Oceania Healthcare Limited (OCA) Earnings Call Transcript & Summary

Good day, and welcome to the Oceania Healthcare FY '21 Results Announcement Conference Call. At this time, I would like to turn the conference over to Brent Pattison, the CEO of Oceania Healthcare. Please go ahead, sir.

Yes. Good afternoon, everyone, and welcome to Oceania's results briefing. My name is Brent Pattison, the CEO of Oceania, and I'll be joined by Kathryn Waugh, our new CFO. You'll see on the front cover of our presentation, we have led with Believe in better. And certainly, for us, this is more than a catch phrase. It signals our intent to build upon past achievements and challenge ourselves to do even better in the delivery of residents' experience, the positive impact we can make on our local communities, program growth for the business, shaping perceptions around aging and being alert to our carbon footprint as well as being a great place to work. We are pleased to update you on the 10-month trading period to 31st March 2021. We will touch on what has been happening in the business, an update on our strategy and our developments. Kathryn will cover the financial results in more detail. And we certainly look forward to having time at the conclusion of the presentation for some Q&A. If you turn with me to Slide 3. This is our first financial results presentation since we changed our full year balance date to March 31. Historically, it has been a May 31 year-end. The financial result contains a shorter full year period of 10 months and covers the trading period 1 June 2020 to March 31, 2021. We have included the 10-month comparative period information for investors and analysts. We're certainly pleased to observe that both of our underlying metrics, being underlying earnings before interest, tax, depreciation and amortization, EBITDA, and net profit after tax, NPAT, are up 7.9% and 4.4%, respectively, on prior 10 months period. This has been underpinned by a record sales volumes, strong care performance and successful delivery of new developments, which we will touch on in the coming slides. On the right-hand side of the slide, we have included a COVID-19 graphic to aid investors and analysts with the impact of the various alert level lockdown restrictions have had on our business activity. In our prior reported period for the 12 months to May 31, 2020, there were 50 days of Alert Level 3 or higher restrictions, and you'll see those in footnotes 1 and 2. In our 10 months to March 31, there were further 53 days of Alert Level 2.5 or higher restrictions, and that contained in our footnotes 3 to 6. And in the 10-month pro forma comparative period to March 31, 2020, there was little impact with only 5 days of Alert Level 4. Turning to Slide 4 and the 10-month trading highlights. The 10-month trading period has been a busy and successful time for the business. We've delivered an increase in our premium revenue strategy, a step change in our sales volumes and strong underlying EBITDA growth, increases on both 10-month prior corresponding period, pcp, and pleasingly, more than our full 12-month period to May 2020. Our growth in premium revenue to $35.2 million for the 10-month period is a strong proof point of our intentional investment in premium care. $13.1 million of care, DMF and PAC revenue, up from $9.4 million pcp and strong new and resales in our Village segment, with DMF revenue of $22.1 million, up from $18.1 million pcp. Sales volume, development margin and resales were the key drivers of the 7.9% lift in underlying EBITDA to $56.2 million from $52.1 million pcp. Total assets increased to $1.9 billion, both a reflection of our continued capital investment of $102 million in new and existing sites and changes to CBRE's valuation assumptions that largely reviews the COVID-19 input assumptions. We turn to Slide 5 and talk about aged care and record sales volumes. In our aged care business, we now have 847 care suites in our existing portfolio. And this establishes a strong position for us in the market with this product offering. The care suite supplies both efficient recycling of capital at first-time sale and growing annuity income from the deferred management fees on occupational right agreements. Our aged care business has delivered a near 20% increase in care earnings per bed to over $9,500 per annum compared to $8,800 earnings per bed in the previous period. If we include the development margin in resales, we've seen an 11% lift in our earnings per bed to $17,600 per annum. Our premium beds or care suites now represent approximately 55% of our total care portfolio nationwide, up from 34% at the time of the IPO in 2017. We completed 132 new care suites across 2 sites during the 10-month 2021 period, and we have a further 144 care suites under development right now. Record sales. Despite the shorter 10-month reporting period, we recorded 388 total ORA sales to 31 March 2021, an increase of 9% and or 33 units and care suites on a -- on the full 12-month FY 2020 period. When we look at that on a 10-month PCP basis, we've achieved more than 25% growth in volumes across ILUs and cars suites. Our new sales of 194 included over 75% of sales outside the Auckland region. We had guided to moderation in our development margin as we moved outside the Auckland region. But pleasingly, our development margin remained strong at 26%, despite this more regional bias. The new sales included villa, apartment and care suite sales at Gracelands, which is in Hastings; Green Gables in Nelson; Elderslea in Upper Hutt; the BayView in Tauranga; and Awatere in Hamilton. Our resale volumes of 194 were up 17% on the full year 2020. Prices achieved on villa, apartment and care suite were all up on a full year 2020 basis, and more detail on this is contained within the slide pack, Page 21. If we now think about development and the recent acquisitions, we delivered 217 units and care suites across our brownfield portfolio in the 3 geographical regions, despite the loss of 53 days disrupted by Alert Level 2.5 restrictions or higher and the shortened 10-month trading period. As at March 31, we had 394 villas, apartments and care suites under construction across 5 regions, and 221 of these are due for completion in the full year to March 31, 2020. 49 of these have already been secured through the completion of a new premium apartment block at our Eden site in Auckland in April. Our remaining development pipeline of 1,956 units and care suites is 75% consented and has been complemented by the recent brownfield and greenfield acquisitions of Waterford and Franklin, respectively. Our development team continued to demonstrate their ability to deliver projects on time and on budget, which provides the business with a very clear growth pathway over the coming years. Turning to acquisitions and the capital raise. We successfully completed an oversubscribed $100 million capital raise in March 2021 to fund 2 quality acquisitions. This equity raise was undertaken by way of an $80 million placement and a $20 million retail offer. It was great to see existing and new shareholders supportive of our growth. The acquisition of Waterford on Hobsonville Point provides us with an attractive Auckland location, quality built form of villa and apartment and a vibrant resident population. The existing site offers surplus land that has resource consent to develop circa 60 care suite and apartment units. The acquisition of Franklin in Pukekohe is a 6.1 hectare greenfield site currently with a small existing leasehold, which we operate on behalf of the Methodist. This site offers an opportunity to develop circa 215 units in care suites when complete. Turning to the dividend. The directors have declared a final dividend of $0.021 per share. This is not imputed and brings our total dividend for the year to $0.034 per share, representing a 55% payout ratio of underlying net profit after tax, which is in line with Board policy. The dividend reinvestment plan will continue to apply. Turning to Slide 7 and just an update on our strategy. Our strategy of premiumization of aged care and unlocking additional yield through site optimization continues to be a key feature of Oceania's strategy. The graphic shows the steady annuity progress of our earnings and the status of our brownfield development. From consent to ramp-up is traditionally a 5-year cycle. In our care suite portfolio, we have significantly progressed the proportion of those bed numbers that are now achieving greater than $10,000 a bed. In the past, we have disrupted short-term earnings to deliver higher-yielding earnings per bed or site optimization. In our future planned and commissioned bed numbers, we have less of this disruption, as we are largely building new care suite product on vacant or available land versus room conversion. And recent examples include Bellevue, Green Gables and Lady Allum. In our development pipeline across both care and Village, we have 1,956 beds and units. There were 394 under construction at balance date and will progress to maturity of earnings or first-time development margin capture in the next couple of years. Since the IPO in May 2017, we have delivered nearly 800 new independent living units and care suites to the market, including the opening of 6 premium aged care centers at Meadowbank and Auckland, The Sands, which is also in Auckland, the BayView in Tauranga, Awatere in Hamilton, Green Gables in Nelson and the Bellevue in Christchurch. These developments and the subsequent sell-down have materially contributed to the group's 105% growth in total assets to over $1.9 billion for that period. Slide 8. Just an update on our developments before we get to the pictorials. It's been a busy year for our development and property team, and we are pleased, despite ongoing COVID-19 disruptions, to deliver 217 units and care suites. This was the amount of new delivery we intended to build over our full 12-month period. So we're very pleased to achieve that result with a shorter 10-month trading period. And I'll talk to each of the completed developments on the coming slides. Our future development is on track, and as at March 31, we were actively underway on a further 394 units and care suites over 7 sites across New Zealand, with 221 scheduled for completion in the full year 2022. We have consents in place for 75% of our total development pipeline, which has recently increased to 1,956 with the addition of our 2 recent acquired sites, Waterford and Franklin. Slide 9. On to the photos. We delivered 217 units in care suites in the 10 months to 31 March 2021. These are across 3 sites: Green Gables in Nelson, the BayView in Tauranga; and the Bellevue in Christchurch. Green Gables is 28 apartments and 61 care suites. It's a highly desirable city location in Nelson surrounded by leafy suburban streets. The site has strong local demand and very little competition. It has been well received by the local community, both in terms of design and quality, and we have seen strong inquiry and more than 70% of available apartments are sold. The BayView Stage 2a is a further 35 apartments and community center. This is a flagship property for us, and it's located on the slopes of Judea in Tauranga. It has commanding views towards the mount and [indiscernible] basin. The community center provides excellent amenities, including an indoor swimming pool and large outdoor living area. This sits alongside the care development on site that is full and has waiting list. Stage 2b of the BayView unit development is scheduled for completion in the second half of full year 2022 and will deliver a further 39 premium apartments. Lastly, the Bellevue in Christchurch was only recently completed and consists of 22 units and 71 care suites. It's located on the popular Windermere Road, and there is good demand for aged care in that region. During the build phase, we were able to save the memorial trees, and these form part of a shared garden space that both the care and independent living residents can enjoy. We have a further stage of 46 apartments commencing in full year 2022. Slide 10. I'm now going to quickly cover the FY '22 schedule completions. We have 221 units and care suites. First photo, Eden. Our Eden site already has 67 key suites and 40 units. The site is already delivering strong care earnings per bed at circa $23,000 per annum. It is largely full and has waiting list. In April 2021, we completed the construction of 49 luxury apartments and a new community center on the land that we bought adjacent to our Eden Village with initial sales and applications underway. Lady Allum is in Milford and has 113 care suites development scheduled for completion in the second half of full year 2022. You'll see from the photo that the building roofs are significantly advanced with the superstructure proceeding already up to roof level. The completion of this new care development will enable further site optimization. In addition to these 2, we had 39 apartments of Stage 2 at the BayView, 18 villas at Gracelands and Hastings and 2 villas at Stoke in Nelson. Other developments under construction, Slide 11. Other significant developments under construction include Waimarie Street, which is in St. Heliers Bay in Auckland and Awatere Stage 2 in Hamilton. Waimarie Street has a premium greenfield site and highly visible on the slopes of St. Heliers Bay. Groundworks are well underway. It's one of Auckland's most superior locations with 360-degree views of Auckland and its surrounding harbors. The site will deliver our 79 units and 31 care suites And we have had a high level of interest with a significant number of inquiries already registered. Just as importantly, for Mark Stockton, our Group General Manager of Property and Development, the site also boasts the largest tower crane in New Zealand, and it's great for marketing as well. Awatere Stage 2, construction is well underway for 63 units and community center on Stage 2. The property is well located. It's nestled near Milne Park and the banks of the Waikato River. The construction is scheduled for completion in full year 2023, and you can see from the photo that the construction works are well progressed. On to acquisitions. The recent acquisitions of the Waterford property in Franklin land bank signaled a pivot in our strategy, firstly, to the identification and prosecution of value-accretive M&A; and secondly, to growing our greenfield prisms. The Waterford property is situated at the entrance of Hobsonville Point, the master planned and highly sought-after community in the Auckland region. The acquisition represents a highly attractive brownfield bolt-on to Oceania's existing platform. It comes with no immediate additional operational costs. The site offers 2 further areas of development. We have concept plans advanced for the site and resource consent in place that we can get underway with circa 60 units and care suites, delivering a greater yield on the site. We took position on the 23rd of April 2021 and have already secured a couple of new sales of apartments and applications. The villas on site are 100% occupied. Turning to Franklin. Franklin has a 4.1 hectare greenfield site in Pukekohe, plus we have purchased the adjoining 2-hectare site, on which we currently operate a care facility on behalf of the Methodist. Franklin is a key location in the broader Auckland region and part of the fast-growing Southwestern corridor. We have developed concept plans for the site and, with a mixture of villa, apartment and care suites, are expecting to deliver circa 215 units and beds. These acquisitions will be settled using the proceeds of our recent $100 million capital raise. And lastly from me before I hand over to Kathryn to discuss the financial results. We've set out the future outlook for our portfolio when it is fully developed. The right-hand side graphic shows the existing portfolio, i.e., what we've delivered to date; then the development pipeline, i.e. what lies ahead for us; And lastly, our post-development portfolio, i.e., our future state. Our existing portfolio is roughly split 50-50 between premium and nonpremium units and care beds. The care suite component represents about 21% of total existing product. We had 1,459 total units in care suites that are consented and under construction with a 60-40 development pipeline bias to units. We have traditionally built care suites first from the reclaimed rest home and/or care offering on our brownfield site in order to free up the high-yielding land for future apartment and villa development. In our completed future state, we will have roughly a 50-50 split towards units in the care product. Within the care product, it will also be split 50-50 between care beds and care suites. The total portfolio will have a 70-30 split between premium and nonpremium units and care and deliver over 5,500 units and beds across New Zealand. I'll now hand over to Kathryn to run through the financial results.

Thank you, Brent, and good afternoon, everyone. I have been involved with the Oceania business coming up to 12 years now, and it's great to be presenting the 10-month result today. Brent has spoken about our brand, the development pipeline, superior care earnings and continuation of strategy. I will now cover off an overview of the key financial results by segment and some of the key metrics with regard to sales and capital structure. Though I won't touch on them today, we've also provided further detail in the appendices of our presentation. Moving, firstly, to Slide 15. Brent touched on the change of balance date right at the beginning of this presentation. As he mentioned, the majority of our presentation talks to the 10 months of trading, which also represents our statutory position as can be seen in the full financial statement. In addition, on this slide, we provide the details of the 12-month pro forma to March 2021 as compared to a pro forma 12 months to March 2020, noting that the 12 months to March 2021 include all COVID lockdown periods and as such are impacted by the full COVID effect. When running through GAAP information in the next few slides, we have the 12 months to May 2020 as a comparison. When discussing the non-GAAP results of underlying earnings, we've provided 10 months to March 31, 2020, comparators. Moving now to the income statement. Total comprehensive income of $167.8 million was up significantly when compared to $9.9 million in relation to the 12 months to May 2020. The material contributor to this positive result was the reversal of COVID-19 valuation assumptions contained within the March CBRE valuation. This has resulted in favorable fair value movements in both our investment property, which I will refer to as IP, and our property, plant and equipment, which I will refer to as PPE. There has been a positive change in the fair value of IP of $83.1 million. This movement has been driven by an improvement in CBRE's valuation of the operator's interest, which reflects the value of future deferred management fees and resale gain cash flows from the Village portfolio as well as positive impacts from the new developments of the BayView, the Bellevue and Eden being valued on an as-complete basis for the first time. At the time of our FY 2020 results last year, CBRE's valuation of IP reflected adverse changes to key assumptions resulting from a point-in-time valuation being undertaken with a COVID lens. At our November 30, 2020, interim results, CBRE had reversed some of these key assumption changes. And now at March 31, these COVID valuation impacts have been unwound in full. We've highlighted these in the table to the right-hand side of the slide. Firstly, property price growth rate in year 2 has returned to pre-COVID levels of 1%, back up from 0% and now back to historical levels. In year 1, it has increased to 2%. It was historically 0. Secondly, discount rates have reduced by 12.5 basis points across a large portion of the portfolio, reflecting a return to pre-COVID levels having been increased by 12.5 basis points and 25 basis points across the portfolio last May. Further supported at the total comprehensive income level, there has been a change in fair value of property, plant and equipment. Valuation improvements across many of our key care sites, reflecting the reduced discount rate, tenure changes, increase in EBITDA per bed and also the positive fair value movement for the newly completed care suites at Bellevue. Turning now to operating revenue of $175.4 million. We have seen continued growth in our care business, which is favorably impacting increased recurring revenue of $13.1 million in relation to the care suite deferred management fees and PAC revenues. Village DMF is also continuing to experience strong growth. As such, group DMF for Village and care suites for the 10-month trading period was 8% higher than the full 12 months FY 2020 period. Operating expenses of $162.9 million for the 10 months to March reflects the continued investment in staffing, patient welfare, particularly in relation to our development sites that are ramping up in addition to COVID response across our facilities. The depreciation expense from buildings was $8.6 million. Our care suite assets are treated as PPE and, therefore, depreciated. We'll continue to see growing depreciation expense as we build out our pipeline of premium, high-value care suites. By comparison, if our care suites were treated as IP, our building depreciation expense would have been $6.2 million lower. Lastly, taxation benefit of $10.4 million. We hold $86.9 million of tax losses of balance sheet. Each year, we recognize a portion of these losses as a deferred tax benefit to offset any tax expense, mainly relating to fair value movements of our property assets. Moving now to Slide 17. This slide provides a reconciliation of reported net profit after tax to our underlying NPAT 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. To be clear, with a change in our balance date, the underlying EBITDA position of $56.2 million reflects a 10-month period, and we're comparing to a 12-month period on the left-hand side of this table. The right-hand side of the slide provides a segmental EBITDA view with a like-for-like 10 months to March comparison. Of importance to note this year is a change, which has been made to our definition of underlying profit. This change was previously discussed at the time of our interim results. In order to better align to our peers who recognize care suites as IP as opposed to PPE, we now include an adjustment to remove depreciation in relation to care suites. As you can see from the slide, this has had an impact of increasing underlying NPAT by $6.2 million in the current period and $6 million in the comparative. Underlying EBITDA in respect to the 10 months to 31 March 2021 of $56.2 million includes good levels of new sales and resales, despite operating in a COVID-19 environment, where, as we mentioned at the start, the 10 months included a significant portion of days where restrictions were in place. Overall, underlying NPAT is $41.8 million for the 10 months to March '21. Turning to resale gains and development margins. Strong resale gains of $17.9 million for the 10 months exceed those of the 12-month comparative, up $6.4 million on pcp. This is a result of strong resale volumes and pricing across both Village and care suites. Development margin of $23.8 million is representative of lower individual margins as we move out of Auckland into the region. We continue to be pleased with the strong levels of sales we're observing and reiterate that the increased regional mix in resales and new sales will be a theme that continues into FY '22 and beyond. On the right-hand side of the slide, we provide a segmental view on a 10-month pcp basis. When taking a segmental view in the financial statements and in this table here, we report the resale and development margins for care suites in the Village segment as our Village company is legally the issuer of the [ oral ] contract. On the next slide, however, we make an adjustment to underlying care EBITDA to illustrate the level of these 2 gains. The aged care segment, underlying EBITDA of $18.4 million, up 20% on a 10-month pcp, reflecting the ongoing transformation of our care portfolio towards greater portion of premium care beds and strong performance. The Village segment underlying EBITDA, $55.1 million, up 7% on a 10-month pcp, continuing to see strong growth in deferred management fee income as development sell-down and resales occur at a higher price point. And finally, the other segment includes support office and [ center ] costs. The increase of $2.6 million on a 10-month pcp includes investment in our staff clinical support processes and IT, along with increased insurance costs. Moving now to the care segment. Our premiumization strategy is delivering increased EBITDA per bed with an 18% increase over pcp. This is particularly driven by increased deferred management fee income as our ramp-up sites sell down and mature. As with prior periods, we consider this to get to a solid future of care. The care suite development and resale margins are most appropriately aggregated within the operating care segment figures, given the margins are essentially the near-term offset of earnings forgone in the decommissioning of sites. Total aged care underlying EBITDA, including this care suite development margin and resale gains, was $34 million, up 13% on pcp and delivers almost $18,000 underlying EBITDA per bed on an annualized basis. Total care underlying EBITDA includes care suite development margin and resale gains of $15.6 million in the 10 months to March '21. These are primarily related to the sales of recently completed developments of Green Gables, Awatere and the BayView as well as care suite conversions at a number of regional sites. Moving to premium revenue. We are continuing to see good growth in recurring premium care revenues from premium accommodation charges and deferred management fees, and we recorded more DMF revenue in the 10 months to March '21 than we did in the 12 months to May '20. We will continue to see strong growth in this area, while we continue to build and ramp up our premium care development. The $10.7 million increase from pcp in total aged care operating revenue to $147.1 million, driven by this ramp-up, including a material increase in premium revenues of $3.7 million. Moving to operating costs. Staff costs continue to be the greatest contributor to total expenses of $128.6 million. This includes pay increases of 3% to 7% for our registered nurses earlier in the year as part of our ongoing efforts to retain key professional staff. The ramp-up of Green Gables, which opened in September, along with the Bellevue, which opened in March, together drove an associated increase in care operating costs. In summary, the care portfolio continues to perform well with higher group occupancy. We continue to replace the short-term earnings impact with longer-term quality and quantity of premium earnings. More importantly, we've passed the inflection point in the brownfield development of our portfolio, which we spoke about last year. Moving forward, we will likely see less volatility in our annual care earnings as the maturing and ramp-up of prior period investment takes hold. Moving on to Slide 19 and the Village segment. Again, we show a 10-month pcp comparison. The Village segment has continued to rebound strongly since COVID-19 with sales volumes for both new sale and resales in the 10 months being above all previous full financial years on record back to the financial year 2012. Underlying EBITDA of $55.1 million has increased by 8% on pcp. As with care, we continue to see strong growth in deferred management fee revenue for the Village segment. Villa and apartment DMF of $22.1 million represents a $4 million or 22% increase on the pcp, and it's higher than the full month -- the full 12 months to FY 2020. This strong growth in DMF -- in deferred management fee in the Village segment is set to continue as development sell-down and resales occur at a higher price point. Minor cost increases continue to be noted across occupancy and staffing, particularly in relation to the newly opened sites ramping up. In the 10 months to March, we opened an apartment development at Green Gables and later in the period at the BayView and the Bellevue. Total sales continue to be a key feature. We continue to deliver strong growth in sales volumes with 388 total sales in the 10 months to March 31, 2021, a 26% increase on pcp and a 9% increase on the 355 sales in the full 12 months to May 31, 2020. We provide further detail on resale and development gains in the next 2 slides. Moving to development. In the area of new sale volumes, Oceania recorded 194 new sales over the 10 months to March 2021, 107 care suites, 55 apartments and 32 villas, a 20% increase on the 10 months to March 2020. The 107 new care suite sales in the 10 months continue to illustrate that this model is well established and well accepted by residents who want the convenience of a larger, well-equipped rooms, additional services and confidence of care in a single move to meet their future needs. ILU and villa development sales increased by 58% on the 10 months to March 31, 2020, reflecting the sell-down of Green Gables as well as sales of new villas at Gracelands, Whitianga and Woodlands, which were completed towards the end of FY 2020. A softening of the development margin percentage continues. 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 developments to those in more regional locations. The Sands and Meadowbank in Auckland, delivered in FY '19. We then moved to Awatere in Hamilton, Gracelands in Hawkes Bay, Whitianga and Woodlands in Nelson in FY '20. And again, regional deliveries in the last 10 months, 132 care suites and 85 apartments completed across 3 key sites: Green Gables in Nelson; the BayView in Tauranga; and the Bellevue in Christchurch. Continued strong apartment sales prices have been achieved at Meadowbank and The Sands, which has consequently been offset by the lower price point of Green Gables apartment sales in Nelson. Finally, from this slide, the average apartment prices decreased to $952,000. The average price of care suites has also decreased slightly, but this is representative of the sale of care suite conversions at other locations, including Eldon in Paraparaumu, [indiscernible] in Hastings and Holmwood in Christchurch. When we look at resales on Slide 20, as with developments, for comparison purposes, we include both the 12 months to May 31, '20, and 10 months to March 31, '20 comparative. Total resales of 194 for the 10 months to 31 March was up 31% on pcp and also up from the 166 resales in the 12 months to May 2020. We have continued to see a solid sales recovery from COVID-19 and through the 4 months since our interim results with increased resales continuing across all product types, villa, apartment and care suites, compared to both the 10 months to March '20 and even as compared to the 12 months to May '20. Encouragingly, as you can see on the top right-hand side illustration, with the exception of Christchurch, we are encouragingly seeing increased resales across all regions. Moving to the bottom left of the slide, you'll see that the resales prices continue to grow across villas and care suites in the 10 months to March '21, again, as compared to both the 10 months pro forma to March '20 and as compared to the 12 months to May '20. In addition to this, resale margins of care suites improved period-on-period, moving from 11.5% in the pcp to 18.7% in the current period. The resale margins of independent living units have and will continue to moderate down from earlier levels of around 30%. ILU resale margins currently sits in at just under 26%. Despite the strong growth in resale volumes over the last 10 months, we still have good levels of resale stock on hand presently with the level akin to that as at May 31, 2020, which at the time and post the restrictions of the COVID lockdown period. This is a positive indicator for resales, both volumes and margins for the coming 12 months. The final 3 slides I will speak to cover statutory metrics, the first being cash flow. Oceania continues to demonstrate strong operating cash flow of $96 million, driven largely by the first time sales receipts at development sites of $92.7 million. With total CapEx for the period of $102 million, development activity has been and continues to be strong with a number of quality sites recently coming on stream. Importantly, as per Brent's earlier slides, we were able to hit the 12-month build rate indicated for FY '21, despite the reduced time frame as a result of the change of balance date. It's important to note that the key acquisitions of Waterford and Franklin settled post balance date and, as such, are not included in these numbers. Going forward, we would expect development CapEx to revert back to the higher 2020 levels as the number of developments have progressed, including the high-spec Waimarie development in St. Heliers. From a balance sheet perspective, total assets increased by $355 million for the period to $1.9 billion. This increase is driven largely by capital expenditure of $102 million and the CBRE revaluation movements of approximately $160 million across both IP and PPE, coupled with the $80 million received through the capital raise to March 31, '21, which has since been used for settlement of the Waterford acquisition and will also be used for settlement of the Franklin acquisition. On the right-hand side of the slide, we show a reconciliation to the net adjusted value per share, a non-GAAP measure. The net adjusted value reflects the value of existing sites plus the land and work in progress at development sites and excludes the present value of net development cash flows and future earnings at these development sites. Our net adjusted value per share as at March 31, 2021, was $1.28 per share. This is a strong increase from $1.03 per share as at May 2020, again, driven largely by the revaluation uplift in IP and PPE. As an equity valuation, it strips out the value of refundable or payments being $107 million for care suites, the adjusted amount based on the CBRE valuation and $482 million for ILU. It's important to note for our IP and PPE balance sheet value already include a CBRE valuation discount on the unsold stock. At 31 March, this was a blended discount of 26%, down from 27.3% at May and equates to around $65 million or $0.092 per share. As we continue to sell this down, we expect to realize this fair value gain. Net adjusted value is a proxy for valuation of the status quo of the existing. It excludes, firstly, the $0.092 per share I referred to and the incremental development cash flow and earnings, including resale gains and DMF from the 394 units and care suites, which are under construction at March 31, 2021. The final slide before we conclude our presentation is that of capital structure on Slide 24. Our net debt as at March 31, 2021, was $261.5 million with gearing at 23.9%. This is down from 35.1% as at May 31, 2020, as we have reduced unsold stock value and experienced fair value gains in our property portfolio as well as having significant cash on hand following the $80 million placement in late March. This level of gearing has increased slightly following the settlement of Waterford in April, and further cash will be used to settle the Franklin land acquisition, noting this will be offset by further $20 million raised from the retail issue. It includes $125 million from our inaugural 7-year retail bond issue, which was successfully completed in October '20. It's achieved full ones subscriptions of $50 million. This issuance has extended our tenure and provides diversity of funding sources. In March 2021, Oceania announced an equity raise that included an $80 million institutional placement, which successfully completed prior to balance date; and a $20 million retail offer, which has successfully completed during April. Both were well supported and strongly oversubscribed. We have $204.9 million net bank debt drawn at March 31, 2021. This provides us with $145 million of headroom in our banking facilities. Low gearing, coupled with sufficient bank facilities in place, puts us in a great position for future growth and enables us to execute our development pipeline. Thank you, everyone. That concludes the finance section of the presentation.

So I think we are open for Q&A. I think last time, what we did was we took Q&A from people on the call. But we have a number of questions on the screen. And so I thought, while we're getting underway, I might just address some of the Q&A that we have on screen and then we can get to questions on the phone. So the question has been put to us in terms of, can you give us a sense of what level of debt or work in progress will be required to complete the current pipeline? Well, if we think over the next period, I guess, traditionally, the business has spent about $100 million to $120 million on capital improvement. But I guess what we look at is, what is our overall gearing position. We try to sit around 30% to 35% gearing. And obviously, the business through its care operations generates strong cash. So from an operating basis, we recover about $90 million of operating cash on an annualized basis. So we're pretty confident that we have that kind of level of debt in place, and we'll have cash to offset it, which means that it will have significant headroom for either advancing the portfolio or for securing other greenfield sites. Second part of that question was going to further acquisitions. So the question was, how much headroom does Oceania have for further acquisitions? Once we've paid down Franklin through the $20 million retail offer that we've received shortly, we'll be in a situation where we will use the $145 million kind of additional capacity that we have for accelerating our business. And if greenfield sites come along, and we think there's actually a ready supply of greenfield sites, if you think about the changes -- structural changes that are happening to house builders in the market, then it's, obviously, a ready source and a pivot that we want to put underway as it relates to our strategy. From an M&A perspective, we're very fussy about M&A. We think Waterford is a great transaction. They do not come along every day. So we'll take a very prudent approach to bolt-on acquisitions and M&A in the future. The next question that we had was, given the strong balance sheet and circa 1,500 units are consented, is there an opportunity to accelerate the build rate? We've traditionally given guidance of our build rates in the kind of the 200s, and I think build rate also goes to sales cadence. So what's your confidence that as you build, you're going to be able to sell? We're seeing really good market trends as it relates to our sales cadence. We're having strong inquiry. We've got a mature portfolio We're a nationwide operator, so people are seeing us in the local communities. We've got a brand that we are intentionally investing in. And we're -- and we've got some favorable market conditions. So we're very confident around sales cadence. And we're also very confident around sales volumes. So that will give us some confidence about bringing more product to market sooner. The challenge that we have, as people are aware, it typically takes about 4 years to develop things. So a year for resource consent, a year for building consent and a couple of years of construction. So we've just got to be mindful that while we have a great portfolio and while we have a lot of consented product, we have to, obviously, be able to move through that cycle and have things constructed. So we will, hopefully, be able to talk a bit more about build rate as the new financial year progresses. Third and last question that we have online was just in relation to what proportion the recent acquisitions may play in terms of improving our underlying EBITDA or underlying NPAT in the next year? I think when we did the Waterford and Franklin transactions, Franklin is obviously a greenfield site and so initially it has a holding cost. Our cost of funding is relatively cheap. And as a consequence of that, the option value of that greenfield site offers us a lot of attraction. On the Waterford front, because there's no additional costs required in operating the facility, the facility is immediately earnings accretive for us and has a positive impact on our results going forward. We've guided the market to low to mid-single-digit earnings per share accretion. But we do expect that as that portfolio matures, it will deliver strong recurring earnings [ for up through ] DMF. I mentioned earlier that 100% of the villas that are on site are occupied. They've been occupied since 2014. There's been quite a significant house price inflation since then. And we will start to experience some of those first resales over the coming period. So we're expecting Waterford to be a very positive contributor to our earnings, and Franklin, clearly, in the medium term, will be a very positive contributor to our earnings. So those were the sort of the questions we had online. I certainly open for questions from people on the call.

[Operator Instructions] We will take the first question from the first participant.

It's Andrew Steele from Jarden here. Just the first one for me. I mean you've partly addressed it on development build rates as only a relatively modest increase into next year. One quick question on -- into next year. Have there been any projects which might have slipped out of the planning for next year that have gone to later periods? And in terms of thinking about later periods of sort of FY '23, FY '24, what sort of the pace of development we should expect in that sort of near to medium term?

Yes. So I think -- so nothing has slipped out. We've been very focused on recovering any ground that we might have lost through COVID. We haven't run into any problems as it relates to our planning and consenting of items that we had underway. And we've been sensitive to our local communities and thought about kind of the demand for the product that we're bringing to market relative to our competitors. I think I touched on one of the slides, Awatere in Hamilton is progressing significantly better than we expected as it relates to the construction. And there are 63 units in community centers that currently are scheduled for completion in FY '23. So that -- if that continues to run well, that might be something that swings into one year or another. The rest of the product has kind of mapped out from here as it relates to the build and construction. Part of the attraction for us with the Waterford acquisition is we had resource consents in place. And that is one site that probably we have an opportunity to accelerate as it relates to the build profile. In the longer term, we absolutely intend to lift our build rate. We've just got to be sensitive to the availability of labor and kind of the cycle around just kind of couple of years to construct things. If we think about Eden, with COVID, we lost some of our construction windows. So we took onboard the additional cost of putting 3 teams on site there to have it coming to market in April. So we are open-minded to the success of projects where we can accelerate them. But there are some items that you can't obviously change. They're already sculpted into the project. And we're also mindful of kind of keeping our gearing around 30% to 35% in the medium term.

Great. Just the next one for me is on care profitability, which on an EBITDA per bed basis is broadly flat since the first half, which looks like you've just got more product in the commissioning phase of development. Taking into account your planning for developments and the phasing of those over the next year, how should we think about the change in this metric over the next 2 halves? Should we be expecting it to return to growth for both periods?

Yes. I think that's a good question, Andrew. I think we've got a number of our sites that are coming out of commission and then to ramp up and a number of our sites going from ramp-up into maturity. So I think from our perspective, we're going to expect to see sort of gradual but continue to be pronounced sort of improvement in the premiumization of care and our care earnings. I did indicate that more of our build in the coming period is tilted towards units rather than care. But we're starting to get that kind of operational efficiency in our care operation. So we are focused on sort of care earnings per bed and an underlying EBITDA level regardless of development and resale margins, and we're expecting that to sort of continue to lift as the portfolio gets more mature. The other thing that's happening is that we just have far less disruption in our care earnings going forward. So this is at least about [ bowling ] over existing care. It's less about conversion of rooms. It's more a matter of vacant land that's available to us. And Lady Allum in this next period is a good example. We're bringing 113 care suites to the market. And it's being built alongside the existing care operations.

Great. Just the last one for me is on the change in accounting for underlying earnings. I take your comment that you want to align with some of your peers. Could you go through your rationale on landing on, I guess, that side versus removing maintenance proxy out of your underlying earnings and, therefore, removing underlying earnings further away from what might be sort of a cash-type earnings?

Yes. So I guess the way of looking at it is we're trying to align those accommodations that are under an ORA is to treat them the same. So we treat care suites as property, plant and equipment, which attracts the depreciation. Other peers have them as IP. So there's no depreciation there. In our underlying, at arriving at that, we back out all of the fair value gains and losses that come through from CBRE and then bring in our realized gains on those ORAs. So from a care suite perspective, we're backing out the fair value and we're bringing in the realized gains, but we're inadvertently leaving behind the depreciation. So the reason for backing out that depreciation is so that we can treat everything as in ORA the same. So all of our ORAs are effectively for underlying purposes treated like IP and, therefore, aligning better with peers.

And if we think about that, Andrew, on a period-to-period basis, I mean, obviously, we've restated the prior period. It's about $6.2 million, playing $6 million. So there's about a $200,000 difference at that level. The other thing that we're, obviously, cognizant of, if we take Green Gables as an example in Nelson, it's the same building that is offering both an independent living experience and care suite experience. We're depreciating one at 33% and one at 50%. So it's actually just bringing consistency to the treatment of depreciation, which we know is a noncash item, given the fact that we're an integrated offering on a lot of the new sites that we are developing.

And you didn't consider bringing in all your maintenance CapEx into underlying earnings to make it a fair representation of your true earnings?

That hasn't been considered, Andrew. No.

We will now take the next question from the participant.

Yes. This is Aaron Ibbotson from Forsyth Barr. I've got a couple of minor questions. So first, I just wanted to probe on your 221 new units for FY '22. My understanding is that, that doesn't include any conversions? You had a few historically. I wondered if you were planning to have any this year?

Yes. So you're right, Aaron. It doesn't involve any conversions. I think one of the sites that we are trialing a conversion into care suite product is Eldon and Kapiti Coast. But we're doing that on a very incremental basis, so sort of 1 or 2 at a time. So conversions in the portfolio are not material in that sense.

Okay. And secondly, just on the sort of Village operating expenses, which I believe you had $20 million or so reported, if I take out this rental payments to Everil Orr, that seemed to have grown quite a lot. I get the annualized growth there to be sort of in almost 30%. Just wondering if I'm missing something there. So why did that grow so much?

There are a few things going in there. There's kind of investment in staff, which we've done across the board. But specific to the Village, there's the cost of newly opened sites in there. So we have the costs in relation to the apartments at Green Gables, which opened in September, October. And then we also have the costs in relation to BayView and Bellevue. So those sites opened in March, but there are some costs that are incurred in the weeks, months running up to and getting a site ready for opening day. So obviously, it kind of skews the numbers a little bit in the first few months because you're not getting that revenue in, but we are beginning to incur costs.

Okay. But if we think going forward, so I'm annualizing it, excluding these rental payments, I guess, around $20 million. But if you're saying that, that ramped up towards the end of the year, presumably that number is going to be -- grow quite a lot again in '22?

No. Because if we think about what happens in '22, I guess, for the -- so as it relates to Lady Allum, that development is alongside existing care. So we're thinking about the operational impacts of that. Eden, obviously, is a village, so it doesn't have same operational drag that Kathryn just referenced. BayView equally with 39 apartments there are extended to using existing resources. And then we've got some small villa developments, obviously, in Gracelands and Stoke. So it's a good question, Aaron, but it won't have the same drag. We do not expect it in the FY '22 period.

Okay. And then this is just a little general question, which I assume the answer will be yes to. But if we look at your 10 months period on things like DMF, for instance, is it fair to sort of annualize that, i.e., multiplied by 1.2 and see that as your base level? Or is there anything else going on in the accounts? Presumably not, but the growth there was pretty strong if I annualize the 10 months.

Yes. And that sort of -- obviously, we can't do that because we've had 10 months of trading. But I think your sentiment is exactly right. Part of the intentionality around the premiumization of care is to capture the ongoing annuity income through DMF. We've experienced over a number of years now quite an attractive compounding annual growth rate, and we're not expecting that to change.

Finally, just on your care suite resale margins, which came in quite a lot higher than we had anticipated. If you look at your current stock and, obviously, these are coming up for resale on a pretty short-term basis, do you think still that you've got decent resale margins coming up? Or should we expect that to sort of trend back towards, call it, at 10%, 12% level?

Yes. I think we were pleasantly surprised by those resale margins as well, Aaron. I think you're right. It depends on a number of factors, including the regional bias that we have in terms of some of those care suites coming up. We have observed tenure being probably shorter than we anticipated. And so therefore, that means that the market needs some time to catch up in order for us to capture the full sort of resale gain. But yes, I think whether it's there or we're at slightly lower is a product of what we have available and in what regions. But we are establishing care suite as a product. We are seeing good price points, both at the new sale and resale levels. So yes, I'm not sure that accurately answers your question.

That's fair enough. Finally, just would you say that there are any lingering sort of COVID costs in the 10 months period? Or was that largely done by the time we got to May?

Yes, I think the only thing that the sector is working through is really the rollout of the vaccination program. So that's going really well for our sites and for our residents. But that, obviously, comes with some operating complexity. We're just absorbing kind of the margin loss of that. Obviously, we're not paying for the vaccines, but we're certainly paying for just the extra resources around that as vaccinators come to site and the orchestration of that through extra staffing costs. We're experiencing that and so are our peers. We know that it's for the greater good and so we'll just absorb that marginal impact.

We will now take the next question.

This is Bianca from UBS. So first question for me just on your resale prices. So mainly I'm interested in the apartment resale prices being basically flat compared to resale prices a year ago. But at the same time, you show that the resale volumes in Auckland have increased. So I'm just wondering if that means have you not really increased apartment resale prices or are apartment resales mainly outside of the Auckland region? Or what's the reason for that, please?

Yes. I think you're right. I mean I think we had, from the slide presentation, 79,000 in Auckland. Some of those sales have moved well -- in Auckland have moved away from some of our flagship sites. And we've obviously had a lot more regionally up and down the country. So that sort of influences price as well. From our perspective, we're seeing both demand for product and continuing ability to move prices. And so I don't think there's anything that we're observing that's changed. There's been a bit of a lift in villas, and we're sort of holding resale prices around the same level. So I think as much -- within that Auckland bias, there are obviously some stronger sites that we had in the North Shore and other locations. And now we're sort of drifting south and west as it relates to some of those resale prices.

Yes. And I think to add to that, Bianca, most of our resales on the Auckland site at the moment are care suites. So obviously, those premium sites that came online over the last few years, I'm thinking, The Sands and Meadowbank, the apartments aren't actually kind of at that maximum tenure yet. So we're not having the resales at those sites, but we are having the care resales at those sites.

Right. Okay. So more regional, I guess. Okay. And then just on your new sales as well. I thought for the second half, they looked a bit weak actually. That means that for the second half, you've done 49 new sales. And I know it was only a 4-month period, but especially comparing that to the second half FY '20, it's quite a bit lower. So I was just wondering what's the reason for that? And also if you could please give a bit of an indication of how new sales are going for the first half of FY '22?

Okay. I thought, well, if I start with your last question first. So FY '22 has been good. I think ourselves and our peers continue to see good uptake across our portfolios and products that we have. So sales momentum, sales velocity and sales pricing will be strong. The Waterford is a good example. I mean we took position of that on the 23rd of April, and we've already had 3 sales and a couple of applications. So -- and the new sites that we're bringing to market are sort of same. So as it bodes where we stand today, sales velocity is going very well. As it relates to kind of the 4 versus 4, some of that's just -- there's not an enormous amount of seasonality in our 12-month period, but some of that will just be relating to some of the hesitations and sentiments that were being portrayed in the recent 4-month period we've had as people start thinking about the [ trail ] of COVID. So we thought we were out of that, and now we have travel bubbles closing, et cetera. So I don't think there's anything untoward in that. We haven't seen any sort of need for any seasonal adjustments period-to-period.

Okay. And yes, just following up on that, I guess, on your new sales, are there any regions where you're having difficulty selling? And is there any particular type of product that's selling better or worse, for example, more higher end compared to more basic products?

Yes. I mean, I think, part of what we do, obviously, is a lot of market analysis before we [ come and hit ] the ground in terms of what's going to suit a particular location, how it's going to be -- how it's going to sit in that location, how it's going to be adopted by the community that it's in. A good example was Gracelands in Hastings. We've seen incredibly strong sales and resales for our villa product in that region contrasted with, say, apartments that have traditionally gone very well for us in the Auckland region. So it's a difficult thing to answer. It is nuanced around what we have. What we're saying is that care suites appear to sell through nationwide. So there's adoption of that product nationwide because it's got a greater bias towards being a needs-based product as it relates to independent living units in a sort of nuanced surrounded region and what suits that particular market and also what's available from the competition.

It appears there's no further questions at this time. I'd like to turn the conference back to you for any additional or closing remarks.

I just want to thank everybody for being on the call. It's a busy day for the market, and there's a lot going on. So thank you for everybody's participation. We're excited about the result and good to be on a March 31 balance date. Very pleased to have Kathryn sitting in as CFO. So delighted with that appointment. And yes, I hope the rest of the day goes well for people. Thanks for your time.

Thank you for your participation. You may disconnect. Stay safe.