Oceania Healthcare Limited (OCA) Earnings Call Transcript & Summary

Good day, and welcome to the Oceana Healthcare Limited Annual Results Conference Call. At this time, I would like to turn the conference over to CEO, Earl Gasparich. Please go ahead, sir.

Good morning, everyone, and thanks for coming on to the call this morning. My name is Earl Gasparich, for those that I haven't met. And with me today is our CFO, Brent Pattison. We're pleased to bring you this presentation of our financial results for the year ended May 31, 2020, which were announced this morning. This morning's agenda includes an overview of the highlights of the 2020 financial year, including the impact of COVID-19 on the business, followed by an update on our strategy, which has not changed in response to the pandemic and then an update on our developments. I'll then hand over to Brent, who will cover our financial results in more detail. At the end, we'll have time for questions. Officially, our financial highlights. In over the last 3 months of our financial year, we navigated the most extraordinary period managing the challenges of the COVID-19 pandemic in New Zealand. Despite these challenges and effectively the loss of the final quarter of the financial year to [ retirement home ] sales, we've delivered a result at underlying EBITDA level that is in line with last year and importantly, has demonstrated that our business is resilient in the face of economic uncertainty. Underlying earnings before interest tax depreciation and amortization, as I just said, was in line with the prior corresponding period at $63.5 million. As just mentioned, despite the government lockdown restricting sales of retirement village units in the final quarter of the year as well as the additional costs that we have incurred, managing the risk of COVID-19 throughout the business. Underlying net profit after tax of $42.9 million was lower than the prior corresponding period due to higher interest costs that we incurred to fund our development activity during the year and higher depreciation charges from completed projects. It's important to note, over the last 18 months, we've completed 4 new aged care centers, each of which is classified as property, plant and equipment and hence, attracts a depreciation charge once complete. Operating cash flow increased to $99.4 million as a result of strong sale proceeds received from the sale of developments that we completed in the previous financial year. And total assets increased to $1.5 billion, which reflects the capital expenditure that we have invested in our development program over the year and completion of new aged care centers. And again, this is despite changes to CBRE's valuation assumptions that led to a decrease in the value of our investment property assets. As mentioned, Brent will provide further detail on our operating results and financial position shortly. In summary, I would say that we have weathered the storm of COVID-19 today and the government lockdown with the defensive qualities of our business demonstrated clearly in the annual result that we have delivered in, effectively, only 9 months of the year. Now just looking at some detail of the impact of COVID-19 on our business and our response to it. And as we informed shareholders in mid-March, we were well prepared to manage the risk of the COVID-19 outbreak at Oceania, and we're already engaged with the Ministry of Health by that time to ensure that we had their support and access to DHB supplies and resources as required. The ministry acknowledged, early on, the important part that aged residential care plays in the national health care system in keeping our residents out of public hospitals and providing them with a safe living environment. We look after over 3,600 residents in our aged care business, and each of these were of heightened vulnerability due to COVID-19, and there is no doubt that the pandemic presented a high-risk to their health. As an essential service, we continue to operate during the government lockdown with stable occupancy levels and regular cash flow received from both the government-funded daily care fee as well as additional resident funded revenue. We also continue to take applications on our care suites and had residents settle and move into these during the lockdown period. None of Oceania Healthcare's residents living in its aged care centers or retirement village units have contracted COVID-19 to date, and staff were also well protected throughout the pandemic. A number of actions were implemented early on to reduce this risk including restricting visitor access to sites, taking declarations from staff and monitoring travel as well as enhancing infection control training and ensuring clear and regular communication to staff, residents and their families. Additional government funding was received in late May, which partially offset the increased cost to manage the pandemic risk. In our retirement village operations, although we had taken a good level of sales applications in the weeks leading up to the government lockdown, restrictions imposed under level 4 meant that we were unable to show prospective residents through our villages or complete sales. And residents who would enter into sales applications before lockdown were also unable to sell their own homes. We have, therefore, encountered a delay in being able to settle these transactions. Once the restrictions on sales eased under Alert Level 2, we recommenced sales activity and have recorded strong sales levels through June, 39% higher than the prior corresponding months last year. Many new residents who have entered into applications post lockdown have commented to us about how the lockdown period gave them an opportunity to reflect on their own well-being and security with the benefits of retirement village living being more prevalent over this period, including stronger communities, security and peace of mind. We are also completing -- now completing the settlement of sales applications taking pre-lockdown, and incoming residents are able to get their own home onto the market and sold, and we've achieved very good completion rates. We also accessed the New Zealand government wage subsidy for a small portion of our staff who are employed in the retirement village sales and property development teams with $1.8 million received. We did not consider it appropriate to claim for our staff, working in the aged care business who were essential service workers and hence, busier than ever during this period. As well as focusing on keeping our staff safe, there were greater pressures on them during the lockdown, given the need to isolate residents who had recently entered the aged care center or returned from hospital. And they were also required to screen anyone who entered the center and also manage visitors under Alert Level 2. We worked very hard to maintain staffing levels through the alert levels and ensured that staff were well supported in their roles, right down to the detail of arranging baby sitters so that aged care staff could continue to come to work. We also paid all site-based operational staff an additional $2 per hour during Level 4 and recognition of the work they were doing under quite extreme circumstances. We informed our shareholders at our interim results announcement in January that we intended to explore a domestic retail bond this year to provide diversity of funding and tenure and help facilitate Oceania Healthcare's future growth. We were in the final stages of preparing for this bond issue before COVID-19 caused significant volatility in global financial markets. We, therefore, paused that process in March and intend to recommence it when the volatility there subsides and an appropriate window of time opens. In the meantime, in early April, we put in place an additional debt facility of $70 million for the next 18 months with our existing bank lenders. And this provides even more headroom given the uncertainties of the near-term economic outlook at the time. In terms of developments, we slowed our build rates in mid-March and used contract measures to reduce capital expenditure on our 10 construction projects that were in progress at the time. Our ability to lower the monthly investment in our build program and effectively match this with future sales of retirement village units means that we are able to prudently manage cash flow and risk in these segments of the business. As we came out of full lockdown in late April, most construction projects recommenced, and we were still able to complete all projects anticipated for the financial year, except one, being Green Gables. That project is now due to complete in late September of this year. The period leading up to lockdown and following it has certainly been a true test to our business model, but we are now more confident than ever in our strategy and our ability to extract future growth for shareholders. I'll now cover some of the other financial -- sorry, the other highlights of the financial year and firstly, in our care business. You'll recall that we embarked upon the redevelopment of our aged care sites following the IPO in 2017, and have delivered substantial brownfields redevelopment projects at Meadowbank, Stages 3 and 4 in Auckland, the BayView and Tauranga, The Sands also in Auckland, and Awatere in Hamilton. These are already complete, and we've delivered 279 new care suites to the market in these sites. When we undertake a redevelopment of a brownfield site, we incur a short-term reduction in earnings as the old facility is decommissioned and bids are closed. While this is a feature of the earnings generated from our aged care business this year, the short-term reduction in care earnings at our ramp-up and redevelopment sites is more than offset by the development margin and resale gains across the care portfolio from where the sale of the new bids has been delivered and Brent would elaborate on this shortly. We announce at the stage and the execution of our HR strategy, where 50% of our care portfolio comprises premium beds or care suites compared to 34% at the time of our IPO, and this will increase further to 70% premium beds as we complete the remainder of the pipeline. Over the past year, we completed 19 new beds at our Awatere in Hamilton and also converted 47 standard care rooms to care suites at other sites. Right now, we have, under development, a further 245 new care suites as well. Again, the purpose of our aged care strategy is to generate higher, resident-funded premium revenue from our aged care assets. With higher trail income recorded through the deferred management fees on the occupation right agreements that we sell over our care suite assets. As a result of what we have achieved in the last 3 years since our IPO, we increased our premium revenue stream by 39% over the year, and this has more than doubled since 2017. The sites not affected by development, occupancy increased to 93.7% over the year. And this is, again, primarily due to the increasing maturity of those sites that we've completed over the past 6 years. Another highlight of the care business has been the appointment of Dr. Frances Hughes as General Manager, Nursing and Clinical Strategy at Oceania. Dr. Hughes was at the forefront of our clinical response during the COVID alert levels 2, 3 and 4, with excellent leadership in emergency management demonstrated over staffing levels, PP&E supply and usage and infection control. Frances chairs the New Zealand Aged Care Association's nursing leadership group and was also involved in the Director General's review of the aged care sectors level of preparedness for a COVID-19 outbreak. It certainly is good to have Frances on board during this time. And finally, our new clinical information system, E-Case, is now fully operational, given excellent visibility over clinical indicators and resident security levels throughout our aged care centers. Our sales volumes and margins were favorable in light of COVID-19. And despite the restrictions on sales during the lockdown, and as I mentioned, effectively, the loss of the final quarter of the financial year, we recorded 355 total ORA sales in the 2020 financial year, which is an increase of 45 units in beds on the prior corresponding period. This is a 15% growth in volumes, despite only having 9 months of the year to achieve it. Our development margin remained strong at 33.1%, and this has given the quality of the stock that we bought to the market in the previous financial year. Our independent living apartment average resale price also increased by 15.5% to $684,000 over the year. Finally, as I've already mentioned, now that we're out of lockdown, we are seeing the settlement of a number of applications taken in March and prior months given that incoming residents are now able to get their own home into the market and have it sold. We've seen very good completion rates it with 90 -- 89% of applications taken pre-COVID, either settling or remaining under application at the end of May. A key feature of our growth strategy has been the construction of our brownfields development pipeline. Prior to Alert Level 4, we were on track to complete 265 units in beds in 2020. However, the restrictions on construction during the lockdown has caused a delay with the completion of 28 apartments and 61 care suites at Green Gables in Nelson. And as I mentioned, this project will now be completed in September this year. Right now, we have 481 villas, apartments and care suites under construction across 6 sites in 5 geographical regions in New Zealand. And we anticipate 217 of these to be completed before the end of the next financial year. Our remaining development pipeline of 1,851 units in care suites is 86.3% consented, and this demonstrates, again, the excellent capability of our in-house development team and the design and planning for new projects. We've also proven our ability to deliver projects on time and on budget, which provides the business with a very clear growth pathway over the coming years ahead. The directors have declared a final dividend of $0.012 per share, which is not imputed, and this brings our total dividend for the year to $0.035 and represents a 50% payout ratio of underlying net profit after tax, which is in line with broad policy. The dividend reinvestment plan will continue to apply. And finally, in terms of highlights, we have received recently approval from the Inland Revenue Department to change our balance date to 31 March, from 2021, and this aligns our financial year with some of our industry peers. I'm now going to cover an update on the execution of our strategy at Oceania and the goals that we want to achieve across the business. You may recall at the time of our IPO, we set out in our product disclosure statement, our intent to use the proceeds raised to reduce debt and provide financial flexibility to pursue future development projects, including projects in Oceania's existing brownfields development lending. We noted at the time that the redevelopment of our portfolio was intended to place Oceania in an excellent position to meet the needs of New Zealand's elderly, particularly as 2021 approaches and the first of the baby boomer generation celebrate their 71st birthdays. As we have demonstrated, we're well underway with the execution of the strategy. And in doing so, we are delivering on our targets to substantially enhance returns from our aged care business through the completion and sale of care suites as well as achieving site optimization with the new independent living product, which is of a higher quality and meets the demands of the local markets in which the sites are located. I'm now just going to run through a few slides, which demonstrate this transformation that has taken place in our key sites over the course of the last 3 years. We've delivered 579 new independent living units and care switch to the market since the IPO. And as I mentioned earlier, including the opening of 4 premium aged care centers at Meadowbank in Auckland, The Sands and Browns Bay in Auckland, the BayView in Tauranga and Awatere in Hamilton. As the photos on the slide show, the funds raised from the IPO have transformed our premium sites. Meadowbank, near the center of Auckland, has achieved 137 new independent living units and 64 care suites being developed over this period. And The Sands on the very beachfront of Browns Bay has also had 64 new independent living apartments and 44 care suites completed. And sales at both of these sites have been progressing well, leading up to lockdown and then again have been buoyant post-lockdown. Similarly, in Tauranga and Hamilton, we have transformed these sites through the construction of premium aged care centers on surplus plan, transferring existing residents into the new facilities and in doing so, unlocking the land in the prime area of the site for subsequent stages of independent living apartments and community facilities. 81 care suites were completed at the BayView in Tauranga and this freed up land for 211 new apartments in the future. And in Hamilton, 90 care suites were completed, freeing up land for 137 new independent living apartments to come. And finally, in the Hawkes Bay at Gracelands, we've utilized surplus lands surrounding the care facility and existing village to build out new villas. And at Green Gables on the right-hand side, in Nelson, we've replaced an older, obsolete care facility with a premium care center comprising 61 care suites and 28 independent living apartments, and this is due to complete in just a few weeks. That's 6 substantial projects delivered in a little over 3 years with significant incremental value added. As I mentioned a few slides back, the objective of our brownfields redevelopment strategy is twofold: First, to achieve optimum returns per bed from our aged care business; and second, to achieve site optimization and the best yield of retirement village units at those sites. Effectively offering product to our residents that is appropriate for the local markets in which the sites are located. Firstly, in terms of our aged care segment, the brownfield redevelopment cycle involves taking a site that may, for example, be returning between $8,000 and $10,000 per bed as a standard ring facility and interrupting those earnings as we move through the consenting and construction phase of the new aged care center. In cases where we have had to close the old facility entirely, for example, at Green Gables, this would mean that we are generating no earnings from the site at all during the construction phase, whereas other sites, for example, the BayView and Awatere, the new aged care center has been constructed on previously vacant land without needing to physically reduce the capability of their existing facility. While we indeed incur a reduction in earnings in our care business in the near term, once we have completed and commissioned the new aged care center, and sell the [indiscernible] care suites, we recycle our capital through the ORA model. We achieve upfront development margins and establish long-term trail earnings from the deferred management fees on the ORA. This enables us to generate significantly higher earnings per bed than would be achievable if the facility was not redeveloped. And we know from our experience with our aged care center at Eden that annual earnings per bed in excess of $20,000 are achievable. And certainly, that's an industry-leading position. As well as increasing earnings per bed in our aged care segment, our brownfields redevelopment strategy also unlocks the land on the site to optimize our yield through the construction of independent living units and community facilities, as I've mentioned. Since Oceania was formed some years ago, there's been 554 new independent living units delivered. And we have 236 under construction right now with consents in place for a further 764, all on land that we already own. Now focusing on developments for just a few slides. And as I've already mentioned, before the government lockdown in March, we were on track to deliver new developments in accordance with our target build rate, but given the restrictions on construction activity, we were unable to complete just the one project being Green Gables, and hence, our build rate was 176 independent living units in care suites for the financial year. All other projects that we expected to complete in the year were completed, including the final retirement home stage at Meadowbank, the first stage of Awatere in Hamilton, our care suites, as well as villas at sites in the Coromandel, Hawkes Bay, Upper Hutt and Motueka at the top of the [ South Island. ] We also commenced new developments during the year on land adjacent to our Eden village in Auckland, the second stage of Awatere in Hamilton and Stage 1 of Lady Allum in Milford, meaning that we had 481 units of beds under construction as at the end of May 2020. And as I've already mentioned, 86% of our brownfields development pipeline is already consented, with notable consent secured at 2 prime Auckland sites during the past year being Waimarie Street and Saint Heliers and Elmwood in the gardens [ in Menerba ]. In the current financial year, as I've mentioned, we expect to deliver 217 care suites and retirement village units to the market in Nelson, Christchurch and Tauranga as well as commence the greenfields development at Waimarie Street. I'm now going to quickly cover our larger developments in further detail, really, just to give you an idea of how advanced a number of these are in terms of completion. Green Gables is a site that we've shown for a number of years, and this redevelopment comprises 61 care suites and 28 apartments. And as I mentioned, that's due to complete in just a few weeks. Site is very close to the city center in Nelson and a high-value area for the region, and it's got very good demand for aged care with very little competition. The BayView and Christchurch was formally named Windermere, and this comprises 22 apartments and 71 care suites in Stage 1, along with the new community center. And that's also progressing according to program and budget and is anticipated to be completed within the next financial year. Again, this site is in a high-value area of the city and Christchurch with good demand for care, and as I just mentioned, we expect to complete it in just a few minutes. As mentioned earlier, the completion of Stage 1 at the BayView freed-up land occupied by the old care facility to enable us to construct a Stage 2, being our retirement village community center and the first stage of 74 apartments on the site. As you'll note from the photo here, construction of the stage is well on track for completion in the 2021 financial year. This is a good example of site optimization, with the new care facility completed in an area of land, which unlocks the prime area of the site, as you can see from the photo, having the best views. And it's on this area that we constructed the community center and the first stage of independent living units. At Eden and Auckland, we are well underway with the construction of 49 luxury apartments and a new community center on land that we bought adjacent to our existing village. And again, we expect to complete this project in the 2022 financial year. Waimarie Street is our greenfield development site that we acquired in 2018 of approximately 13,500 square meters. And as you can see from the photo, it has wide sweeping views over the Auckland harbor and back towards the city. We now have resource consent for this development and have just lodged an application for building [indiscernible] with construction expected to commence in October 2020. And finally for me to reiterate again, as we progress through the execution of our strategy, and redevelop our sites, we are increasing the proportion of premium retirement village units and care suites across the portfolio. At the time of our IPO, 29% of the portfolio was classified as premium, and this includes care suites sold under ORA as well as rooms for which we receive a daily premium accommodation charge. Over the past 3 years since the IPO, we've increased this proportion to 44%. As we build out the remainder of our pipeline, this will increase further to 69%, with the gross number of units in key beds more than doubling from the current levels. In summary, our long-term development strategy is to reposition our portfolio, again, to ensure that we have the right mix of product in the right locations in order to meet the demands of local markets and ensure that our product is market-leading and the localities in which we choose to operate. So that's all for me. I'm now going to hand over the presentation to Brent, our CFO, who will cover our financial results in more detail.

Obviously, good morning, everyone. It's great to be presenting our full year results. I've been on deck for about 6 months now, having joined at the tail end of the January interim results. Certainly, a lot has occurred over that period with COVID-19 largely dominating press headlines, it's been a good time to be on [ debt. ] And pleasingly, as Earl has already commented, while our annual results reflect the full impact of COVID-19, the business is in good heart and demonstrated resilience. Earl has touched on the key financial highlights, the execution of our care and development strategies and how the strategy is delivering site optimization and growing return to shareholders and wider stakeholders through the premiumization of [indiscernible] annuity earnings for the future. I will be covering off an overview of the key financial statements performance by care and Village segment and some of the key indicators in trends behind the results. There is also further detail in the appendices of our presentation. Income statement. Before we look at the statutory financial results for FY '20, it's important to quickly recap on why we provide total comprehensive income as well as reported net profit or loss after tax. We have 2 distinct business segments: Village and care. Our asset base for the Village segment, being villas and traditional apartments, is treated as investment property, fair value movements, both up and down, go through the P&L and are reflected in statutory net profit or loss after tax. Our care suites, like our apartments, are sold under ORAs. This component of the valuation is the same, but due to the services provided, the care suites meet the definition of property, plant and equipment. And so fair value movements on land and buildings are generally recognized through reserves to get a complete picture of the impact of fair value movements for Village and care, we need to consider reported net profit or loss after tax and total comprehensive income. The profit summary. Total comprehensive income of $9.9 million was down on FY '19. Largely reflective of significant changes in CBRE short-term valuation assumptions, driving fair value movements and IP and PPE. The CBRE valuation assumptions are on the right-hand side of the slides. There was an adverse change in the fair value of investment properties, negative $21.7 million movement in IP driven by a reduction in CBRE operator -- operators interest valuations. These reductions are as a result of changes to key assumptions. Property price growth rate, PPGR, has reduced in the near-term to negative 2%. Longer-term confidence remains of the sector and has been retained at 3%. Discount rates, low to high, have also increased between 12.5 to 25 basis points across the portfolio. This was offset at the total comprehensive income level by a change in the fair value of PP&E. We've had a positive $29.2 million movement in the fair value of PP&E. And on the right-hand side, you will see those measures. PPE is not subject to the same adverse growth rates given the nature of the care assets, which are more needs-based. We note the practical completion at Green Gables, valuation improvements at Awatere and BayView. In more detail, operating revenue of $193.6 million, up 3.5% on FY '19. This is a good result in the context of the loss of 3 months of normal sales activity during our traditional fourth quarter peak sales cycle. We observed a healthy 27% increase in recurring revenue of $29.3 million for care suite and village to food management fees. At the operating expense level, we were slightly higher on FY '19, but included circa $6 million of directly attributable COVID-19 related expenses offset in part by MBIE wage subsidy and Ministry of Health Government grants. Depreciation expense on buildings up $3.5 million year-on-year. What is important here is that our care assets are treated as PP&E and, therefore, are depreciated. We will continue to see growing depreciation expense as we build out our pipeline of premium, high-value care suites. Taxation expense. We had a taxation benefit of $14.7 million relating to a reduction in our deferred tax liability essentially as a result of changes in valuation of properties and the impact of the reinstatement of depreciation and respect of certain items of commercial buildings. Moving to underlying earnings. We provide a reconciliation of reported net profit all loss after tax, the underlying net profit after tax and underlying EBITDA which are non-GAAP measures. These measures are important as they remove fair value movements and capture the actual realized gains achieved on resales and realized development margin on new sales at our sites. Underlying EBITDA from continuing operations was in line with FY '19 at $63.5 million. And this is a pretty solid result year-on-year with the financial year heavily impacted by COVID-19 in the final quarter of FY '20. Underlying NPAT of $42.9 million, down 16% year-on-year. I previously discussed the higher building depreciation charge of $9.3 million and note the higher interest costs in FY '20 from completed developments that we are in the process of selling down. Turning to resale gains and development margins. Development margin up $4.8 million on FY '20, reflecting sales at premium development sites, The Sands, Meadowbank, Awatere and the BayView care suites. Resales gains down $3.6 million on lower village resale volumes. We have analyzed sales performance over 2 distinct periods in our annual results, the first 9 months June through February, which were pre-COVID. In the last 3 months, March through May, which had covered restrictions applied. June through February period on a pcp basis had 83 more sales in resales in the first 9 months of FY '20 than FY '19. It also translated to $16 million of higher realized capital gains in the first 9 months. In comparison, sales in FY '20 since COVID March through May were significantly down on pcp. 38 fewer sales and resales in the last 3 months of FY '20 resulting in $15 million of lower realized capital gains in the last 3 months. Other items, standing adjustments in respect of leasehold investment property and deferred tax. On a segmental basis, we are largely in line at the underlying EBITDA FY '20 versus FY '19 at $63.5 million. We are down $4.9 million in care and up $4.4 million in village and flat at support level. We have traditionally placed the resale and development margin for care suites in the Village segment as our village company as the legal issuer of the aura, and I'll discuss that in more detail over the next 2 slides. Care segment. By way of a recap, Bill has touched on our key strategy. It's a 3-phase transformation process of site optimization through fiercely, ramping down and decommissioning of existing older care; two, building new care; and three, ramping up and commissioning those sites. This brings about a short-term impact on operating earnings, as evidenced by the $8,803 EBITDA per bed, this is not the full story as we are interrupting short-term operating earnings and care to ensure longer-term earnings potential is maximized through recurring premium revenue and opportunities of DMF and PAC and future development margin and resale gains generated from transformed sites more than offset the costs incurred and ramping them up. We have not formally changed the presentation of our care and Village segments in this year's annual accounts. That said, we do consider that to get a broader picture of care performance, we should aggregate these margins and resales with the operating care segment figures. The margins in resales are essentially the quid pro quo from dealing all gone and decommissioning of sites. Care revenue of $164.2 million is up 1.5% on pcp. This increase largely driven by premium revenue catch-up from PACs and DMF, delivering a 20% -- 27% CAGR since 2017. We expect to see continued growth in this area through the build and ramp-up of our premium care development, noting that FY '19 also included revenue from divested sites of $4.4 million. Total expenses of $144.2 million. Staff costs were the greater -- greatest contributor to the unfavorable year-on-year increase of $7.5 million. I've mentioned earlier the direct costs associated with COVID. In addition, we incurred $6.9 million of costs across those sites impacted by refurbishment, redevelopment and ramp-up relative to FY '19. The net impact of this at an EBITDA level is negative $3.3 million. Here underlying EBITDA was $20 million and 19.8% down on year -- year-on-year. Total aged care underlying EBITDA was $36.1 million. This includes care suite development margin and resale gains of $16.1 million in FY '20, up 53.5% on FY '19. Primarily related to sales at The Sands, Meadowbank or Awatere and the BayView. So the key takeouts, the care portfolio has performed well year-on-year with higher occupancy. We continue to replace short-term earnings impact with longer-term quality and quantity of premium earnings as evidenced in the 27% CAGR. With the inclusion of care development margin and resale gains, we are delivering 15,893 underlying EBITDA per occupied beds. Also importantly, we are at an inflection point and brownfield development of our portfolio. And we would likely see less volatility in our annual care earnings as the maturing and ramp-up of prior period investment takes home. Village segment. Underlying EBITDA of $61.3 million, up 7.8% on FY '19. Excluding the care suite margins, it was 45.2% and flat year-on-year. Despite sales restrictions through COVID. Growth in our core village. As with care, we have continued to see strong growth in DMF revenue, [indiscernible] CAGR over the last 3 years, delivering $21.4 million in FY '20 minor cost increases across occupancy, staff and staffing are largely because of extra evictions we put in place at the village sites during COVID-19 lockdown. Sales. Despite impacts of COVID-19 on the latter months of FY '20, we still delivered strong growth in sales on the FY '19, up 45 total new sales and resales to 355 total ORA sales. This was primarily underpinned by sales of new care suites, which I'll talk to on the following slide, doubling to 114 in FY '20. Sales made pre COVID-19, so the first 9 months, we were 57 greater than pcp on new sales and 26 greater than pcp on resales of the sales made since COVID-19 in the last 3 months, 28 of 52 new sales have been IOUs, and 8 of the 31 resales are IOUs. We'll provide further detail on resale and development gains over the next 2 slides. Resale volumes versus stock on hand. Total resales of 166 for the year were only down 11 on the pcp despite losing 3 months of normal sales. In prior years, we had not had care suite stock available for sale for the entire year, and note that of the 114 closing stock units available for resale the sales applications as of June are 39% higher than June 2019. Conversion of these applications will return care suite stock at historical holding levels. Seller and apartment resale stock levels are within historical ranges. Resales prices continue to grow across all ORA product types in FY '20 and prices achieved remain 2.2% above CBRE's assumed value for its valuation [ 2%. ] Resales margin. Resale margins are moderating down largely as expected, given the leveling off and housing market over recent periods. We are observing a shorter tenure profile of residents across our portfolio of products, and this emphasizes the trend is less elect time than the capture of any housing price movement. Development. New sales volumes, as covered earlier, despite COVID-19, Oceania has recorded 355 total order sales, new and retail in FY '20 an increase of 45 beds in suites or 15% on FY '19. Within the development sales volumes, care suite volumes doubled to 114 new sales in FY '20. And for me, this really illustrates the care suite model as well established and accepted by residents wanting the convenience of a larger, well-equipped room, additional services in confidence of care in a [ single move ] to meet their future needs. ILU in villa development volumes were in line with FY '19, despite losing 3-month normal sales activity. Development margins. We've seen a slight fall in total development margin percentage in FY '20 relative to FY '19. As we have indicated previously, we expect the development margin to moderate in the near-term as we move our mix away from recent premium Auckland development for those in more regional areas. The Sands and Meadowbank delivered in FY '19 and moving to Awatere in Hamilton and Gracelands in the Hawke's Bay in FY '20. And again, regional deliveries and Nelson, Tauranga and Christchurch price surge in FY '21. Strong apartment sales reflect prices achieved at the Meadowbank and The Sands. In terms of delivery, 176 care suites and units delivered in FY '20, 481 under construction and a further 217 in 2021. Cash flow. Strong operating cash flow of $99.4 million, including first time sales receipts at development sites of $121.4 million. Payments to employees and suppliers up $13.2 million. $6 million of this relates to COVID related costs around staffing, PP&E and security. Total costs at ramp up sites Meadowbank, BayView, Awatere and The Sands increased by $6.7 million in FY '20, primarily in relation to staff as well as patient well fee costs. Receipts from new order up $44.7 million to $181.3 million. This includes sales at [indiscernible] ORA of $19.2 million, offset to no cash impact and new rental payments right-of-use line above. Total CapEx of $135.9 million. Refer to the CapEx reconciliation in the appendix, Slide 36. However, broadly speaking, capital expenditure in FY '20 was down on FY '19 as a result of COVID-19 in force lockdown at development sites and $20 million of acquisitions in FY '19, primarily relating to land purchases. A reconciliation of ORA receipts and payments, including buybacks is provided in the appendices. Balance sheet. Total assets increased by $149.3 million year-on-year to $1.548 billion, certainly a long way from the $918 million at time of listing. The $149.3 million increase over FY '19 was due to capital expenditure of $135.9 million. Net CBRE point in time revaluation movements of positive $7.5 million across both PPE and IP and the recognition of right-of-use assets under [ NZ IFRS 16 ]. Our net adjusted value per share, which is a non-GAAP measure as at 31 May, 2020 is $1.10 per share. That is the CBRE valuation plus what is [indiscernible]. It's important to note our PPE and IP balance sheet values already include a CBRE valuation discount on unsold stock. For FY '20, this was a blended discount of 27.3% and equated to around $64 million or roughly $0.10 per share. As we sell this down, we expect to realize a fair value gain. NAV is a proxy for valuation of the status quo of the existing and excludes, a, the $0.10 per share referred to; and b, the incremental development cash flow and earnings, including resale gains DMF from the 481 units and suites currently under construction; and c, does not attribute value to the margin and trail earnings from the remainder of the redevelopment pipeline. Capital structure. Our net debt as at March 31, 2020, of $322.1 million, with gearing at 35.1%, a function of where we are in the development cycle. $309.1 million net bank debt drawn as at 31 May, 2020 providing $110.9 million of headroom in our banking facilities. When finance leases are considered, net debt increases to $322.1 million. The [indiscernible] bank facilities are in place to execute our development pipeline. As mentioned earlier, we proactively sought an additional $70 million of facilities to provide additional headroom in light of the uncertainty relating to COVID-19. This is undrawn to date, and it was struck on an 18-month term to minimize borrowing costs with the rest of our facility arrangements maturing in July 2023. Retail bond, as we mentioned, as we made mention in our interim results, our retail bond is being explored to provide diversity of funding in tenure, while this was unable to be executed during FY '20 as a result of COVID-19. This continues to be examined and remains a priority for FY '21. I'll stop there and hand back to Earl.

Thanks, Brent. That brings us to the end of our slides. Obviously, there's a number of indices for those that wish to review them, but we're now ready for questions that may be asked.

[Operator Instructions] And we'll take our first question, caller, please go ahead.

Andrew Steele from Jarden here. Just the first one for me is just understanding a little bit better the profile for care EBITDA. Based on your comments, Brent, it sounded like we should be thinking about us potentially being the trough year. From memory, I think, in a previous result, Earl had said that it was potentially about 18 months away before we see sort of an acceleration of the EBITDA track. So I just wanted to check if anything that has changed in the profile for redevelopment, which would bring this acceleration forward? Or is there any other sort of moving parts that you'd like to call out?

No. I think, Andrew, so I think you're right. Certainly, the way we're seeing the profile is that we're at the point of affliction, which is why we described it in the annual report. So we'd expect to see growth in earnings now that we are selling down those sites that we've completed. The 4 centers in particular and the number of care suites that we've converted. And I think Slide 22 that Brent spoke to, the trail earnings and the margins, resale gains that we're getting out of care is now the more than offsetting the disruption to the business, but even putting that aside and just in terms of deferred management fees, if we add that into premium revenue, certainly we'll see an increase in aged care revenue going forward -- earnings going forward.

Just to be clear, nothing's changed in your thinking about the development profile for aged care, which would change that sort of the impact of disruption?

Not to my knowledge, No.

Great. Just a couple of points of clarification. You've called out the COVID related costs during the period and the benefit of wage subsidies. I was just hoping that you could also highlight the level of incremental funding that you received in the period? And also of the $6 million of greater COVID related costs, could you please split this between underlying cost increase and any, I guess, pull forward of costs, so PP&E, which you can sort of unwind in the FY '21 period?

Yes. So maybe if I handle that one, Andrew. So we've set out in our annual accounts under our notes assistance that we've received. But if I actually start with the direct cost first is around $6 million of directly attributable costs business incurred as a consequence of its response to COVID-19. Our facilities and practices already deal with infectious diseases. So the business was in good shape as we thought about COVID-19, but those costs included, obviously, hazard pay for our staff, additional rostering, security at sites, technology investment we made for residents, investment in PPE gear et cetera. And I mentioned that, that is not [indiscernible] the response in our cares [indiscernible]. In terms of government assistance, there are 2 buckets: one is the -- in the i.e. COVID-19 wage subsidy. We claimed $1.8 million in that wage subsidy. And we did that with an eye to the prudence of both staff that were affected in our retirement village in sales and property teams that would be unable to continue to be included during that period. Thankfully, we have not had any of both staff go and we're back building on our sites, but that's the approach that we took, and it's different from some of our peers. That's a relatively modest wage subsidy relative to how others may apply to the same project. From a DHB point of view, the government Ministry of Health announced $26 million of funding support to the sector. Sector represents about 40,000 beds. And so obviously, that was relatively modest against the number of beds that exist in the sector and the fact that you're in essential service provider. In any event, that DHB allowance of $1.8 billion of additional funding, we also received $200,000 for disability support fees. The impact of COVID indirectly has obviously been our developments during the period that we were lockdown our sales, which we've already [indiscernible].

And just one on how to think about development and over the next couple of years, and obviously, there's been delays, which impacted the profile for FY '20, and that's flowed into '21. How should we be thinking about -- so what's sort of the right, sort of, number to think about for development CapEx for the FY '21 year. And in that context, should we be thinking about FY '22 in terms of build rate getting closer to your pre-COVID medium-term guidance of 250 beds in units?

Yes. I mean, we -- as I said, we've given our target build rate for '21, and that's basically phasing of projects that we anticipated. But you know that we're generally trying to achieve a 250 per annum. Around about 200 to 250 per annum build rate, and certainly, would expect that to continue going forward. That's been scripted within the existing debt facilities. And actually took out the likes of Waimarie Street and those projects that we want to commence in the year ahead as well. So I think in terms of total development expenditure, we've been relatively consistent over the past, aligning with that. So it's a fair enough assumption to assume that [indiscernible] continue in the future.

Great. And just one last one from me. You called out the benefit on sales activity from a number of delayed settlements. I was wondering if you could comment on what you're seeing in terms of new sales leads and the momentum there, both on resale and new sales stock?

Yes. I think I said earlier on that just looking at June applications. We're 39% up year-on-year for that month. And so we would regard that as pretty strong. I think that's a combination of a little bit of pent-up demand. As I mentioned, a fair few residents coming in and making comments like, "I think we would have been better off in a village during lockdown", "care suite sales have gone extremely strongly during June and the last week in May." So yes. I mean, to date, things have been pretty strong for us and is held up.

We'll go ahead into our next question. Caller, please go ahead.

Nick Mar here from Macquarie. First question might be a silly question, but just the FY '21 reference, is that the kind of 10-month March? Or are you kind of cutting a 12-month period as well?

Very good question, Nick. Now we've told Mark, he's got to complete it all before March. So yes, I mean the I guess, the first answer is May. But having said that, if you look at the particular projects, we're confident of being able to deliver them with a net March period that will require a little bit more investment over the next few months to ensure that we get there. But yes, I think it's a fair enough assumption, in terms of build rate, to slide that into March.

And I think, Nick, maybe the second part of your comment around balance date. It comes as no surprise that Oceania is sort of currently out of step with the market as it relates to its reporting date. It's a hangover from the prior ownership structure that we had as it related to the consolidation within the fund, and we've got a compelling story this year. So rather than interrupting people at the beach holidays or mid-winter school holidays, we think it would be helpful to align our balance state with peers, with taxation windows. And we just think we'll get better coverage and engagement with the investment community at large.

That's great. And does it kind of affect your business in any way, you mentioned that fourth quarter is usually a strong sales period. Will you kind of change how your salespeople kind of operate and kind of have targets?

No. No, not really. I mean, this particular quarter just gone with one of the more quieter ones. So it's a good opportunity. Made the change now, and we weren't certainly considering it given the changes in the register that earlier this year.

That's great. And then just on kind of key projects. Could you just kind of talk through how much stock is remaining to sell at some of the kind of premium developments like Meadowbank and The Sands?

Sure. So, let me see. So -- and these numbers are sort of July -- up to July. So we sell 50 at The Sands out of 64, that's sold recognized sales and sales applications. So that's over about a 13-month period post completion, obviously, with COVID impact in the middle of it and at Meadowbank for, we've taken applications that are sold 30 of the 49. So very similar sort of sales rates, again, over about 13 months. So we're pretty pleased with those numbers.

Cool, and how full are the care suites?

I don't actually have that in front of me, but we -- in terms of full up with sold under ORA, there's 44 care suites. It's around 24 to 30, hang on, [indiscernible] to me. Yes, 23 ORAs, we've got a few residents that we transfer from Lady Allum, they're paying a premium accommodation charge. I think occupancy is close to 40 out of the 44. But yes, we're sort of 23 ORAs at The Sands, at Meadowbank, so we've sold 36 out of the [indiscernible]. So again, that's 1 year post-completion, which is [indiscernible].

That's great. And then just kind of on the COVID costs from kind of FY '21, is there much kind of residual kicking around in terms of increased staffing levels and kind of PPE costs? Or will that largely normalize that $6 million over the kind of first half of '21?

Yes. I think that's a good question, effectively, it normalizes so this is about putting in place things to protect the residents in the facilities, obviously. We always carry a reasonable amount of PPE gear to deal with any infectious diseases that we might have at our facilities. Anyway, we certainly expect sort of rostering and some of the extra resources that we took on board, not to be required the same sort of security in terms of that nature at site. So we are hoping that we continue with the positive outcome in the New Zealand as we have today. And we don't expect that there will be sort of a drag on our FY '21 results. We've had an impact that [indiscernible] in our FY '20 results.

[Operator Instructions] We'll go ahead and take our next question. Caller, please go ahead.

Yes. Can you guys hear me?

Yes, we can.

Perfect. So just -- can I just start off by clarifying the last question there? I'm not sure I heard the end of it. So did you see the -- and do you expect any COVID spillover costs for this year, FY '21?

No. No.

You said it was going to normalize, but is it normalizing from -- okay. So we should expect that basically fully out in FY '21?

[ Correct. ]

Perfect. And secondly, I just wanted to basically probe a little bit on your care suite total versus how many is under ORA. So if I got it right, you increased your total care suites, I got 137 in total, for this year and you sold 114 new. And then if I look at your balance, basically, your closing stock on Page 24, that's gone up by around, what is it, 20 to 21. So does that mean that you're effectively targeting sort of 100% of care ORA in your sort of first sell down, so to put? Or how should I think about this 55 number of closing stock on Page 24?

Yes. So I mean there's a combination for new care suites. If we open a new facility, for example, so if there is a new facility, which is regarded as a cold start, so it's [indiscernible] on day 1, we would sell that down by offering the ORAs over the bids. But we would, in the initial year, also have residents in need of paying a daily premium accommodation charge like we have at The Sands to increase occupancy levels and obtain sort of an optimum operating with capacity. Obviously, given the tenure in aged care, once those residents paying a premium accommodation charge the part, then we can resell those rooms -- we can sell those rooms, there is care suite on them for the second resident. In a site like the BayView and Awatere, we had residents transferred from the older care facility into the new facility, which occupied a large proportion of the existing beds. I think at the BayView, we started with 20 rooms available. So there were 60 residents in that site out of the 81 beds that were not paying any premiums because they were sort of grandparented from the existing site. We've been sold down ORAs over those 20 and then continue to sell rooms as the residents from the old facility are vacating the rooms. At BayView, the BayView is completely full right now. And I think at Awatere, we only have around 10 beds available, and that's only been opened since about August last year. So you can sort of get an understanding of the strategy of how we open the facility, and we sell it down. The intention is certainly to strike a balance between occupancy and achieving folks are down in the care suite.

But sorry, if I rephrase the question, the 55 that you say, call closing stock, do I then understand you correctly that some of those are actually occupied, but they're still included in closing stock, or is this empty beds?

Yes, they were the remaining ones that were transferred from the decommissioned side. So yes, [ they could be upside. ]

And then secondly, on the topic of what excites us. So the change of year-end, are we going to get some pro forma numbers, historically? Or how -- will you report a 10-month or a 12-month number when you report FY '21?

So I think, Aaron, the intention is for us to report our interims as they would be, and then there'll be the subperiod through to March '21, which would have comparable.

And it appears that we have no further questions at this time. I'd like to turn the call back over to today's presenters for any additional or closing remarks.

No, we don't have any further comments. Thank you for coming on the call, everybody, and for the questions. We look forward to seeing some of you over the coming few days. Obviously, not those outside of New Zealand, but we appreciate you taking the time to tune in.