Good day, and welcome to the Oceania Healthcare first half 2022 results announcement conference call. At this time, I would like to turn the conference over to your CEO, Brent Pattison. Please go ahead.
Yes, good morning, everyone, and welcome to Oceania's interim results briefing for the September results. I heard on the car radio the other day a strap line that made me laugh, "Coast FM, better than a flat white." On that basis, now that we conduct these briefings virtually, I hope you have a flat white at the ready, and settle back as Kathryn and I take you through our half year results. Oceania has delivered a solid performance for the six months to September 2021. Despite the obvious COVID backdrop, the business has had a busy and productive first half, including delivering a 20% increase in underlying EBITDA and a 22% increase in underlying NPAT, period-on-period. We've seen strong sales volume and solid resale performance.
We've been undertaking lots of building, with 544 units under construction over eight sites. We've secured an improved resource consent at Waterford here in Auckland, more than doubling the apartment capacity to 50 on the same land area. We're now sitting over NZD 2 billion of total assets, which is up around 10%. We've expanded our land bank with an additional site in Franklin, which is also in Auckland, and we've recently appointed two highly regarded independent directors, Rob Hamilton and Peter de Veur. We're certainly delighted to have Andrew Buckingham join the exec team early next year, and he's gonna be heading up our property and development, group. We're rewarding shareholders with a NZD 0.021 per share interim dividend that will be payable on the twentieth of December, and our normal DRP will be in operation.
If you turn with me to slide 4, Rob Hamilton and Peter de Veur joined our existing directors in September. Rob and Peter are well-known to you all and certainly highly respected. They bring a wealth of experience in capital markets, M&A, property development, and governance. Rob is a member of our audit committee, and Peter will be a member of our development committee. Turning to slide 5. COVID-19 has proved to be another opportunity for Oceania to demonstrate its resilience, to deliver a safe and vibrant resident experience, and to innovate, despite the obvious setbacks that the delta virus has posed. In this half year, we've spent over NZD 1 million on additional COVID costs. In August, we introduced saliva testing for staff at our own expense as an extra layer of protection and surveillance.
This was subsequently adopted by the Ministry of Health for New Zealanders crossing the border and has now become the preferred method for surveillance. With the Ministry of Health consent, we established pop-up vaccination stations on our sites to increase vaccination rates for staff and their families. This was really well-received. We have continued to receive care admissions during lockdowns, regardless of the alert level, and it was not until we reached alert level three that we were able to resume admissions for our village product. Industry advocacy, on slide six. Oceania's purpose is to reimagine the retirement and aged care sector. We've spent a lot of time over the last six months advocating on behalf of our staff and residents on industry issues such as pay parity, immigration, and access for residents to their loved ones.
One topic that we saw that struck a chord was Oceania taking the lead on allowing residents, particularly Auckland-based residents, to see their families and loved ones under our safe visitation protocols. Mike Hosking and Kerre McIvor made this a regular feature for talk back callers over several days. We received overwhelmingly positive sentiment from callers up and down the country, who picked up on the fact that while we had our staff and residents fully vaccinated early in the year and safe measures in place for visitation, our older citizens were not getting a fair shake of the stick relative to others. We're certainly pleased to see governmental restrictions lifting in the coming days. Turning to trading, highlights on slide seven. Oceania clearly has built a strong asset base.
We have high quality properties, and we are now sitting well above NZD 2 billion of total assets. This is an increase of approximately 40% since the first half 2020. We've continued our focus on premium revenue capture, and we're pleased to deliver NZD 25 million, which is a 35% increase on prior period for the first half 2022. Our strategic investment in asset growth alongside solid DMF, which is deferred management fee, and PAC, premium accommodation charge revenue, has continued to contribute to growth and underlying EBITDA. We're up to NZD 36.5 million for the period, up 20%. Auckland, as has been commented, has suffered over 100 days of lockdown, which has had an impact on our ability to sell some stock.
Despite this, we have delivered 230 total sales for the six-month period, and this is up 10.6% from the 208 sales in the prior period. If we think about infographics and trading over the next two slides, our aged care business is building strong and observable annuity revenue to underpin our future growth and bring confidence to our investors. Even with the additional cost of COVID, we are now delivering NZD 9,500 underlying EBITDA per bed, which is 20% up on the previous corresponding period. If you actually include DMF or resale gains, we are approximately NZD 16,200 per bed, and 54% of our care portfolio is now weighted towards premium beds or Care Suites. We started the period with high levels of unsold stock.
However, we have been busy selling, even with nearly 30% of our total sites being based in the Auckland region. We have had over 230 ORA sales in the first half. 66% of these sales are outside the Auckland region. Very pleasingly, we're seeing strong resale and development margin despite the regional bias at 20% and 26% respectively. Continuing the infill and trading. We've guided the market to a lift in build rate, and we're pleased to report we have 545 villas, apartments, and care product under construction across six regions. It's been an incredibly busy time for the business. I'll touch on the specific sites in the next couple of slides. But what I will draw your attention to is our two acquisitions earlier in the year have both been enhanced with further positive activity.
Waterford, we've secured an improved resource consent, more than doubling the original plan for our next stage of apartment development. We've also recently entered into a conditional contract on a land purchase for a further 1.8 hectares at our Franklin site in Auckland. On an innovation front, we have been exclusively appointed by the Bay of Plenty District Health Board to develop a contracted new service model for higher need aged care residents. This will utilize our existing Elmswood site in Tauranga. I'm delighted to announce the appointment of Andrew Buckingham, Group General Manager, Property and Development. We stated that we were looking for someone with a broader set of skills for our future growth, and Andrew delivers this in spades. Many of his curated development projects will be familiar to you, Commercial Bay, Sylvia Park, ASB North Wharf, et cetera.
Andrew will be starting with us in the new year. In addition, we've secured a 7-year, NZD 100 million bond funding, and we think this is well timed if we think about where spot rates are, and they have been increasing materially since September. These funds will be deployed towards our growth ambitions. We have announced a NZD 0.021 per share dividend to reward shareholders, and as I said earlier, the DRP will be in operation. We have maintained our policy to pay dividends within the guidance range of 50%-60% of underlying NPAT, and NZD 0.021 per share is 55% and a strong signal of our confidence in the last six-month trading window.
If we look at our future development outlook, we have over 4,000 units and beds now, and we have added to the pipeline, and we have nearly 2,000, actually 1,961 to be exact, of additional product builds over the coming years. In our development pipeline, we have lifted our construction rate from 394 units and beds as at 31st March to 545 as at 30th September of this year. 70% of our total portfolio, once developed, will be premium. We are on track to deliver 3,127 care beds and suites and 2,556 villas and apartments. This will bring our total resident population to 5,683 before we consider any additional M&A activity.
If we turn now to the acquisitions, slide 11. We're very, very happy with Waterford. We've made excellent progress with resource consent on the vacant land. If people can see on the graphic, it's the bare bit of land to the left of the apartment block. We will build 50 apartments there over 5 levels, including basement car parking, and this is up from the 24 that we had originally planned to deliver. This is gonna bring us some strong site optimization and further upside than what was originally contemplated. Likewise, on our Franklin land bank, we now have a 7.9 hectare site. For those people with the Supp 2020 site, you'll be able to see the additional 1.8 hectares, which is kind of highlighted in a blue graphic.
The extra land will deliver us approximately 20% more built product on the site in one of the fastest-growing rural urban locations in Auckland. Slide 12, premium care earnings. We now have 3 sites, 174 beds that are delivering more than NZD 20,000 underlying EBITDA per bed. This is up materially from NZD 67 that we had at the full year 2021, and we have 2 sites, 171 beds that are hot on the heels. Combined, the ramp-up and mature sites now represent approximately 40% of the total Care Suite portfolio. In addition, we have 571 Care Suites that are resource consented or under construction to add to the strong Care Suite annuity profit in the coming years.
If we think about the developments that we've completed over this first half, 59 units and care suites are in line with our expectations. We completed 49 apartments in the community center at Eden, and we're underway on sales despite the obvious 100 days of lockdown in Auckland. In addition, we've completed 8 villas at Gracelands, which is in the Hawke's Bay, for the period. All of these were 100% pre-sold and a further 10 just after the half year in October 2021. If you can look at the picture, you'll see that gray is the new orange when it comes to, roofing. Turning to slide 14, projects that we've commenced. We have three sites and 209 units and care suites that have commenced development in the 2022 financial year.
To my left, Redwood, which is in Blenheim, we're underway on the development of 57 Care Suites, and you can see that the bare land at the entrance to the existing site is where the Care Suite block will be built. In the middle, the Bellevue, which is in Christchurch, we're underway in stage two of the apartment development. The site is clear, and the new building affixes to the large white wall you can see in the foreground. Lastly, our lovely and well-located site at Elmswood, which is in Auckland, is a three-story, 106 Care Suite development underway on an adjacent site, which is highlighted in red. This allows building works to be undertaken without any disruption to the existing site. Projects that are completing. We have 112 units completing via the full year 2022.
39 apartments at Stage Two B of Bayview site in Tauranga. Importantly, this stage also delivers a lot of additional amenity for the apartment residents. In addition to the bowling green that we built as part of Stage Two A, it now includes a well-appointed old mate tool shed, an indoor swimming pool complex, and a large community center. At our Awatere site in Hamilton, we've added 63 apartments and community facilities on a site that has a strong local reputation for vibrant, separate care suite building that was completed several years back. Other projects that we're completing, as I said earlier, we've had a busy period of construction with over 545 units and care suites being developed over eight sites, and this is an increase of 150 from our ten-month period, 2021 financial year.
The only site in our portfolio that's had a slight delay is Lady Ellen, and that's in the left-hand corner of the graphic. That will deliver us 113 Care Suites. We'd originally planned to have that complete in March 2022. It will now complete in May 2022 due to the disruptions with the Auckland lockdown. Waimarie is a magnificent site for those that are familiar with it, and it's progressed better than we had planned. It's still on track for delivery in 2023. I've been on-site with our new directors, and from every apartment's structure that is constructed on our site, our future residents will get unparalleled views in every direction. I'll now hand over Kathryn to take us through the financial results and then circle back for Q&A.
Thank you, Brent, and good morning, all. I will walk through the financial section starting with slide 18. There's lots of information in here, but I don't intend on spending too much time on the detail. We'll try and leave some time for questions at the end, and you can digest the information at your leisure. Starting with slide 18, the left-hand side is a recap of what Brent has discussed at the beginning. What's important for investors is being able to track the trading position. Focusing for a moment on the bottom left, we provide a summary of the periods discussed in the coming slides. The green boxes represent the trading period of September 2021 and a September 2020 comparative. Throughout the next slides, we've included this September 2020 comparative. Our financial statements, however, show November comparatives because of the change of balance date.
Thankfully, this will be the last set of financials where we aren't comparing like-for-like. All in all, we have a strong and improved result despite the COVID backdrop. I'll talk you through the detail on the coming slides, but the headline numbers are included for your reference at, on the top-right-hand side of the slide. The top table represents trading September versus September, and the second table represents the statutory reporting September versus November. The wage subsidy was received in the comparative period and repaid in this period. To remove any of the noise, we've made a pro forma adjustment for this unusual item to show true trading position.
To clarify, all other COVID-19 costs remain in these figures, and we have not normalized for these. In summary, sales volumes are up 10% to 230, and underlying EBITDA is up almost 20% to NZD 36.5 million. On slide 19, we show you our income statement for the period and a comparison of the 10 months to March. Because of the change of year-end, we've used March as a comparator in many of the statutory notes throughout the presentation. As you will have seen, the results haven't been overly influenced by the CBRE valuation this time around. On the right-hand side, we provide their assumptions compared to the last valuation from March. Growth rates and discount rates are consistent period on period. We have, however, added value through successful growth from investment and realization of the sell-down of development.
We've seen price appreciation across our portfolio with around 5% increases in ILU sales prices and around 8% in Care Suites products. This has resulted in a positive fair value movement of NZD 40 million in respect of our independent village asset and a further NZD 26 million in respect of our care asset. Moving to underlying earnings on slide 20. Again, we provide the backdrop of 10 months to March for the reconciliation on the left-hand side. From a segment perspective, again, despite the tough COVID-19 backdrop, our underlying earnings is solid for Oceania, and we're up 19.7%. We've seen strong increases on PCP, 21% in aged care and 22% in retirement village, which we'll cover in the coming slides, and notice summary on the right-hand side of this slide. You will see the increases experienced in the other segment.
As mentioned with our March position, this includes investment in our staff, clinical support processes, and IT, along with increased insurance costs. In addition to this, there are a number of COVID-related costs which have been incurred in the six-month period. Right. Time to move on to the details, starting with the care segment on slide 21. Here, we have provided September comparisons that normalized for the wage subsidy and also consolidated with Care Suite development and resale margin to provide a better picture. Care underlying EBITDA, including Care Suite DMS and capital gains, has increased by 5%. This is a result of the significant growth in premium revenue and despite the increased cost pressures. It's important to note that this includes more than NZD 1 million of COVID-related costs for the period. On the right-hand side, we showcase our two key care drivers.
Occupancy, which has been seeing pleasing growth and stability since March despite COVID, and premium revenue. Premium revenue relates to both deferred management fees and premium room charges. As Oceania matures through the premiumization journey, we have seen significant increases in this area, particularly with DMS. Together, these have resulted in a 30% increase on PCP. Consistent with what we highlighted in March and consistent with what you will have seen from other operators, we continue to see operating cost pressure. Staff costs are the largest contributor to our care expenses. We continue to reward staff well, particularly our clinical and nursing staff. Coupled with development sites coming online and the increased staffing needs at sites, we've seen around a 9% increase in this area on PCP. Occupancy and premium revenue will continue to be a key focus for us moving forward.
In summary, we are well advanced on the journey to NZD 10,000 per bed, currently at 9.5. Including the development margin, this is NZD 16,000. Next, our village segment on slide 22. Excluding Care Suites DMS and capital gains, underlying EBITDA has delivered us a fantastic increase of 36%. Coupling this with increased sales volumes of 10%, we are pleased with a strong position despite the COVID background. As with care, we are continuing to see strong growth in DMS with an increase of over NZD 4 million compared to PCP. This DMS profile is growing nicely, and resales are going from strength to strength. We expect this trend to continue as a result of the shaping of our future pipeline, which is tilting to ILUs, as well as continuing to experience resales at higher sales price points.
The next two slides provide the detail that you are used to seeing on capital gain and margin, starting with new sales. A few years back, with our flagship sites, we were seeing amazing prices in Auckland as the developments came to market. Standing where we are today, we are also seeing these fantastic prices, but we now have development sites coming online all across the country, with 70% of our sites based out of Auckland. This last six months saw slightly less units come to market, and total volumes moderated as a result. We experienced 44 Care Suites sales and 57 ILU sales for the last six months. This resulted in total development margin of just over NZD 15 million, an average of 25.7%.
At the bottom of the page, you will see strong sales increases in villas and Care Suites, offset to an extent by a softening of sales prices in apartments. Interestingly, of the new ILU sales, 2/3 were regionally based, and of the new Care Suites sales, 80% were regionally based, notably at our Green Gables and Bellevue sites in Nelson and Christchurch. In Auckland, Waterford, Meadowbank, and Eden have all been impacted by the lockdowns that occurred towards the end of the half. The entire picture that you can see painted on the slide is consistent with previous signaling and to be expected. Our portfolio is maturing, and as we move our mix away from premium Auckland sites to more regional locations, the premium capture from Auckland is moderated slightly by what is becoming a really great capture across the region. Moving to resales on slide 24.
We have been seeing significant increases in resale volumes, particularly across the regions, with 47 of the 129 resales located in Auckland and the remaining 82 in the region. 25 of the 45 ILU resales were in the region. In the case of Care Suites, we are seeing a softening of margin. Resale volumes were strong, reducing closing stock from 116 this time last year to 70 as of September. Care Suites have a shorter tenure of 2.5-3 years, and as such, with 57 of the 84 Care Suites being regionally based, we saw resale margins moderate. Pleasingly, we have achieved increased ILU margins of 26%.
This was largely driven by the regions where 25 of the 45 resales occurred, and on average, we saw in excess of 35% margins on regional ILU sales, driven by the apartment prices in particular. This is an important proof point for us, one of the acceptance of the apartment model regionally. Closing stock is at an appropriate level and we expect to continue seeing a strong resales across the portfolio in the second half. The cash flow slide speaks for itself, and so I won't spend much time here. What I will draw attention to, however, are the payments for investing activities, which includes the payments for both of the Waterford and Franklin assets purchased earlier in the period. You can expect this cash outflow to continue to increase as we progress with our development pipeline. Moving to slide 26.
As everyone is well aware, the last six months have seen additional activity for Oceania in the form of acquisitions and debt raising. The equity raise in March and April was successfully applied to the Waterford and Franklin acquisitions post-March balance date, both of which have proved to be great additions to our portfolio. This was followed by a successful bond later in the period. We've experienced great debt and equity market support, with both the capital raise and the bond significantly oversubscribed, and we are excited about the new bondholders and investors that have joined us. We are now sitting with an enhanced and strengthened balance sheet and in a strong position for future growth. The final two slides before we move to questions will touch on that. Slide 27 provides a balance sheet view as compared to March and also a net adjusted value view.
We have now broken through the NZD 2 billion mark for total assets this period, aided by both the acquisitions and also positive fair value movements. Focusing on the right-hand side, the net adjusted value measure is something we provide each reporting period, and the definition is in the pack for you to ponder. Our net asset value per share has increased from NZD 1.28 as at March to NZD 1.34 as at September. Being a proxy for the valuation of the status quo of our existing portfolio, it excludes the cash flows and earnings from the 545 units currently under construction and the associated 7.7 cents per share or NZD 55 million, which will be unwound in the future from a blended discount of 24% already included in our CBRE valuation.
Doing the math for you, taking into account this discount clearly brings us to NZD 1.42. For my final slide, I will talk a little about capital structure. As you know, we have worked hard on our capital structure and now sit with a balance sheet which provides excellent buying power and a sound gearing level. We've diversified our loan book, which has allowed us to materially improve our debt tenure profile. Our first bond was well-timed and achieved a fixed rate of 2.3%. For the second, we got ready to go and timed things perfectly in the rising market, achieving a pleasing rate of 3.3%. The slide has the details, but these steps have resulted in a net debt position of NZD 343 million and current gearing of 27.4%.
Even more importantly, we have headroom of just under NZD 225 million. Moving into the second half of the year, we have a strong balance sheet, low gearing, and significant headroom. We're in a fantastic position for growth and execution of the development pipeline, and we're excited for the times ahead. Thank you everyone for your time today. That concludes the finance section of the presentation, and we will now take questions.
Thank you. Ladies and gentlemen, if you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment. A voice prompt on the phone line will indicate when your line is open. Please state your name as requested before posing your question. Thank you. We'll now take our first question from Stephen. Your line is open. Please go ahead.
Yeah, good morning. Stephen Ridgewell from Craigs here. Could you just please give us a bit of a steer on what you think the organic growth rate of the business was in the first half if we back out, you know, the benefit of the two acquisitions or two sites that were acquired late in the prior period and perhaps the capital raise in March? Can you just give us a sense of how you sort of saw the underlying performance of the business?
Yeah. From our perspective, Stephen, good question. I think the, you know, the business has gone well. Waterford hasn't materially impacted the results over this trading window. Largely due to the fact that we were disrupted through the, you know, Auckland lockdown. Franklin was a land bank. So you know, both of those items have been immaterial in the results. The business has actually traded well up and down the country, as we can see. And it's faced some pretty strong cost inflation, as you can see also, as ourselves and our peers have invested in keeping our staff and residents, you know, safe.
Thanks for that. Just a related question. I mean, at the time, the guidance was for those acquisitions to be EPS accretive by low- to mid-single digits. Obviously, a lot's changed since then. I'm just interested in how we should be thinking about the accretion from that, from the business this financial year and perhaps more medium term.
Yeah. We're super excited about the Waterford site, Stephen. We think it's a great acquisition. We're excited about the resource consenting that we've secured there. We'll recover some ground. What we have observed over this lockdown, particularly in Auckland, is inquiry has lifted very materially. Hobsonville or Waterford on Hobsonville occupies a great site that people drive past regularly. We're expecting to recover some ground in our Auckland sites. Eden, Waterford, and a little bit of Meadowbank have kind of been impacted from a new sales or an ILU perspective, you know, as a consequence. Some of that accretion we'll recover.
Thanks. Maybe just one more from me, then I'll let someone else have a turn. Just on the care segment. I mean, historically, you know, earnings from that segment have been skewed more towards the first half, just given the, you know, Christmas, January, shutdown. Just interested how we should be thinking about earnings for that segment, this year, just given obviously the lockdown impacts and that kind of thing. And also, as you noted before, Brent, you know, the wage inflation we're seeing in the sector, you know, should we be looking at a firmer second half for aged care or just given those impacts? Just interested in your comments. Thank you.
Yeah. Well, we are cautious about giving too much guidance before we actually get to that final period. I think your question, Stephen, is an important one. Traditionally in our business, we have had a bit of seasonality and whether it's ILU or whether it's Care Suites, during that December and January period, it's been a bit softer. This time around, you know, with the lockdowns, with the restrictions in terms of where people can travel, both domestically and internationally, what we have observed is significantly strong inquiry. Maybe mom and dad have been sitting at home and not sure whether they want to move into a Care Suite, during some of these kind of various alert levels we've seen. We're expecting to kind of recover some ground.
We expect that people won't be traveling as much. We're seeing, you know, strong settlement and days to sell, as it relates to, people transitioning from, you know, residential properties or out of, you know, that setting into both ILU and Care Suites. Wage costs are real in our care business, but there are some opportunities, I guess, to recover some of that funding from lifts in DHB funding on a per bed rate. We'll continue to invest in that part of our business because it's incredibly important to us. Yeah, all in all, I think we are going to see probably a more buoyant December and January than what we've seen traditionally in our business.
Thanks. That's all from me. Thank you.
Thank you. We'll now take our next question from Andrew. Your line is open. Please go ahead.
Good morning, everyone. Andrew Steele from Jarden here. The first one from me is, I guess, just a follow-on from Stephen's last one. I mean, looking at your EBITDA per bed for this half, versus, I guess, the exit run rate at the end of the last financial year, it seems to be a decline. From your comments, Brent, should we be expecting EBITDA per bed to improve in the second half?
I think what's probably disrupted EBITDA per bed is kind of COVID-19 and some of it's obviously a regional setting as well. If I think to one of the slides that I talked about earlier, what we are seeing is that the premiumization is starting to take hold. We've had 171 Care Suites that are now well above NZD 20,000 a bed. We've got about 170 in, you know, in close succession. But what we're also seeing, Andrew, is that regionally, our EBITDA per bed is also showing up around those levels. You're no longer just gonna see Auckland sites with NZD 20,000 a bed. You're actually gonna see some regional sites in our future periods that, you know, are above, you know, NZD 20,000 a bed.
My view is, you know, Care Suites have been disrupted, but wage costs and COVID-19 costs obviously take some of the shine off the performance at an EBITDA level. We are recovering that all the time. Our price, you know, we've had price appreciation in our Care Suites of about 8%, period on period. As a consequence of that will show up in our deferred management fees and revenue capture as we go forward.
Great. Thanks, Brent. Just on cash flow. If I look at operating cash flow ex new development sales, it's gone negative in this period. It's difficult comparing to the PCP, given the shift in balance dates. Looking at the prior six-month period, even with the shifted balance date, it appears a much greater uptick in payments to suppliers and employees relative to receipts from residents. Yeah, is this purely just a timing issue with the change in balance date? In terms of, you know, this cash flow drag at the operating level ex development sales, should we be expecting something similar into the second half, or should we be looking for sort of more of a positive outcome?
Yeah. You're right, Andrew, in that it is largely a timing thing. There are also a few extras coming through for cost pressures that we've encountered. I think if you look on a kind of rather than just the last PCP, but on a kinda longer term trend, we're back to kind of the normal level. November itself was a little bit of an uplift. Yeah, I'd expect that we see this as probably a consistent level that we'd see going forward as opposed to moving back to kind of the levels of the comparators.
Okay. Just to be clear, when you say a consistent level, you mean a consistent level for this period or the 1H period, or, you know, should we be thinking about this as consistent level for the remainder of the year?
A consistent level for the remainder of the year.
Great. Thank you. And in terms of the number of units you currently have under construction, I think it's 545, what's the rough timeframe that you expect to deliver these over?
Well, a lot of them are gonna be sort of delivered in this kind of next period, Andrew. Obviously, Lady Ellen's got 113 Care Suites that we would've expected to be within this financial year. That's gonna move into the 2022 year. If we think about the Redwood, Bellevue and Elmswood, then that's sort of out to 2023, and that will be complemented by what we're doing at Waimarie Street. We will have Bayview stage two B and Harvertie coming on board. Collectively, those two sites deliver us about 100 ILU new units.
Okay, great. It kinda sounds like most of the delivery is over the next 18 months. Would that be about right?
Yeah, that's about right. Yeah.
Thinking about that delivery timeframe, are you comfortable you've got sufficient land bank to maintain that sort of, I guess, increased pace of development delivery in the medium term, given the lead times that are required for getting sites up and running?
Yeah. Land bank's gonna be a key focus and that's sort of something that we've touched on. I mean, we're making better progress with the resource consent than we expected at Franklin. So that's something that we can obviously bring into the fray. We have other projects where we have sort of a more brownfield development that's available for us that we can bring forward as well into those periods. I think over this next 12 months, 18 months, we're obviously complementing the portfolio with two aspects, one being adding, you know, 3-4 land banks, and the other being, you know, remaining to be inquisitive around M&A where it makes sense.
As we see values at the appropriate levels or M&A opportunities where we can add value, then we're folding those in as well, Andrew, as part of complementing our pipeline.
Great. Yeah, that's very clear. Just one very last question for me. Would you be able to just highlight how much Waterford contributed to underlying NPAT in the period?
That's not something that we've disclosed, Andrew. What I can say is that it's immaterial with respect to the underlying EBITDA level. What we have disclosed in the financials is from a statutory perspective, the impact on fair value movements for the period. There was a gain on acquisition of around NZD 8 million and a further NZD 6 million fair value movement during the period as a result of units that are sold down. From an underlying earnings perspective, it's immaterial.
Great. That's all for me. Thank you.
Yes. Thank you.
Thank you. We'll move on to our next question from Aaron. Your line is open. Please go ahead.
Hi there. Good morning, everyone.
Hi, Aaron.
Hi there. Got a few, but I think I'm gonna start with a sort of big picture one, if I'm honest, coming back to primarily the care. You know, you've added something like NZD 20 million of costs, OpEx over the last three years if we go back to sort of the 2018 or 2019 time period. I think, you know, sort of the idea here is that the Care ORA DMF is going to replace, you know, the lost revenues or the lost care fees that you're getting. It seems to me that costs are actually in absolute terms growing faster than what the Care ORA DMF and the care fees are sort of being able to offset.
You know, is this a surprise to you, or is this something, you know, that's about to turn? Or how should we think about this going forward? You know, on absolute levels, even including the DMF, you know, and the retail gains, you're reporting less EBITDA now than you did three years ago, and you've added, you know, quite a lot of CapEx in the meantime. Just wondering if you can talk to us how you're seeing this, you know, division over the next couple of years.
Yeah. I think over the next period, Aaron, we are bringing a lot of Care Suites product to market. We think that the market has adopted Care Suites. You know, if I think back to when I first started, Care Suites were probably selling around NZD 180,000 on average, and now they're selling well into the NZD 300,000. There has been sort of a repricing and an adoption of that product. Since February 2020, obviously, ourselves and our peers results have been disrupted by, you know, very, very intentional investments in COVID. As yet, we haven't sort of seen the appropriate lift in funding rates on a per bed basis for the standard beds that we provide as part of the portfolio.
We're seeing wage rates increase for nursing staff. We've obviously expended a lot of extra funds in responding to COVID, but we feel that we're sort of getting to the back end of that. We're moving from what is a virus and into an infection. We're moving to more of a surveillance setting as opposed to, you know, very real costs that impact our profitability. We're still very comfortable with the Care Suite as a concept. We're very, very comfortable that the decommissioning and disruption that we've had in the past becomes less and less of our future, and therefore, you will actually see quite a recovery of earnings.
We've got 571 Care Suites that are consented or in the process of being constructed over the next couple of years, which will help us to you know, I guess, distribute that wage cost and OpEx cost across the portfolio.
Okay, I guess I'll be a bit more specific then. You know, obviously we've got a very clear idea of the revenue side on how the Care ORA DMF works around the Care Suites model, but I'm interested in the expense. You know, you talked about COVID, but if I understood your results correctly, that's NZD 1 million out of NZD 84 million. You know, what is the costs per care bed in the Care ORA model or the Care Suites model relative to what it was historically? It seems to me that, you know, either because of, you know, staff ratios or other services, that the cost is significantly higher. Is that just a consequence in your view of general cost inflation that maybe you weren't prepared for?
In answer to the question around what the cost per care bed, that's something we'd have to take offline. We don't have those numbers with us now. What I would say is, yes, you're correct, that there are general inflationary cost pressures in there. The other thing that does kind of underline in there, however, is we have made a conscious and additional expenditure on particularly our clinical and nursing staff over the last few years. I think what Brent was saying earlier is we've that investment in our care excellence, clinical excellence, clinical strategies and upfront costs, over time as the Care Suites products rolled out more and more across the country, some of that cost would be kind of spread around those new regional sites that we're adopting this model.
you know, is your expectation that we will come back to the average sort of EBITDA margin in, you know, sort of high teens, 20% or so that you had in 2017, 2018, 2019? Or is that just out the door because of cost inflation? You reported 10%-
No, I don't think it's out.
-EBITDA.
Yeah. I don't think it's out the door by any stretch, Aaron. I sit on the board of the NZACA, as you're aware. We have a dispute with the government from a funding perspective, both on pay equity and pay parity. Where we have movements of greater than 1.5% increase in cost, we're able to recover that cost from the government setting. At this stage, we haven't seen any of that funding increase. If we thought about what that might mean, we're about 4.8% behind where you know DHB fees are as it relates to the provision of clinical staff.
That may be something that helps around the margin recovery, but equally, we've been intentionally investing in an operating platform that we will get leverage as we add extra beds. We are expecting margins to recover. We may get a positive bed day rate lift from the government in time, but we're not banking that. It is in a gazetted dispute with the government that will recover some of the intentional investment we're making on wage costs in particular.
Okay. Thank you. Just moving on to the sort of development. You know, your development pipeline is very focused on Care Suites. You know, I think Arvida gave us a number saying that, you know, they were willing to leave a bit of cash in the development, so to speak, when, particularly when they did Care Suites. I just want to know if you can shed some light on what your expectation of, you know, sort of a greenfield type Care Suite development is when it comes to ability to recycle or get the cash out that you're investing in first sell down.
Our intention is obviously to make a development margin on everything that we do. We obviously intend to recover excess development cash proceeds from every development, regardless of whether that's villa, apartment or Care Suites. I think we've already indicated that development margins moderate for Care Suites because of the tenure, because of the room size, because of the you know, the regional bias. You know, I can't comment on Arvida's intentions around cash. Our focus from a business case point of view is to ensure that we are making positive cash from first time sales, in the developments that we're doing.
Okay. I'm not talking development margin specifically. I'm meaning total village investments. That includes obviously common facilities and, you know, land.
Correct. Correct.
Is your ambition still to get sort of 100 out of 100 in?
Absolutely. I mean, my ambition is to get 120 out of 100 in.
Okay. That's good. Apologies if we can go back to the-
I'm just saying, Erik.
Yeah.
Yeah. Cash is incredibly important for us. We are in a situation where we consider that. We don't do anything unusual with our land. You know, where we've had our brownfield development, we bring land to market value in the consideration of that development. Our intention every time is to obviously have positive cash out of first time sales from the development dollars that we've expended, including considerations to funding costs, holding periods in our development life cycle.
Apologies for coming back to the Waterford or, you know, acquisition here. I must say that I'm quite surprised that you're saying that it was immaterial. You know, I was under the impression that you had quite significant DMF contribution, not a huge amount of costs, that there were some new sales gained potentially from selling down those apartments. You know, how does this square to immaterial, which I interpret as, say, less than NZD 1 million? Also, how does it square up with EPS accretive when you're issuing, I don't know how much you allocated to Waterford, but call it NZD 70 million, NZD 80 million. That's 10% of total.
I guess Waterford unfortunately was impacted by the lockdown in Auckland. I think Brent touched on this earlier, but we are intending that we will regain that EPS accretion for the full year as opposed to in the first half. We had a number of applications that were kind of postponed until October, November time because of the restrictions of level four.
Surely that doesn't impact, you know, materially the existing DMF book that you had from there, the village fees. You know, there were other things and, you know, from memory, you sold quite a few of those apartments already back in May, June.
Correct.
Sort of gain.
I think casting our minds back to the time when we talked about Waterford, I think we always talked about it on a full year results impact as opposed to a half year results impact.
Absolutely. Okay. Okay, that's clear. That's all from me. Thank you.
Okay. Once again, ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad. We'll now take our next question from Mick Ma. Your line is open. Please go ahead.
Hey, this is Mick Ma here. Just on pricing, you know, you called out the 5% and the 8% increase for ILU and Care Suites. What's your kind of intention on lifting pricing further from here given where house prices have gone?
Yeah, I think, like our peers, we're obviously sensitive, Mick, to observing relativity. We don't think we've pushed prices as high as we could. We think there's actually some more, you know, to secure in the market. But where we've had kind of a new product coming to market and it's equally important for us to drive resident, you know, occupancy or vibrancy, then we've certainly tried to dynamically price. We've been, you know, price setters rather than price takers. We actually think that we've got a, you know, a pretty favorable window over this next period to continue to be price setters. You know, potentially take a little bit more.
I think from our perspective, you know, if we're getting around that 5% for ILU and 8% for Care Suite, we're seeing that as a, you know, pretty favorable, you know, kind of long-term trend.
Right. Do you think you can fully recover, if not more so, construction cost inflation on development margin?
Yeah. It's a really interesting question. You know, everybody's acutely aware of inflation building. Everybody's acutely aware in terms of you know, pricing of contracts. If we think about our pipeline and these units that we have under construction and what lies ahead, because of the way in which we contract, we've got a sort of a natural hidden hedge in place all the way out beyond December 2022, as it relates to those construction contracts. We've had a couple of tenders recently where we've asked for fixed price contracts and received those fixed price contracts, and they are not materially up on you know, on what we were expecting with other similar products in similar locations.
I think because we've been in a situation where we've had a lot underway with we award our development contracts out to, you know, a basket of high-quality construction companies, you know, we've been well served by them, and that allows us to sort of mitigate, I guess, some of the obvious cost inflation pressure that exists in the market. In addition to that, we have taken steps to ensure that we are landing the gear that we need ahead of time as well. Being in a situation where we can ensure that we have access to product, we have access to subtrades, and it doesn't materially impact either our margin expectations or our delivery window.
Great. Just on the development, completions and upcoming completions, can you just talk through how you're selling across some of those key projects in terms of pre-sales and ones settled?
Yeah. I mean, obviously the key focus for us in this next period is to get back to selling the Auckland properties, so Eden, Waterford, and you know, the obvious sites a little bit at Meadowbank. We're virtually completely sold and you know, other product that we have in the Auckland region. We've got you know, fantastic new sites coming on in Bayview and Tauranga and Awatere and Hamilton. Those regions have shown massive price appreciation, and we've got an enormous amount of inquiry. That's gonna be kind of the key focus while we then turn our attention to completing Lady Ellen and getting Waimarie ready for a 2023 window.
Yeah.
Nick, with Lady Ellen, that's
Just-
Sorry, Mick, I was just gonna say with Lady Ellen, that's Care Suites, which you don't traditionally get too high numbers in pre-sales, and so that moving from the March formation impacting too much.
Yeah. Brent, I was just after some numbers, for example, you know, how much of Eden's been sold down now and then just in terms of, you know, Bayview, which is completing December and then Awatere early next year, how much of that's pre-sold?
Bayview's in a situation where we're sort of more than 60% through the development that we have there. We've obviously got a new building where the wrap's coming off. The Care Suites in Bayview have been incredibly strong. Green Gables, where we had some product as the apartments are largely sold through. We've completed the first floor of the Care Suites, and we're now selling into the upper floors of the Care Suites. Eden, we've obviously had restrictions that only came out of the ground or available for commissioning in May of this year. We almost went into lockdown, but we're already more than 30% through there. Waterford's you know similar. We've got you know 24 apartments.
We're into the sort of greater than 60% sell through. I think from our perspective, we're seeing you know good uptake of product even though there's been some obvious disruptions in some regions.
Okay. That's all from me. Thanks.
Thank you. Once again, ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad. There are currently no questions in queue for those in audio. Handing it back over to you if there is any from webcast. Thank you.
I think we've got a couple of questions online. I think Jason Hamilton from ACC has just asked some questions around CapEx, giving some guidance around that and just our comments on sort of M&A activity that some of our peers have been involved in. If I just answer the M&A piece first. From our perspective, we have an appetite towards M&A. We're certainly interested in that. We think that there'll be opportunities that lie ahead. Cost of funding is going up. Residential developers are finding access to funding difficult, and therefore land banks are becoming, you know, available. We wanna make sure that what we do from an acquisition point of view adds value. You've heard me say numerous times that we will not buy based on earnings.
We will buy where we think we can add value. You know, Waterford's a good example where we will, you know, double the resource consent on the same footprint. We will be the beneficiaries of that once we've got that product built and sold. We're also seeing that with the complexities of running care in a New Zealand setting that will present opportunities for sector consolidation as well. There's Ministry of Health reforms coming. There are DHB reconstructions coming. As a consequence of that, with our investment that we've made in our care business, we'll see some opportunities coming our way. As it relates to CapEx, well, most of our CapEx obviously goes on development.
I have this magic number which Kathryn keeps hassling me about, but we spend about NZD 120 million-NZD 150 million on CapEx a year, so that's probably kind of guidance as it relates to that. One of the other questions that we had from the online Q&A was just in terms of sales, just in terms of momentum, and I think I've kind of covered that. How we're going at Bayview, how we're going at Green Gables and Nelson, et cetera. That probably
Yeah. There's just a final question from Joshua Wong around care suite resale margin and why the drop, which I think we covered earlier on with some of the questions, and also around cost growth, which I think we covered with Aaron's questioning.
Thank you for making this interactive and very engaging. We're obviously pretty positive about where we're sitting. We think that, you know, this first half for us, despite obvious disruptions, has actually been a good performance. We're feeling good about what lies ahead for the business, and we certainly enjoy the level of questions and the interaction that we've had. Thanks, everybody, for participating.