Oceania Healthcare Limited (OCA) Earnings Call Transcript & Summary

Good day, and welcome to the Oceania Healthcare First Half 2022 Results Announcement Conference Call. At this time, I would like to turn the conference over to your CEO, Brent Pattison. Please go ahead.

Yes. Good morning, everyone, and welcome to Oceania's interim results briefing for the September results. I heard on the car radio the other day, a strap line that made me laugh, [ coasty theme ], better than a flat white. So on that basis, now that we conduct these briefing virtually, I hope you have a flat white reading and settle back as Kathryn and I take you through our half year results. Oceania has delivered a solid performance for the 6 months to September 2021, despite the obvious COVID backdrop, the business has had a busy and productive first half, including delivering a 20% increase in underlying EBITDA and a 22% increase in underlying NPAT period-on-period. We've seen strong sales volume and solid resale performance. We've been undertaking lots of building with 544 units under construction over 8 sites. We've secured an improved resource consent at Waterford, here in Auckland, more than doubling the apartment capacity to 50 on the same land area. We're now sitting over NZD 2 billion of total assets, which is up around 10%. We've expanded our land bank with an additional site in Franklin, which is also an Auckland. And we've recently appointed 2 highly regarded Independent Directors, Rob Hamilton and Peter Dufaur. We're certainly delighted to have Andrew Buckingham join the Exec team early next year, and he's going to be heading up our Property & Development Group. And we're rewarding shareholders with a 2.1 cents per share interim dividend that will be payable on the December 20, and our normal DRP will be in operation. If you turn with me to Slide 4. Rob Hamilton and Peter Dufaur joined our existing directors in September. Rob and Peter are well-known to you all and certainly highly respected. They bring a wealth of experience in capital markets, M&A, property development and governance. Rob is a member of our Audit Committee and Peter will be a member of our development committee. Turning to Slide 5. COVID-19 has proved to be another opportunity for Oceania to demonstrate its resilience, to deliver a safe and vibrant vigilant experience and to innovate, despite the obvious setbacks that the Delta virus has posed. In this half year, we've spent over NZD 1 million on additional COVID costs. In August, we introduced saliva testing for staff at our own expense, is an extra layer of protection in surveillance. This was subsequently adopted by the Ministry of Health for New Zealanders crossing the border and has now become the preferred method for surveillance. With the Ministry of Health Consent, we established top-up vaccination stations on our sites to increase vaccination rates for staff and their families, and this was really well received. We have continued to receive care admissions during lockdowns regardless of the alert level, and it was not until we reached the alert level 3 that we were able to resume admissions for our village product. Industry advocacy, so on Slide 6. Oceania's purposes to reimagine the retirements in aged care sector. We've spent a lot of time over the last 6 months, advocating on behalf of our staff and residents on industry issues, such as pay parity, immigration and access for residents to the loved ones. One topic that we saw that struck accord was Oceania taking the lead on allowing residents, particularly Auckland based residents to see their families and loved ones under our safe visitation protocols. And [ Mike Hoskin ] and [ Carey Makoba ] made this regular feature for talkback [ colos ] over several days. We received overwhelmingly positive sentiment from colos up and down the country, who picked up on the fact that while we head our staff and residents fully vaccinated early in the year, and safe measures in place for visitation, our older citizens were not getting a fear shake at the sick relative to others. So we're certainly pleased to see governmental restrictions lifting in the coming days. Turning to trading highlights on Slide 7. Oceania clearly has built a strong asset base. We have high quality properties, and we are now sitting well above NZD 2 billion of total assets. And this is an increase of approximately 40% since the first half 2020. We've continued our focus on premium revenue and capture, and we're pleased to deliver NZD 25 million, which is a 35% increase on prior period for the first half 2022. Our strategic investment in asset growth alongside solid DMF, which is the food management fee and PAC premium accommodation charge revenue has continued to contribute to growth in underlying EBITDA. We're up to NZD 36.5 million for the period, up 20%. Auckland, as has been commented, has suffered over 100 days of lockdown, which has had an impact on our ability to sell some stock, despite this, we have delivered 230 total sales for the 6-month period, and this is up 10.6% from the 208 sales in the prior period. If we think about infographics and trading over the next 2 slides, our aged-care business is building strong and observable annuity revenue to underpin our future growth and bring confidence to our investors. Even with the additional cost of COVID, we are now delivering NZD 9,500 underlying EBITDA per bed, which is 20% up on the previous corresponding period. If you actually include DMF or resale gains, we are approximately NZD 16,200 per bed and 54% of our care portfolio is now weighted towards premium beds or care suites. We started the period with high levels of unsold stock. However, we have been busy selling, even with nearly 30% of our total sites being based in the Auckland region. We have had over 230 ORA sales in the first half, 66% of these sales are outside the Auckland region. Very pleasingly, we're seeing strong resale and development margins, despite the regional bias at 20% and 26%, respectively. Continuing the infographics and trading, we've guided the market to lift and build rate, and we're pleased to report we have 545 villas, apartments and care product under construction across 6 regions. It's been an incredibly busy time for the business. I'll touch on the specific sites in the next couple of slides, but what I will draw your attention to is our 2 acquisitions earlier in the year have both been enhanced with further positive activity. Waterford, we've secured an improved resource consent, more than doubling the original plan for our next stage of apartment developments. We've also recently entered into a conditional contract on the land purchase for a further 1.8 hectares at our Franklin site in Auckland. On an innovation front, we have been exclusively appointed by the Bay of Plenty District Health Board to develop a contracted new service model, higher need aged-care residents. This will utilize our existing Elmwood site in Tauranga. I'm delighted to announce the appointment of Andrew Buckingham, Group General Manager, Property & Development. We stated that we are looking for someone with a broader set of skills for our future growth, and Andrew delivers this and spades. Many of his curated development projects will be familiar to you, Commercial Bay, Sylvia Park, ASP North Wharf, et cetera. Andrew will be starting with us in the new year. In addition, we've secured a 7-year NZD 100 million bond funding, and we think this is well timed if we think about where spot rates are, and they have been increasing materially since September. These funds will be deployed towards our growth ambitions. We have announced 2.1 cents per share dividend to reward shareholders and as I said earlier, the DRP will be in operation. We have maintained our policy to pay dividends within the guidance range of 50% to 60% of underlying NPAT and 2.1 cents per share is 55% and a strong signal of our confidence in the last 6 month trading windows. If we look at our future development outlook. We have over 4,000 units and beds now, and we have added to the pipeline, and we have nearly 2,000, actually 1,961 to be exact of additional products filled over the coming years. In our development pipeline, we have lifted our construction rate from 394 units and beds as at March 31 to 545 as at the September 30 of this year. 70% of our total portfolio, once developed, will be premium. We are on track to deliver 3,127 care beds and suites and 2,556 villas and apartments, and this will bring our total resident population to 5,683 before we consider any additional M&A activity. If we turn now to the acquisition, Slide 11. We're very, very happy with Waterford. We've made excellent progress with resource consent on the vacant land. As people can cite on the graphic, it's the bit of land to lift of the apartment block, we will build 50 apartments here over 5 levels, including basement car parking, and this is up from the 24 that we had originally planned to deliver. This is going to bring us some strong site optimization and further upside than what was originally contemplated. Likewise, on our Franklin land bank, we now have 7.9 hectare site. And for those people with Super 2020 site, you'll be able to see the additional 1.8 hectares, which has kind of highlighted in a blue graphic. The extra land will deliver us approximately 20% more built product on the site and one of the fastest-growing rural urban locations in Auckland. Slide 12, Premium Care inning. We now have 3 sites, 174 beds that are delivering more than NZD 20,000 underlying EBITDA per bed. This is up materially from NZD 67 million that we had at the full year 2021. And we have 2 sites, 171 beds that are hot on the heels. And combined, the ramp-up in mature sites now represent approximately 40% of the total care suite portfolio. In addition, we have 571 care suites that are resource consented or under construction to add to the strong key suite annuity profit in the coming years. If we think about the developments that we've completed over this first half, 59 units in care suites are in line with our expectations. We completed 49 apartments in the community center at Eden, and we're underway on sales despite the obvious 100 days of lockdown in Auckland. In addition, we've completed 8 villas at Gracelands, which is in the Hawkes Bay for the period. All of these were 100% pre sold and a further team just after the half year in October 2021. If you can look at the picture, you'll see that gray is the new orange when it comes to roofing. Turning to Slide 14. Projects that we've commenced. We have 3 sites and 209 units in care suites that have commenced development in the 2022 financial year. To my left, Redwood, which is in Blenheim. We're underway on the development of 57 care suites. And you can see that the bare land at the entrance to the existing site is where the care suite block will be built. In the middle, The Bellevue, which is in Christchurch. We're underway in Stage 2 of the apartment development. The site is clear and the new building fixes to the large white wall we can see in the full ground. And lastly, a lovely and well-located site at Elmwood, which is in Auckland, has a 3 story, 106 care suites development underway on an adjacent site, which is highlighted in red. This allows building works to be undertaken without any disruption to the existing site. Projects that are completing. We have 112 units completing by the full year 2022. 39 apartments at Stage 2b of BayView site in Tauranga. But importantly, this stage also delivers a lot of additional amenity for the apartment residents. So in addition to the Bowling Green that we built as part of stage 2A, it now includes a well-appointed old mate [ tall ] shed and indoor swimming pool complex in a large community center. At our Awatere site in Hamilton, we've added 63 apartments and community facilities on a site that had strong local reputation or vibrant separate care suite building that was completed several years back. Other projects that we're completing. As I said earlier, we've had a busy period of construction with over 545 units in care suites being developed over 8 sites, and this is an increase of 150 from our 10-month period 2021 financial year. The only site in our portfolio that's had a slight delay is Lady Allum, and that's in the left-hand corner of the graphic. That will deliver us 113 care suites. We'd originally tend to have that complete in March 2022, but we'll now complete in May 2022, due to the disruptions with the Auckland lockdown. Waimarie is a magnificent site for those that are familiar with it and its progress better than we had planned. It's still on track for delivery in 2023. I've been on-site with our new directors and from every apartment structure that is constructed on our site are future residents will get unparalleled views in every direction. I will now hand over to Kathryn to take us through the financial results and then circle back for Q&A.

Thank you, Brent, and good morning, all. I will walk through the financial section, starting with Slide 18. There's lots of information in here, but I don't intend on spending too much time on the detail. We will try and leave some time for questions at the end, and you can digest the information at your leisure. Starting with Slide 18. The left-hand side is a recap of what Brent has discussed at the beginning. What's important for investors is being able to track the trading position. Focusing for a moment on the bottom left, we provide a summary of the periods discussed in the coming slides. The green boxes represent the trading period of September '21 and September '20 comparative. Throughout the next slides, we've included this September '20 comparatives. Our financial statements, however, show November comparative because of the change of balance date. Thankfully, this will be the last set of financials where we aren't comparing like-for-like. All in all, we have a strong and improved result despite the COVID backdrop. I'll talk you through the detail on the coming slides, but the headline numbers are included for your reference on the right-hand side of the slide. The top table represents trading September versus September and the second table represents the statutory reporting September versus November. The wage subsidy was received in the comparative period and repaid in this period. To remove any of the noise, we have made a pro forma adjustment for this unusual item to show true trading position. To clarify, all other COVID costs remain in these figures, and we have not normalized [ today ]. In summary, sales volumes are up 10% to NZD 230 million, and underlying EBITDA is up almost 20% to NZD 36.5 million. On Slide 19, we show you our income statement for the period and a comparison of the 10 months to March, because of the change of year-end, we view March as a comparator in many of the statutory notes throughout the presentation. As you will have seen, the results haven't been overly influenced by the CBRE valuation this time around. On the right-hand side, we provide their assumptions compared to the last valuation from March. Growth rates and discount rates are consistent period-on-period. We have, however, added value through successful growth from investments and realization of the sell-down of development. We've seen price appreciation across our portfolio with around 5% increases in ILU sales prices at around 8% in care suite products. This has resulted in a positive fair value movement of NZD 40 million in respect of our independent village assets and a further NZD 26 million in respect of our care assets. Moving to underlying earnings on Slide 20. Again, we provide the backdrop of 10 months to March for the reconciliation on the left-hand side. From a segment perspective, again, despite the tough COVID backdrop, our underlying earnings is solid for Oceania, and we're up 19.7%. We've seen strong increases on PCP, 21% in aged-care and 22% in Retirement village, which we'll cover in the coming slides and notice summary on the right-hand side of this slide. You will see the increases experienced in the other segment as mentioned, with our March position, this includes investment in our staff, clinical support processes and IT, along with increased insurance costs. In addition to this, there are a number of COVID related costs, which have been incurred in the 6-month period. Right, time to move on to the details, starting with the Care segment on Slide 21. Here we have provided September comparisons as normalized for the wage subsidy and also consolidated with care suite development in resale margins to provide a better picture. Care underlying EBITDA, including care suite DMF and capital gains has increased by 5%. This is a result of the significant growth in premium revenue and despite the increased cost pressure. It's important to note that this includes more than NZD 1 million of COVID related costs for the period. On the right-hand side, we showcase our 2 key care drivers: occupancy, which has been seeing pleasing growth and stability since March despite COVID and premium revenue. Premium revenue relates to both deferred management fees and premium room charges. As Oceania matures through the premiumization journey, we have seen significant increases in this area, particularly with DMF. Together, these have resulted in a 30% increase on pcp. Consistent with what we highlighted in March and consistent with what you will have seen from other operators, we continue to see operating cost pressure. DAS costs are the largest contributor to our care expenses. We continue to reward staff well, particularly our clinical and nursing staff, coupled with development sites coming online and the increased staffing needs at sites, we've seen around a 9% increase in this area on pcp. Occupancy and premium revenue will continue to be a key focus for us moving forward. In summary, we are well advanced on the journey to NZD 10,000 per bed currently at 9.5%, including the development margin, this is NZD 16,000. Next on Village segment on Slide 22. Excluding care suite DMF and capital gains, underlying EBITDA has delivered us a fantastic increase of 36%, coupling this with increased sales volumes of 10%, we are pleased with a strong position despite the COVID background. As with care, we are continuing to see strong growth in DMF with an increase of over NZD 4 million compared to pcp. This DMF profile is growing nicely and resales are going from strength-to-strength. We expect this trend to continue as a result of the shaping of our future pipeline which is tilting to ILUs as well as continuing to experience resales at higher sales price points. The next 2 slides provide the detail you are used to seeing on capital gain and margin, starting with new sales. A few years back with our flagship sites, we were seeing amazing prices in Auckland as the developments come to market. Funding where we are today, we are also seeing these fantastic prices, but we now have development sites coming online all across the country, with 70% of our sites based out of Auckland. This last 6 months saw slightly less units come to market and total volumes moderated as a result. We experienced 44 care suite sales and 57 ILU sales for the last 6 months. This resulted in total development margin of just over NZD 15 million, an average of 25.7%. At the bottom of the page, you will see strong sales increases in villas and care suites, offset to an extent by a softening of sales prices in apartments. Interestingly, as the new ILU sales, 2/3 were regionally based and as the new care suite sales, 80% were regionally based, notably at our Green Gables and Bellevue sites in Nelson and Christchurch. In Auckland, Waterford, Meadowbank and Eden have all been impacted by the lockdown that occurred towards the end of the half. The entire picture that you can see painted on the slide is consistent with previous signaling and to be expected, our portfolio is maturing. And as we move our mix away from premium Auckland sites to more regional locations, the premium capture from Auckland is moderated slightly by what is becoming a really great capture across the region. Moving to resales on Slide 24. We have been seeing significant increases in resale volumes, particularly across the regions, with 47 of the 129 resales located in Auckland and the remaining 82 in the region. 25 of the 45 ILU resales were in the region. In the case of care suites, we are seeing a softening of margins. Resale volumes were strong, reducing closing stock from 116 this time last year to 70 as on September. Care suites have a shorter tenure of 2.5 years to 3 years. And as such, with 57 of the 84 care suites being regionally based, we saw resale margins moderate. Pleasingly, we have achieved increased ILU margins of 26%. This was largely driven by the regions where 25 of the 45 resales occurred and on average, we saw in excess of 35% margins on regional ILU sales driven by the apartment prices in particular. This is an important proof point for us, one of the acceptance of the apartment model regionally. Closing stock is at an appropriate level, and we expect to continue seeing a strong resales across the portfolio in the second half. The cash flow slide speaks through itself. And so, I won't spend much time here. What I will draw your attention to, however, are the payments for investing activities, which includes the payments for both of the Waterford and Franklin assets purchased earlier in the period. You can expect this cash outflow to continue to increase as we progress through our development pipeline. Moving to Slide 26. As everyone is well aware, the last 6 months have seen additional activity for Oceania in the form of acquisitions and debt raising. The equity raise in March and April was successfully applied to the Waterford and Franklin acquisitions post March balance date, both of which have proved to be great additions to our portfolio. This was followed by a successful bond later in the period. We've experienced great debt and equity market support with both the capital raise and the bond significantly oversubscribed, and we are excited about the new Board setters and investors that have joined us. We are now sitting with an enhanced and strengthened balance sheet and in a strong position for future growth. The final 2 slides before we move to questions, we'll touch on that. Slide 27 provides the balance sheet view as compared to March and also a net adjusted value view. We have now broken through the NZD 2 billion mark for total assets this period, aided by both the acquisitions and also positive fair value movement. Focusing on the right-hand side, the net adjusted value measure is something we provide each reporting period and the definition is in the pack for you to ponder. Our net asset value per share has increased from NZD 1.28 as at March to NZD 1.34 as at September. Being a proxy for the valuation of the status quo of our existing portfolio that excludes the cash flows and earnings from the 545 units currently under construction and the associated 7.7 cents per share or NZD 55 million, which will be unwound in the future from a blended discount of 24% already included in our CBRE valuation. During the maths for you, taken into this account less discount clearly brings us to NZD 1.42. For my final slide, I will talk a little bit about capital structure. As you know, we have worked hard on our capital structure and now set with a balance sheet, which provides excellent [ biopower ] and sound gearing level. We've diversified our loan book, which has allowed us to materially improve our debt tenure profile. Our first bond was well-timed and achieved a fixed rate of 2.3%. For the second, we got ready to go when time things perfectly in the rising market, achieving a pleasing rate of 3.3. The slide has the details, but these steps have resulted in a net debt position of NZD 343 million and current gearing of 27.4%. Even more importantly, we have headroom of just under NZD 225 million. Moving into the second half of the year, we have a strong balance sheet, low gearing and significant headroom. We're in a fantastic position for growth and execution of the development pipeline, and we're excited for the times ahead. Thank you, everyone, for your time today. That concludes the finance section of the presentation, and we will now take questions.

[Operator Instructions] We'll now take our first question from Stephen.

Stephen Ridgewell from Craigs here. Could you just please give us a bit of a steer on what you think the organic growth rate of the business was in the first half if we break out the benefit of the 2 acquisitions or 2 sites that are acquired late in the prior period and perhaps the capital raise in March. Can you just give us a sense of how you sort of saw the underlying performance of the business?

Yes. From our perspective, Stephen, good question. I think the business has gone well. Waterford hasn't materially impacted the results over this trading window, largely due to the fact that we were disrupted through the Auckland lockdown, Franklin was land bank. So both of those items have been immaterial in the results. The business has actually traded well up and down the country, as we can see, and that's faced some pretty strong cost inflation, as you can see also, as ourselves and our peers have invested in keeping our staff and residents safe.

And just a related question. I mean, at the time, the guidance was for those acquisitions to be EPS accretive by low to mid-single-digits. Obviously, a lot's changed since then. I'm just interested in how we should be thinking about the accretion from that -- for the business this financial year and perhaps more medium term?

Yes. We're super excited about the Waterford site, Stephen. We think it's a great acquisition. We're excited about the resource contenting that we've secured there. And we'll recover some ground. What we have observed over this lockdown, particularly in Auckland, as inquiry has lifted very materially. And Hobsonville or Waterford on Hobsonville occupies a great site that people drive has regulate. So we're expecting to recover some ground in our Auckland sites. Eden, Waterford and a little bit of Meadowbank have kind of been impacted from a new sales or an ILU perspective as a consequence. So some of that accretion will recover.

And maybe just one more for me. Then I'll let someone else have a turn. Just on the Care segment. I mean, historically, earnings in that segment have been skewed more towards the first half, just given the Christmas, January shutdown. Just interested how we should be thinking about earnings for that segment this year, just given, obviously, the lockdown impacts and that kind of thing. And also, as you know before, Brent, the wage inflation we're seeing in the sector, should we be looking at a firmer second half for aged-care? Or just given those impacts, just interested in your comments.

Yes. We are cautious about giving too much guidance before we actually get to that final period. But I think to your question, Stephen is an important one. Traditionally, in our business, we have had a bit of seasonality. And whether its ILU, whether it's care suites during that December and January period, it's been a bit softer. This time around, with the lockdowns, with the restrictions in terms of where people can travel, both domestically and internationally, what we have observed is significantly strong inquiry. Maybe mom and dad have been sitting at home and not sure whether they want to move into a care suite during some of these kind of versatile levels we've seen. So we're expecting to kind of recover some ground. We expect that people won't be traveling as much. We're seeing strong settlements in days to sell as it relates to people transitioning from residential properties or out of sitting into both the ILU and care suites. Wage costs are real in our care business. But there are some opportunities, I guess, to recover some of that funding from -- and DHP funding on a per bed rate. We'll continue to invest in that part of our business because it's incredibly important to us. And so yes, all in all, I think we are going to see probably a more buoyant December and January than what we've seen traditionally in our business.

We'll now take our next question from Andrew.

Andrew Steele from Jarden here. The first one for me is, I guess, just a follow-on from Stephen's last one. I mean, looking at your EBITDA per bed first half versus, I guess, the exit run rate at the end of the last financial year, seems to be a decline. So from your comments, Brent, should we be expecting EBITDA per bed to improve in the second half?

Yes. I think what's probably disrupted EBITDA per bed is kind of COVID and some of it, so obviously a regional setting as well. If I think to one of the slides that I talked about earlier, what we are seeing is that the premiumization is starting to take hold. So we've had 171 care suites that are now well above NZD 20,000 bed. We've got about 170 in close succession. But what we're also seeing, Andrew, is that regionally, our EBITDA per bid is also showing up around those levels. So you're no longer just going to see Auckland sites with NZD 20,000 bed, you're actually going to see some regional sites in our future periods that are above NZD 20,000 bed. So my view is care suites have been disrupted, but -- and wage costs and COVID costs obviously take some of the shine of the performance at an EBITDA level, but we are recovering that all the time. Our price -- we've had price appreciation in our care suites of about 8% period-on-period. And as a consequence of that, that will show up in our deferred management fees and revenue capture as we go forward.

Great. Just on cash flow. If I look at operating cash flow, new development sales, it's got a negative in the period and it's difficult comparing to the pcp, given the shift in balance date. But looking at the prior 6-month period, even with a shifted balance state, it appears at a much greater uptick in payments to supplier [indiscernible] relative to receipts from residents. Is this purely just a timing issue with the change in balance date? And in terms of this cash flow drag at the operating level ex development sales, should we be expecting something similar into the second half? Or should we be looking for more of a positive outcome?

So you're right, Andrew, in that it is largely a timing thing. There are also a few extras coming through for cost pressures that we've encountered. I think if you look on a kind of rather than just the last pcp, but on a kind of longer term trend, we're back to kind of the normal level. November itself was a little bit of an uplift. So yes, I'd expect that we see this is probably a consistent level that we see going forward as opposed to moving back to kind of the levels of the comparative.

Okay. And just to be clear, when you said consistently, we mean a consistent level for this period or the 1H period? Or should we be thinking about this as a consistent level for the remainder of the year?

So a consistent level for the remainder of the year.

Great. And in terms of the number of units you currently have on construction, I think it's 545. What's the rough time frame that you expect to deliver these over?

Well, a lot of them are going to be sort of delivered in this kind of next period, Andrew. Obviously, Lady Allum's got 113 care suites that we would have expected to be within this financial year. That's going to move into the '22 year. But if we think about the Redwood Bellevue and Elmwood, then that sort of out to 2023, and that will be complemented by what we're doing at Waimarie Street. We will have BayView stage 2b and Awatere coming on board. So collectively, those 2 products, those 2 sites deliver us about 100 ILU units.

Okay. So it kind of sounds like most of deliveries over the next 18 months, would that be about right?

Yes, that's about right. Yes.

So then thinking about that delivery time frame, are you comfortable you've got sufficient land bank to maintain that, so, I guess, increased pace of development delivery in the medium term, given that the lead times that are required for getting sites up and running?

Yes. So land bank is going to be a key focus, and that's sort of something that we've touched on. I mean there's -- we're making better progress with the resource consent than we expected at Franklin. So that's something that we can obviously bring into the fray. We have other projects where we have sort of a more brownfield development that's available for us that we can bring forward as well into those periods. But I think over this next 12 months, 18 months, we're obviously complementing the portfolio with 2 aspects: one, being adding 3 to 4 land banks and the other being remaining to be inquisitive around M&A where it makes sense. So as we see values at the appropriate levels or M&A opportunities where we can add value, then we're folding those in as well, Andrew as part of complementing our pipeline.

Great. That's very clear. And just one very last question for me. Would you be able to just highlight how much Waterford's contributed the underlying impact in the period?

Yes. So that's not something that we've disclosed, Andrew. And what I can say is that it's immaterial with respect to the underlying EBITDA level. What we have disclosed in the financials is from a statutory perspective, the impact on fair value movements for the period. And so there was a gain on acquisition of around NZD 8 million and a further NZD 6 million fair value movement during the period as a result of units that are sold down. But from an underlying earnings perspective its immaterial.

We'll move on to our next question from Aaron.

I've got a few, but I think I'm going to start with the sort of big picture one, if I'm honest, coming back to primarily the care. You've added something like NZD 20 million of costs, OpEx over the last 3 years, if we go back to sort of the '18 or '19 time period. And I think sort of the idea here is that the care or DMF is going to replace the loss revenues or the lost care fees that you're getting. But it seems to me that costs are actually in absolute terms, growing faster than what the care or a DMF and the care fees are sort of being able to offset. So is this a surprise to you? Or is this something that's about to turn? Or how should we think about this going forward? On absolute levels, even including the DMF and the resale gains, you're reporting less EBITDA now than you did 3 years ago, and you've added quite a bit of CapEx in the meantime. So just wanting to see if you can talk to us how you're seeing this division over the next couple of years?

Yes. So I think over the next period, Aaron, we are bringing a lot of care suite products to market. We think that the market has adopted care suites. And if I think back to when I first started, care suites were probably selling around NZD 180,000 on average, and now they're selling well into the NZD 300,000. So there has been sort of a repricing and an adoption of that product. Since February '20, obviously, ourselves and our peers results have been disrupted by very, very intentional investments in COVID. And as yet, we haven't sort of seen the appropriate lift in funding rates on a per bed basis for the standard beds that we provide as part of the portfolio. So we're seeing wage rates increase for leasing staff. We've obviously expanded a lot of extra funds in responding to COVID. But we feel that we're sort of getting to the back end of that. So we're moving from what is the virus and into an infection. We're moving to more of a surveillance sitting as opposed to very real costs that impact our profitability. We're still very comfortable with the care suite as a concept. We're very comfortable that the decommissioning and disruption that we've had in the past becomes less and less of our future. And therefore, you will actually see quite a recovery of earnings. We've got 571 care suites that are consented or in the process of being constructed over the next couple of years, which will help us, I guess, distribute that wage costs and OpEx costs across the portfolio.

But -- okay, I guess I'll be a bit more specific then. So obviously, we've got a very clear idea of the revenue side on how the care or DMF works around the care suite model. But I'm interested in the expense. You talked to COVID, but if I understood your results correctly, that's one out of NZD 84 million. So what is the cost per care bed in the care or model or the care suite model relative to what it was historically. It seems to me that either because of staff ratios or other services that the cost is significantly higher? Or is that just a consequence in your view of general cost inflation that maybe you weren't prepared for?

So in answer to the question around what the cost per bed, that's something we'd have to take offline. We don't have those numbers with us now. What I would say is, yes, you're correct that there are general inflationary cost pressures in there. And the other thing that does kind of underline in this, however, as we have made a conscious additional expenditure on particularly our clinical and nursing staff over the last few years. So I think what Brent was saying earlier is we've -- that investment in our care excellence, clinical excellence, clinical strategies and upfront costs. Over time, as the care suite products rolled out more and more across the country, some of that cost would be kind of spread around those new additional sites that we're [ attracting ] this model.

So is your expectation that we will come back to the average sort of EBITDA margin in sort of high teens, 20% or so that you had in '17, '18, '19? Or is that just out the door because of cost inflation and you reported…

I don't think it's -- I don't think it's out the door by any stretch, Aaron. I sit on the Board of the NZACA, as you're aware, we have a dispute with the government from a funding perspective, both on pay equity and pay parity, where we have movements of greater than 1.5% increase in cost. We're able to recover that cost from the government setting. At this stage, we haven't seen any of that fund increase. If we thought about what that might mean, we're about 4.8% behind where DHBs are as it relates to the provision of clinical staff. So that may be something that helps around the margin recovery. But equally, we've been intentionally investing in an operating platform that we will leverage as we add extra bids. So we are expecting margins to recover. We may get a positive bid day rate lift from the government in time, but we're not banking that. But it is a Gazeta dispute with the government that will recover some of the intentional investment we're making on wage cost in particular.

Okay. Just moving on to the sort of development. Your development pipeline is very focused on care suites. So I think Arvida gave us a number saying that they were willing to leave a bit of cash in the development, so to speak, when -- particularly when they did care suites. So I just wanted to know if you can share some light of what your expectation of sort of a greenfield type care suite development is when it comes to ability to recycle or get the cash out that you're investing in first sell down?

Our intention is obviously to make our development margin on everything that we do. We obviously intend to recover excess development cash proceeds from every development regardless of whether that's villa or apartment or care suites. I think we have already indicated that development margins moderate for care suites because of the tenure, because of the room size, because of the regional bias. But I can't comment on Arvida's intentionality to run cash. Our focus from a business casing point of view is to ensure that we are making positive cash from first-time sales in the developments every day.

Okay. And I'm not talking development margins specifically, I'm meaning total Village investments. So that includes obviously common facilities and land. So is your ambition still to get sort of 100 out of 100 in?

Absolutely. I mean, my ambition is to get 120 out of 100 in.

Okay. Good. And then on…

Cash is incredibly important for us. So we are in a situation where we consider that. We don't do anything unusual with our land. So where we've hit our brownfield development, we bring land to market value and consideration of that development. And our intention every time is to obviously add positive cash out of first-time sales from the development dollars that we've expended, including considerations to funding costs holding periods development life cycle.

And apologies for coming back to the Waterford acquisition here. I must say that I'm quite surprised that you're saying that it was immaterial. I was under the impression that you had quite significant DMF contribution, not a huge amount of costs, that there were some new sales gain potentially from selling down those apartments. How does this square to immaterial, which I interpret as, say, less than NZD 1 million. And also, how does it square up with EPS accretive when you're issuing -- I don't know how much you allocated to Waterford, call it, NZD 70 million, NZD80 million, that's 10% of total.

So I guess Waterford, unfortunately, was impacted by the lockdown in Auckland. So we are -- I think Brent touched on this earlier, but we are intending that we will regain that EPS accretion for the full year as opposed to in the first half. And we had a number of applications that were kind of postponed until October, November time because of the restrictions as level 4.

But surely, that doesn't impact materially the existing DMF book that you had from there, the village fees. There were other things. And from memory, you sold quite a few of those apartments already back in May, June?

Right. Perfect. And I think cash in -- Correct. And I think cash amounts back to the time when we talked about Waterford, I think we always talked about it on a full year result impact as opposed to a half year result impact.

[Operator Instructions] We'll now take our next question from Nick.

This is Nick Mar here. Just on pricing, you called out the 10% and 8% increase for ILU in care suites. What's your kind of intention on listing pricing further from here given where house prices have gone?

Yes. I think like our peers, we're obviously sensitive not to observing relativity. We don't think we'll push prices as hard as we could. We think there's actually some more -- there's some mortar to secure in the market. But where we've had kind of a new product coming to market and it's equally important for us to drive resident occupancy or vibrancy, then we've certainly tried to dynamically price. We've been price setters rather than price takers. And we actually think that we've got a pretty favorable window over this next period to continue to be price setters. And potentially take a little bit more. But I think from our perspective, if we're getting around that 5% for ILU and 8% for care suite, we're seeing that as a pretty favorable kind of long-term trend.

Right. And do you think you can fully recover, if not more so, construction cost inflation on development margin?

Yes. So it's a really interesting question. Everybody is acutely aware of inflation building. Everybody is acute were in terms of pricing of contracts. If we think about our pipeline and these units that we have under construction and what lies ahead, because of the way in which we contract, we've got a sort of a natural hedge in place all the way out beyond December '22 as it relates to those construction contracts. We've had a couple of tenders recently where we've asked to fix price contracts and receive those fixed-price contracts. And they are not materially up on what we are expecting with other similar products and similar locations. So I think because we've been in a situation, we are -- we've had a lot underway we award our development contracts out through a basket of high-quality construction companies. We've been well suit by them, and that allows us to sort of mitigate, I guess, some of the obvious cost inflation pressure that exists in the market. In addition to that, we have taken steps to ensure that we are landing the gear that we need ahead of time as well. So being in a situation where we can ensure that we have access to product. We have access to sub trades, and it doesn't materially impact either our margin expectations for our delivery window.

Okay. And then just on the development completions and upcoming completions. Can you just talk through how you're selling across some of those key projects in terms of presales and [ unsettled ].

Yes. So I mean, obviously, the key focus for us in this next period is to get back to selling the Auckland profits. So Eden, Waterford and the obvious sites a little bit at Meadowbank, virtually completely sold and other product that we have in the Auckland region. We've got fantastic new sites coming on in BayView and Tauranga and Awatere, those in Hamilton, those regions have shown massive price appreciation, and we've got an enormous amount of inquiry. So that's going to be kind of the key focus, while we've been turning our attention to completing Lady Allum and getting Waimarie ready for a 2023 window.

And Nick for the -- sorry Nick, I was just going to say with Lady Allum that care suites, which you don't traditionally get to high numbers in presales. And so that moving from the March formation impacting too much.

Yes, correct. I'll just after some numbers, for example, how much of Eden's being sold down now? And then just in terms of BayView, which is completed December and in artery early next year, how much of that is presold?

So BayView is in a situation where we are sort of more than 60% through the development that we have there. We've obviously got a new building where the reps coming off. Care suites and baby have been incredibly strong. Green Gables, where we had some products. The apartments are largely sold through. We've completed the first floor of the care suites, and we're now selling into the upper floors of the care suites. Eden, we've obviously had restrictions that only came out of the ground or available for commissioning in May of this year. We almost went into lockdown, but we're already more than 30% through there. So -- and Waterford, similar. We've got 24 apartments. We're into the sort of greater than 60% term sell-through. So I think from our perspective, we're seeing good uptake of product, even though there's been some obvious disruptions in some regions.

[Operator Instructions] There are currently no questions in queue for those in audio. Handing it back over to you if there is any from webcast.

I think we've got a couple of questions online. So I think Jason Familton from ACC has just asked some questions around CapEx. So giving some guidance around that. And just our comments on sort of M&A activity that some of our peers have been involved in. I just answer the M&A piece first. From our perspective, we have an ex sense towards M&A. We're certainly interested in that. We think that there'll be opportunities that lie here. Cost of funding is going up. Residential developers are finding access to funding difficult and therefore, land banks are becoming available. We want to make sure that what we do from an acquisition point of view, adds value. So you heard me say numerous times that we will not buy based on earnings, we will buy where we think we can add value. And Waterford is a good example where we will double the resource consent on the same footprint. So we will be the beneficiaries of that once we've got that product built and sold. We're also seeing that with the complexities of running here in a New Zealand setting, but that will present opportunities for sector consolidation as well. There is Ministry of Health Reforms coming. There are DHB reconstructions coming and as a consequence of that, with our investment that we've made in our care business, we'll see some opportunities coming our way. As it relates to Capex. Well, most of our CapEx obviously goes on development. So I have this magic number, which Kathryn keeps hassling me about, but we spend about NZD 120 million to NZD 150 million on CapEx a year. So that's probably guidance as it relates to that. One of the other questions that we had from the online Q&A was just in terms of sales, just in terms of momentum, and I think I've kind of covered that. So how we're going at BayView, how we're going at Green Gables and Nelson, et cetera. So that probably…

Yes. And there's just a final question from [ Justin ] around Care suite resale margin and while the drop, which I think we covered earlier on with some of the questions and also around cost growth, which I think we covered with Aaron's questioning.

So thank you for making this interactive and very engaging. We are obviously pretty positive about where we're sitting. We think that this first half for us is that despite obvious disruptions has actually been a good performance. We're feeling good about what lies ahead for the business, and we certainly enjoy the level of questions and the interaction that we've had. So thanks, everybody, for participating.

Thank you. This concludes today's call. Thank you for your participation. Stay safe. You may now disconnect.