, care margins. Premiumization through care obviously adds some, you know, additional fuel to our growth and profitability.
That's all for me. Thank you.
Thank you. Your next question comes from Aaron Ibbotson from Forsyth Barr. Please go ahead.
Yes. Hi there. Good morning. Thank you for taking my question. I've got a few one, but, I'd like just to start with a sort of big picture one, and that is, you know, how have you changed your sort of priorities with regards to speed and type of investment in light of what one could argue is a pretty substantial increase in cost of capital, you know, both equity and debt for the market in general and aged care and Oceania in particular over the last six to 12 months? Thank you.
Yeah. That's an excellent question, Aaron. I think what we have learned, and we observed this through COVID, that as it relates to growth, it's very hard to scale up quickly. It's very easy to scale down, but it's very hard to scale up. As a consequence, what we started with was ensuring that we had the right balance sheet footing. At that time, we couldn't see what has emerged with a, you know, a more global deterioration in market conditions. I'm talking several years back, Aaron. What that led us to do was to look for optionality in our portfolio.
Part of our strategy is get the balance sheet on the right footing, first and foremost, have the capacity to scale up, but as we found through COVID, you know, we can quickly scale down, we can move sites, we can have a more regional bias, we can have a more urban bias, as the market shapes and changes. Also what we've learned is, you know, have plenty of optionality in your product mix. So we've had standard care beds. We're not doing that anymore. We've had CareSuites, and that's been well adopted across the market. Also apartments take a long time to build. They're very, very expensive. And you recover your cash over a longer period of time vis-à-vis villas. Having that optionality has been part of what our growth aspirations are.
Our growth decisions that we see today were kind of grounded in some decisions that we took 18 months ago, if we think about built form, so the consenting process, getting construction underway. With The Helier in particular, in this period, we've obviously had a disproportionate amount of our balance sheet capacity used in the construction of what is going to be a unique offering, I think in the retirement and aged care sector, but clearly in the Auckland market. That's having a bit of a drag on our near-term strategy. We are not growing for growth's sake. We are very mindful of the market conditions that we are in, but we have tried to fix as many of the inputs to give confidence to our investors as we can.
Kathryn touched on some of those as it relates to our settings around interest, some of our disciplines about capital allocation and hurdle returns that we'd expect out of those products. That is hopefully addressing some of that overarching sentiment, Aaron.
Okay. Thank you. If I'm slightly more specific, you know, your market value of your equity is around 0.6 x your book value. You know, in your view, are you getting a signal from the market that you're maximizing shareholder value by sort of accelerating investment or focusing on paying down debt? You know, how do you? Do you think it's just cyclical and not something you should, or the board should worry itself with?
Well, we're very mindful of market capitalization. You know, we look through those signals. We're here to implement a five-year strategic plan. We are obviously mindful of what's happening in markets. We don't govern our strategic planning on a point in time, market condition. The market is clearly saying, cash and recycling of cash, is a very important aspect of the stability of this market going forward. Because we've got optionality in our pipeline, because most of our pipeline is consented, because it's across multiple sites with multiple product types, it does allow us to address that if we see further deterioration in the market.
We've already pointed to the fact that we expect our new sales to be stronger than what they have been, and so that's clearly a key focus area for us as well as we work through, you know, cash recovery in this next period.
Fantastic. Thank you. Could I just go just for, I think the interest of the market, and certainly for me personally, just to understand this cash recycling, if you could talk to Lady Allum. You've had 113 CareSuites. You know, if you could let us know, A, how long you expect it to take you to sell that down. B, you know, what cash recovery you're expecting from that. C, how much you've spent on it, so we get a sense of how this cash recycling functions in practice. Thank you.
I'll attempt to answer what I see from a resident experience point of view. Kathryn may answer some of your question, or we may take some of the details of that offline. What I would say is that we delivered obviously, you know, 113 CareSuites there. We had hoped to have the building come out of the ground in February originally, it became July because of the genuine COVID disruptions. We're about 2,500 sheets short on GIB. In any event, Lady Allum opened its doors in September. We have already had 65 residents that have moved from the existing site into occupation.
We have had 10 new sales since we opened the door, and we've been open just a couple of weeks now. We are observing pre-sales at that site. We think it's a fantastic product. We think it is located well, adjacent to the hospital in a very, very high socioeconomic catchment. Our normal view on CareSuite cadence, you know, a delivery of that size would take multiple years to sell down. We are finding that with Lady Allum, because it's right product, right place, in the sell down cadence of that, you know, we are very, very impressed or happy with at this early stage. You know, I'll hand over to Kathryn to maybe touch on some of the financial aspects of how much have we spent and what are we expecting.
I would say on average, and we've provided it in the appendix, you know, we do expect to recover far in excess of the cash deployed, in the development of all of our properties, from first time sales.
Thanks, Brent. Hi, Aaron. In the notes to the account, and the easiest way for you to kind of look at what this has cost us with what's publicly available, is looking at what we've transferred out of under development into kind of the freehold building. Lady Allum and Woodlands came online. We've around a balance of NZD 40 million. I think it's safe for you to take that around NZD 35 million of that would be in relation to Lady Allum. Brent's talked about the cadence of what we'd usually have. As we say, we've seen pre-sales in this product. It's not something we've seen before, so we do expect it to sell down quicker than some of our CareSuite sites, such as The Bay View in Tauranga or Awatere in Hamilton have done in the past.
It's hard to gauge how long this will take on a cash recovery basis because of the transferred residents. As Brent said, 65 residents have been transferred over. The benefit that does give us, and we demonstrated this in Tauranga and Hamilton, is it provides an operational kickstart for us while we sell the available rooms. Then, as we've seen in Tauranga and Hamilton, you have a quite meaningful wait list for those accommodations. As residents depart, they're pretty much filled straight away.
Okay. It's around NZD 35 million, and you expect to get around NZD 40 back. Thank you. Final question from me. Just on your CareSuite DMF. Your average ORR balance was up 22%, but your DMF was up 6%. And if look at the last period, you know, period on period, your, you know, half on half, your sort of average ORR was up 10%-12%, and then it was flat. I'm just trying to understand what's going on there. As far as I can tell, your DMF is 9% of average occupational advances, which in my How you're charging for it should be impossible as far as my math work. If you could help us understand what's going on there, that would be great.
Yeah, it is a little bit complicated, as we all know. Just for the benefit of others on the call as well. With our CareSuites, it's a 30% over three-year contract. It is weighted front, so a 15, 10, five for some of the contracts that we have. For the results and what you see from an underlying earnings and IFRS perspective, it is a straight line, 10, 10 over the three years. One thing on the CareSuite DMF that may not be obviously apparent at the start is because of the service level of the accommodation that the resident's in, that CareSuite DMF does attract a GST charge of 9% on there as well. That's one element that might be muddying the water a little bit.
The other element is around kind of tallying up the number of ORRs we've got versus the DMF that's come through during the period. I will note that this period, particularly, a lot of the CareSuites that came in, came online towards the end of the period, so in August, September. Those residents were only seeing one or two months of their DMF as opposed to the whole six months.
Okay. My understanding is that the younger you have, the higher it would be, but because you charge up front. Maybe that's not how it works. Okay. Thank you. That's all from me.
Thank you. Your next question comes from Bianca Fledderus from UBS. Please go ahead.
Hi, good morning. Firstly, just following up on net debt and gearing. Gearing obviously increased quite a bit to 235%. You did mention that The Helier opening should see significant cash recovery. I guess that's opening in March 2024, so first half 2024 impact. Just for FY 2023, for the full year, could you just give a bit of color around what we sort of can expect with regards to net debt increase for the second half, full year, I guess.
Yeah. Thanks, Bianca. If we look at where our debt was at March, we had drawn around NZD 380 million. That has increased by NZD 120 million to where we stood at 30 September. I guess there's two or three components to that. Half of that, so NZD 60 million, was in relation to the funding of the acquisition of Green Bay and Remuera Rise. The other NZD 60 is kind of a mixture of where we're at in the development cycle of The Helier. As Brent touched on earlier, it is a really premium product of a large size. We're kind of at the peak of where the costs are coming through at the moment, in the first half and around the time where we stand today.
The other element of the 60 increase is a mix of kind of the softer sales that we've seen in the first half. I think, looking towards March, and Brent will probably add things on this as well. Around that 35% is probably where we see our peak gearing. We're obviously not running out to do any more M&A, as Brent mentioned, there's not really any kind of business acquisitions that we would be wanting to debt fund in that second half. Really what we're going to see is the usual increase in development as we come to The Helier and then offset by the sales that we see coming through in the second half.
Okay. Thank you. Then just looking at your average sales prices on slide 13. It looks like you no longer split this between new sales and resales. Could you share what your weighted average resale price was for first half 2023?
Yeah, I don't have that to hand, sorry, Bianca. We can take that one offline.
Yeah. I think, what I would say, Bianca.
Okay.
That what we have observed is that resales because of the embedded house price inflation that's existed in resales, those resale prices have been significantly higher than what we expected. You know, maybe in the NZD 600,000-NZD 700,000 range. You know, if we think about the product mix that we had, we had no kind of villa products, so it's been a large apartment product on a new sales basis, and that's been around $ 1 million. You know, we've obviously seen good price escalation in terms of the CareSuite product. As that develops and is adopted by the market, we're seeing that kind of lift well above $ 300,000 now, in, you know, in a lot of areas.
We can get the, you know, the exact details for you off the call.
Okay, great. Thank you. Just last question around care occupancy. What are you sort of seeing there for the first weeks of trading in the second half of 2023? Like, are you seeing any improvement there or?
I think we have dropped off the call.
Pardon me. We are now reconnected.
Bianca, we apologize. It seems that, a couple of times over this call we've been cut off, so we apologize.
Okay.
Are you just able to repeat the last part of your question? I think it pertained to what's our observation on care profitability in the next half. If that was the question, then my response to that is we're expecting some progression on pay equity and pay parity for nurses. We think that it's a key issue that New Zealanders are getting behind. Why would somebody in aged residential care not be, you know, paid of a similar level to somebody in a district health board or as they were district health board setting? Also, clearly we're gonna benefit from this, you know, $ 4 per day per bed rate in the next half.
We'll have six months of that revenue capture, and that revenue capture largely goes straight to our bottom line. I talked a little bit earlier when addressing Andrew's comments around just the operating leverage that we're starting to get out of our model of care as well.
Yeah. Thanks. I was just wondering if you could please share what your current care occupancy rate is?
Our care occupancy is sitting around 91%.
Okay. No improvements there really, in the second half yet?
Well not, it takes quite a lot additional beds to move occupancy up. Yeah, we're sitting about just between 91% and 92% of the occupied beds that we have.
Okay, great. That's all for me. Thank you very much.
Thank you. Your next question comes from Stephen Ridgewell from Craigs Investment Partners. Please go ahead.
Yeah, good morning. First question on the result. Development margins were, yeah, pretty strong in the first half, over 30%. Can you just talk to how sustainable that is? And I guess if I cast my mind back to a couple of years ago, you know, the indications have been that the margins would tail off, if you like, after the sales of The Sands. There's a few moving parts, obviously, with, you know, you've got some fixed price contracts and house prices going up. Can you just talk through your expectations of development margins maybe on a two, three-year view?
Thanks, Stephen. We were really pleased with where we saw the half year. As we mentioned on the call, even despite the kind of falling house market, we were still able to kind of maintain price. As you say, the affordability ratios, we've still got quite the buffer while that fall . We have, as you pointed out in the past, kind of moderated the market, but we do expect it to decrease down to around kind of the 25% moving forward or 20-25. Cost pressures are coming through on construction, and we're definitely seeing that come through. As you mentioned, we do have the fixed price contracts, and even one that was just started in the last couple of months has still got around the 70% mark.
We expect them to moderate off, definitely, but not to a huge extent in the immediate future as we're tailing off on developments that have been underway for two years. What I would say as well is in that number, we see the benefit of the CareSuite sites. Things such as in the Bayview and Awatere that I mentioned earlier, we move residents into those sites. We are seeing first-time sales come through at those sites a good two, three years after opening.
That's helpful. And just maybe one for Brent. You've kind of noted earlier in the call that M&A's not on the agenda in the near to medium term and that you're considering divesting some assets. Can you just give an idea of the quantum of asset sales you'd like to execute, you know, in the next six, 12 months? You know, how advanced are these discussions or these divestment discussions?
Well, I think, yeah, as it relates to assets held for sale, we sort of have that in our accounts. I think the quantum is around $ 60 million. That probably answers that question. If I think about what sort of assets we might consider divesting, it's really those assets where, you know, they're great sites for us, but they don't necessarily have any future, you know, premiumization, or they don't have development optionality, or they are, you know, geographically dislocated from other sites where we can get operating leverage from the existing resources and staffing that we actually have. You know, that's part of the divestments.
As it relates to M&A, M&A for us was always an accent, and it was an opportunity to either diversify the portfolio, take us into a new build form or give us some optionality around almost a free carry on some of the development land that a private operator might have available for future development. We're not seeing, you know, attractive opportunities in the market over this near, medium term. Additionally, Stephen, what we've done is pivoted towards greenfield. You know, we wanna cast your own sales. We wanna get underway and be, you know, rewarded for good greenfield development, right product, right place, and fantastic cash recovery.
Well, that's helpful. Thanks. Just following on from Aaron's line of questioning. I guess just given the market's increased focus on cash flow, could you just provide an indication of when Oceania will become kind of cash flow breakeven at a portfolio level? I mean, obviously you're at an investment phase at the moment. I think you've got over 500 units and suites under construction, so there is obviously a CapEx phase going on. Just as at a kind of more consistent level, you know, when should we be thinking about, you know, the business being on a steady keel in terms of those, you know, net cash flows?
Yeah, I guess it's hard to have the crystal ball out on that one, cause there are quite a few levers that build it, with the pipeline coming on, most of the main ones. What I would say is, and I've certainly talked about this in the past, when we do our feasibilities for going into a new development and the cash recycling, both the amount and the tenure over which we can do that is one of the key criteria that we look at in making those decisions. So it is something that's kind of front of mind for an, you know, appropriate use of our capital.
Yeah, I think all of us.
You know, that's an individual asset. Sorry.
Sorry, I was just gonna add to that, Stephen. If I think about the sculpting of the portfolio, I think, you know, covering analysts, indeed our own strategic plan suggested that FY 2023 was a bit of a peak period for this investment cycle that you're talking about. Then what happens as a consequence of that, we've got the portfolio effect. The key of premiumization, making a contribution well in excess of its operating costs. We are diminishing corporate overhead. In addition to that, sort of a, you know, a more timetabled delivery of products almost within a gearing banding that, you know, that we're comfortable with. You know, we are in that kind of, you know, peak investment flow.
I think, you know, a couple of years ago, we saw that in the numbers, and we are now experiencing it real-time. Cash recovery returns to the business in time. I mentioned earlier, as we develop out the pipeline, 72% of the pipeline will be accented towards premiumization. That deferred management fee, that care annuity earnings, if you like, you know, provides, you know, solid cash for the business as we think about the execution of our five-year strategic plan.
I appreciate all that, Brent. I guess if I sort of look at this pivot towards greenfield, you know, it sort of feels like there's still quite a few years of accumulation, if you like, to fund that working capital growth. Would that be a fair observation even if the actual, you know, investing cash flows come off a little bit from what we've seen in the last six months?
Yeah, I think that's right, and it depends how aggressively we undertake that greenfield acquisition pathway. We know that we've got about 1,836 units in our development pipeline today. We've been quite tactical about greenfield. We know that because we haven't been set on greenfield in a prior period, then the land acquisition that we do going forward probably will be at either a advantage rate, a stabilized pricing rate, or at the very least, it'll allow us to get to better locations, key locations than we might have accessed. I think we're learning a lot more about our built form, what actually works for residents, how does Oceania differentiate itself. That's strategically what we're trying to achieve.
Greenfield is building out that pipeline, and we can sculpt to a degree, you know, how aggressive or otherwise we are around that kind of land banking acquisition, on that side and making those kinds of capital commitments . You know, we've got a lot of brownfield development to do as well as greenfield.
That's helpful. Thanks. Maybe just one last one from me. Obviously, we're running out of time. Just in terms of that operating cash flow result in the first half, you've called out Awatere apartment sales being a little bit softer and also buybacks being a bit elevated. Kathryn, can you actually just quantify that headwind, if you like, from perhaps both those drags that you've called out? So, you sort of alluded to them, but I'm not sure what the numbers are. That would, you know, to what extent explains the decrease in operating cash flow.
Yeah, of course. I think Appendix 11 in our pack probably gives you the detail that you'll need, but if we just run through it now, if we look at it in comparison to the September 2021 comparative, we're seeing essentially NZD 22 million less new sales. We've done a significant number of the brownfield development buybacks, so that's about a NZD 4 million differential as well. That has been offset though by some really good resale gains coming through in the period. Those decreases are offset by a NZD 6 million increase in the resale cash. We're essentially talking about kind of a softening of around NZD 20 million.
No, great. I mean, so just on Awatere, and to your point about, Brent, about, you know, learnings, I mean, is there any particular thing you'd point to why sales have been a little bit slower at that site?
Yeah, I mean, it's a good point. It's certainly exercising our mind. I think, what we have done is we've been quite adventurous. We bought, two market 63 apartments all in one lot. If we contrast that to, the Bay View at Tauranga for argument's sake, there's been a more staged delivery of, you know, of apartments and community amenity. When you're bringing that many apartments to market, Hamilton is a market that's reshaping to higher density, you know, apartment dwellings. You know, we're probably ahead of the curve in terms of that built form versus a competitive product in the market, which is more traditionally being a villa product. You know, those sales exist for us, so we're confident we can make up the ground.
Those are probably some of the key learnings from my perspective, Stephen.
That's all for me. Thank you.
Thank you. Your next question comes from Nick Maher from Macquarie. Please go ahead.
Afternoon, guys. Just following on Awatere, how are you thinking about the other 70-odd apartments coming online in the next week while that are underway?
Well, they don't come on stream until sort of FY 2024, 2025. It's a good point that you're raising, Nick. From our perspective, you know, having a vibrant resident community goes a long way to, you know, to demand. I think, you know, as they come on stream, we're expecting to obviously be sold through what we have. That creates, you know, a resident scarcity for new product delivery. It's a few years off in terms of solving that particular issue, if it is an issue. In any event, our immediate priority is to, you know, get a higher cadence of sales at Awatere in the short term.
Has that involved any changes in pricing?
It hasn't needed to involve any changes in pricing. We're mindful that, you know, the market is softening. We have been price setters in this market context, and you can see that in the resale margins achieved and the development margins achieved. We're conscious of the buffers that exist. There's a traditional buffer, as people are aware, that sit between sort of CBRE affordability in the market. You know, that might be something that we look at time. We haven't been trying to sacrifice price for volume. We've just been confident that we've delivered the right product, and that's what our main focus is.
Great. Lastly, do you expect any Waimarie settlement over the second half 2023?
Well, we've certainly received unprecedented inquiry for it. I can't foreshadow where we're gonna land. You know, we are delighted with the inquiry that we're receiving for it.
Is there enough time post-completion to actually sell some units?
I think in that socioeconomic environment, a number of our future residents will not be focused on market conditions for the acquisition of those apartments. If there's an opportunity for them to not have a house segment or days to sell, then, you know, that may be an opportunity, Nick. At this stage, that's sort of more speculation than, you know, than, you know, evidence that we can provide. What I would say, The Helier is a fantastic site. It's going to be very unique. It's going to be very unique in the services that it provides. It's going to attract a different resident, and potentially people outside of the country or outside of the region may be attracted to some of the product.
Great. Thank you.
Thank you. We have a follow-up question from Aaron Ibbotson from Forsyth Barr. Please go ahead.
Yeah, hey. Apologies, I'm not safe. Just following up from Nicky's question, I don't think we or the market is really asking for a crystal ball, but just a, you know, a business plan that doesn't just include units delivered, but also the cash cost of those units delivered. I think it's reasonable to ask when you've just added NZD 120 million of debt in six months, where you expect that debt to end up in six months or 12 month's time . Is it fair to say that you expect it to be up, but that you don't know how much?
Yeah. Well, I think of the 120, 60 would went into M&A. I guess we're talking about the 60. I think in you know, from our perspective, that's certainly something that we can think about, to add into, you know, future updates to the market. There's actually a greater sense of that and a greater tracking of that. We don't have it in this presentation, Aaron, as you know. We know that it's gonna be a key feature as we go through this next period with the macroeconomic conditions. Yeah, that'd be probably the comment that I'd make at this stage.
Okay, thank you.
Thank you. There are no further questions on the teleconference at this time. I'll now hand back to Brent and Kathryn to answer any questions from the webcast.
There are some questions from the webcast, and I'm just looking at the questions now. I'm conscious of time as well. I think by and large, to be honest, we've, you know, we've answered them. People wanted to understand sort of our view on sales. People wanted to understand about government funding and how this might impact our returns. People wanted to know about some of the inputs as it relates to our build program. From my perspective, I would hope that the questions have been answered that we've received online. Thank you for those that have provided online questions.