Oceania Healthcare Limited (OCA) Earnings Call Transcript & Summary

Welcome to the Oceania Healthcare Limited Full Year Results Announcement for FY 2023. [Operator Instructions] I would now like to hand the conference over to Brent Pattison, Chief Executive Officer; Kathryn Waugh, Chief Financial Officer; and Heath Milne, Head of Capital Markets and M&A. Please go ahead.

Yes. Well, good morning, everyone, and welcome to Oceania's 2023 Full Year Trading Results and business update. As was said earlier, I'm joined by Kathryn, our CFO; and Heath, who's Head of our Capital Markets and M&A. So welcome, everyone. The financial year has not been without challenges, with the long cloud of COVID-19, significant weather events and aged care and funding and staffing shortfalls. I think equally important, the softer residential housing sector as interest rates have climbed off the back of inflationary pressures that are present in New Zealand and some international markets. These macroeconomic and climate events have been widely discussed and debated by market commentators and I can certainly attest to the fact, having joined Oceania in March 2020, that the last several years have been disruptive in one way or another. However, despite this market context, what will be appreciated by our investors, our partners, their residents and staff, is that the underlying business fundamentals at Oceania are sound. And more importantly, the strategy for Oceania is well defined with the business demonstrating growth and resilience. If we think about the full year 2023 highlights, Oceania has delivered improved profitability year-on-year with a 5% increase in underlying EBITDA to $80 million. In our Village segment, the intentional capital allocation and investment made into high-quality, well-designed communities, has assisted the material uplift in deferred management fees of 18% to $39 million. Our care premiumization strategy continues to provide profitable growth, up 8% year-on-year to $20.4 million and a compounding annual growth rate of circa 17%. More than 60% of our total care beds and units are now premium, with the care suite innovation being a preferred product choice by customers. If we look across our property portfolio, we've delivered 233 care suites, apartments and villas, including our flagship care at Lady Allum Milford and the beautiful Helier, which I'll touch on later. It's been a busy schedule ahead for the 2024 financial year with 200 to 250 planned pipeline deliveries. We continue our investment in People Capability with our clinical and operational teams coming under single leadership. And this is providing a resident-centric approach to the delivery of experience in service for all our residents. Our deep funding sources, diversity, tenor and low interest rates, have been a feature of prudent balance sheet management, with substantial headroom of around $175 million across our total $725 million facilities. I'm delighted to announce our 2023 to 2030 sustainability framework. This is a well-constructed and delightfully, ambitious plan grounded on science-based targets, and Kathryn will touch on this later in more detail. Of note to investors is the Board's updated dividend payout policy. This will now target a 30% to 50% payout ratio of underlying NPAT and signals confidence in investing for growth as we execute on our 5-year strategic plan. Turning to Oceania's strategic pillars. Over the last 14 months, Oceania has been progressing the execution of our 5-year strategic plan. The strategic plan, consisting of 4 foundational pillars, has been informed by resident insights in their care service moments, an evidence-based methodology and approach to the provision of care, a deep focus on design and curation of our portfolio of properties and professionalization and investment in our People Capability. At Oceania, our mission is to reimagine the retirement and aged care living experience in New Zealand, and our purpose is to believe in better. This notion of better has existed in the New Zealand culture for decades, and is how we are perceived by the rest of the world. As Kiwis, we are renowned for challenging the status quo and asking why not and front footing the changes that have made the world a better place. It is in this spirit that drives us as a business and one that we want to celebrate in our residents, honoring them with pride and respect, because our residents have always strived for better, and so do we. Over the next couple of slides, I will focus on some insights for each of these foundational pillars. When we talk about offer, we are committed to the pursuit of intelligent design for our customers of today and the future. When we talk about resident experience, we deliver on care service moments to create great resident outcomes. So let's dig a little bit deeper. If we talk about curation of built form, we contract out our construction to a small number of trusted, highly capable construction partners. This has served us well and allowed us to focus on our disciplined approach to design and development and replenishment of our pipeline. Basically, the more than 1,700-odd units that we have in our forward work book. This has also protected our development margins. We all know if you want to overspend, they need variations to your construction programs. Andrew Buckingham, our Group General Manager of Property, Design and Development, has reevaluated our entire pipeline to take a more targeted approach to our development activities. And this has led to the premiumization of our built form and the notion of right product, right place. Our designs are for a smaller boutique resident population with a key focus on design, longevity and quality. Also, our consented build program maintains optionality with a good mix of regional and urban locations and low-density ILU over the next few years, which is easier to construct, phase and recycled development cash proceeds and to further growth. If we think about resident centricity, I've often commented that Oceania provides critical infrastructure and essential services. Oceania has been on a quest to modernize and premiumize its physical buildings, grounds and assets. And while this is a noble pursuit, it doesn't work if you haven't professionalized and tailored your service offering to match the physical element. We've adopted a resident-centric approach to our services by capturing a deep understanding of both our residents of today and the future. We have and continue to design around these needs to reimagine the aged care and living experience that we offer. We pride ourselves on offering a boutique experience that provides greater personalization, so our residents can live the life that matters to them. At the same time, we continue to define our operating model structure to enable our over 3,000 people to deliver on our brand promise. If we think about premiumization of care, the aged care sector, I think we all accept, is inadequately funded, relative to the services, accommodation and care that provides to older New Zealanders. It has been widely publicized, the very real funding gap that exists in bed day rates, more than a factor of 5x, but also nursing and clinical staff wage deficits. The reality is, there are numerous sectors in New Zealand right now that would be putting their hands up for additional government funding. Oceania's response to this funding deficit has been to innovate. Oceania introduced a hospital-certified care suite that provides an exceptional level of critical infrastructure. But more importantly, we provide a full complement of highly trained clinical staff: registered nurses, clinical managers, clinical directors and nurse practitioners to deliver best-in-class care services. This innovation has required significant upfront investment, of which we are starting to see the financial rewards and quality resident outcomes. The year ahead, Oceania will innovate further by offering the first fully privately funded care residents at the Helier and St. Heliers Bay, Auckland. Turning to Slide 4. When we talk about People Capability, we have established the environment where our people can perform their life's best work and have a meaningful, rewarding career. When we talk about growth, we execute on sustainable, authentic and growing earnings. Culture and capability. Well, I've always been a fan of Jim Collins' Good to Great narrative. And one of his famous quotes is, "Great vision without great people is irrelevant." We can't have a human-led approach to our residents without the incredible team of people who work with and for those residents every day. We recognize that we impact the health and well-being of our people through our workforce practices, the professional development programs and approach to diversity and inclusion. Our aspiration is to be an employer of choice and to provide a safe, diverse, equitable and inclusive workplace that fosters our people's development and their capability. The portfolio in full year 2023 delivered 233 units and care suites, helping to free up homes for purchase or rent as residents moved into our villages at a time when New Zealand faces a housing shortage. We have significant capital markets experience and have maintained our gearing at the mid-30% range, balancing our cash and growth strategies in a highly disciplined approach. Lastly, on sustainability. Companies, let's be honest, will not exist in the future if they do not take sustainability, and more broadly, their ESG obligations seriously. What is interesting is that the #1 question I get at our annual resident AGMs is, "What are you doing as an organization about climate?" What's equally interesting is that our residents are eager to be involved and to help with the many sustainable practices we have underway. You will see that we have dedicated a large part of our annual report to discussing our 2023 to 2030 sustainability framework, aspirations and goals. And I'd encourage you to make yourself familiar with this. We are committed to science-based targets and are well progressed with our obligations under the TCFD risk disclosure regime. Kathryn will touch on this in a lot more detail in her update. If we turn to the developments that we completed in full year 2023. The development deliveries for the full year '23 have been an important pivot and proof point for our future. They are architects -- archetypes of the growing premiumization of both built form and service for our residents. If we think about Lady Allum Care Center, which is in the left-hand graphic, this comprises 96 premium care suites and 17 secure dementia care rooms, and has a beautifully appointed premium care center in the heart of Milford on Auckland's North Shore. This was completed in September 2022. It was disrupted earlier through the weather events that we had in Auckland. It's the largest care development delivered by Oceania and was highly anticipated with a large number of presales. The area identified in blue in the graphic is the old care buildings, and these present future stages of apartment development. It's obvious from the site's location that these future development opportunities will have commanding views of Milford, Takapuna, the lake and water views of Rangitoto. If we turn to the Helier on the right-hand side, we've completed 62 of the apartments at the Helier, and they are in the foreground of the graphic highlighted in blue. The Helier offers retirement and aged care living like no other. It's located in the heart of St. Helier, and this bespoke village offers residents 360-degree views over Waitemata Harbor and the Auckland CBD. It has been architecturally designed with a sympathetic approach to the surrounding neighborhood and steeped back into the cliff face. It offers unparalleled amenity and services comparable to what you would see in a 5-star hotel experience, including valet parking, concierge services, chauffeur driver and in-apartment executive chef catering. Guests can enjoy the stunning wine library and the 5-star restaurant, along with the luxurious day spa. For guests requiring more support, we are offering private care residences that provide premium health care within luxurious surroundings. Our foundation residents are delighted to be moving into their apartments. If we think about the developments that we have under construction, the forecast for 2024 is another busy schedule of quality property development, with 409 units across 8 sites currently under construction. More than half of our construction projects will be accented towards independent living and villa property types. The 32 private care residences and the remaining 17 apartments at the Helier will be delivered early in our 2024 financial year. The next stage of 28 apartments at the Bayview are well underway, and the site is really taking shape as a key destination in Tauranga. The 46 apartments at Bellevue will conclude our development at this site. It has certainly been well received by the market. Elmwood will be our next large-scale delivery of 106 care suites and comes onstream later in full year 2024. And the last one from me -- and just summing up our strategic intentions. As indicated earlier, Oceania is well underway in the execution of its 5-year plan. We've taken intentional steps to maintain focus on delivering to our strategic pillars against the backdrop of what has been challenging external factors. In doing so, we are actively positioning for profitable growth with a focus on maintaining maximum development pipeline flexibility, innovation and resident experience and services, but also pioneering a new approach to aged care and aligning our activities to our Believe in Better promise. We will continue our focus on building integrated villages with our market-leading care suite offer and take this pioneering approach further with private paying care in the future. Presales become a key focus of our delivery model, providing ongoing sales confidence, efficient cash recycling and growth assurance. Residents will be at the heart of all of our new service design, which is, in fact, our product, and provides our point of difference to future-proof the business for our customers of the future. We will invest in land banks to replenish our development pipeline whilst carefully balancing our cash-to-development ratio. Our development pipeline will be accented by greenfield and a lot more independent living, villa-oriented product. And we will invest more in ongoing training and development of our People Capability to deliver our belief in better promise. So I'm going to hand over now to Kathryn to talk through the financial trading results, and I'll circle back at the end for Q&A.

Thank you, Brent. And thank you, again, to everyone for dialing in today. You'll notice my section is a little bit different to previous reporting cycles with a new section on cash recycling. Let's step through some of the main points, and then we'll open up for question time after my section. So sustainability. Last time we spoke to you about sustainability. That was becoming part of what we do and becoming integral to both our business and our strategic direction. I talked then about how we had established our first sustainability-linked loan with our banking syndicate and how you can expect to see more of us in this space. This year, on our website, you'll see the financial year '22 and financial year '23 greenhouse gas emissions reporting. That's a key first step for us in our commitment to reducing our greenhouse gas emissions and to provide a first step in setting science-based targets with the Science Based Targets initiative. Over the last 6 months, we have spent a significant amount of time on the foundational and establishment processes in the sustainability space, not just around our 3 KPIs of care resident well-being, diversion of waste and greenhouse gas emissions, but also in respect to really embedding sustainability into our -- Oceania's DNA. This starts with our refreshed Sustainability Framework, which is on Slide 9 at the moment, and our refreshed materiality framework, which is detailed in our annual report. The senior leadership team, the executive team and the Board of Directors have determined Oceania's most significant economic, social and environmental impacts, and these have informed the development of this refreshed framework. The framework sets out our long-term aspirations to create long-term value for our stakeholders and our partners, while ensuring we also take care of the environment for generations to come. At the core of our aspiration out to 2030 is a desire to create sustainable retirement and aged care living experiences for today and for our people of tomorrow. We have set aspirations and goals which align to each of our 4 strategic pillars of Offer, Resident Experience, People Capability and Growth. And you will see that for the first time in our annual report, we're starting to dip our toe further into the integration of our reporting. You will see us moving closer in the space. And as we continue to frame our focus, we will provide increased reporting against our key sustainable objectives. Now for our trading highlights. From what -- for many companies, it has been a challenging year. On the coming slides, I will talk to the detail behind this result and provide some insight into the elements which contributed to our 5% year-on-year increase in underlying EBITDA. Overall, a solid result, all things considered. Brent touched on our current development pipeline earlier. We have continued our disciplined approach to ensuring that we continue to focus on the right product in the right place, something that's becoming even more important in the current market. Total assets continue to grow, an increase of just over 13%. A portion of this increase came from the acquisition of Remuera Rise and Bream Bay in July of 2022. Part of the increase has arisen from the combination of positive fair value movements of $31 million and additional development spend during the year. This compares to the fair value increase of $105 million in the previous year. We've continued to see strong resales in volumes of both ILU and care suites year-on-year. New sales continue to be lower than prior years, but we are pleased to have seen an overall steady end to the year with 128 new sales and 280 resales. The maturing of our product, which has been developed since IPO, coupled with an ongoing uptake of the care suite model, continues to be demonstrated through an ongoing increase in Premium revenue, which has increased 8% over the last 12 months and 33% over the last 24. Moving now to our care business, now ongoing premiumization of the portfolio. It will come as no surprise to the people on the call that while we're seeing some really positive proof points for our premium care business, it's also shaped up to be a really tough year for our standard offering. So let's start with a look at how standard care beds in our portfolio have fared over the last 12 months. Recent weather events are a key driver of our recent reduction in occupancy, but we've also, along with many of our peers, been negatively impacted from reduced admissions, particularly hospital admissions during the period that Te Whatu Ora is establishing process and policy. Coupling this with cost inflation, wage pressures and occupancy costs, this has resulted for a hard year for the profitability of our standard beds. It's important to note, however, we do not expect these cost pressures to have a cumulative impact. We've always looked to remunerate our people well and ahead of funding in order to reward, retain and attract the best people to care for our residents. We are pleased to say that we received our first pay parity payment from the government, the benefit of which will be recognized in the first quarter of FY '24. Pay parity, together with annual government funding and improved occupancy will bring an improvement to our standard care results. 10 of our sites were identified for divestment and 2 of these are now under contract. In addition to this, we've exited the arrangement with Airedale Property Trust in respect to the Everil Orr site in Auckland. Care residents and staff at this specific site were transferred to our other Auckland sites where it suited their circumstances. These divestments will have a positive impact on our EBITDA per bed going forward. If we look now at the revenue from premiumization, net of realized gains and deferred management fees from our case rates and adding the drag of standard beds, we talk to a very different story, one of growth. While noting an increase in premium revenue in the period, a compounded growth of 16% to 17%, the later delivery of our Lady Allum care suites in Milford, Auckland and the delay of the Redwood development in Blenheim, which will now be delivered partway through '24, has meant that we have not achieved our true potential in new care suite sales and the associated DMF. This is very much a timing issue, and we will see the deferred management fee benefits in relation to strong FY '23 care suite sales be presented in financial years '24 and '25. Cash collection through the care suite model is a real benefit, and we are observing shorter tenures of 2 to 3 years as compared to other product types in our portfolio that are longer in cases of hospital residents. With funding lying ahead of us, moderating cost pressure in our business and further premiumization of the portfolio to come, we retain our view of a future EBITDA per bed of $10,000 and in excess of $17,000 when including realized development and resale gains. Moving to Slide 12. Let's have a look at how sales have shaped up from a full year perspective. You often hear from us about how we are a portfolio of business. We have developed some great properties in the last while during the time when the market has slowed. It's been hard for everyone in this industry, but we are finally starting to hear some brighter news. Everyone would have heard, for example, ANZ recently moderating their view of the residential market depth, which is pleasing. We have seen an increase in care suite volumes, both resales and new sales. Representative of continued demand for the product with waitlists at many of our established sites. Both this financial year and next financial year, we lean heavily into care suite deliveries with developments at Lady Allum in Auckland, Redwood in Blenheim and Elmwood in Auckland, further enhancing the premium care product in our portfolio at a time that care suites continue to grow from strength to strength. ILU resales have continued to increase both in volumes and average prices. Average prices are, of course, impacted by the type of product and the region in which the product is sold, but we are pleased that we have maintained ILU resale volumes and margins in what has been a pressured market. When looking at new sale ILU, the pressure towards the end of the first half has continued with new sales flat when comparing the 2 halves, particularly as a result of the lengthening of days to sell that we've experienced. Moving forward. And as the market recovers, we expect that we will be able to benefit from improving volumes of our premium product across New Zealand. Our usual slide on embedded value is provided in the appendices to this presentation. We've seen a total increase in embedded value of 23% since this time last year with embedded value, including $251 million of accrued DMF cash flows to be realized and $207 million of realized gains -- resale gains, continuing demonstration of the future benefits from the premiumization of our portfolio. Now for a new slide. Oceania has always had a disciplined approach to capital management. The sector, more recently, has seen a heightened focus on cash from developments. On Slide 13, we present our analysis of 3 different types of products from our portfolio, the development cash margins, all of which are positive. This subset of 3 sites have been selected to illustrate the differing developments that we have undertaken: Gracelands in Hastings, a villa development at an existing mature site in a regional location; Meadowbank, a multiyear, multistage integrated village in suburban Auckland; and The Sands in Browns Bay, a single-stage small site integrated village, again in Auckland. The cash margins are noted on screen. It's important to note that this analysis is intended to demonstrate the cash margin on a first-time sale basis. Excluded are the resale cash margins and cash received in relation to the deferred management fees and ongoing weekly and daily fees. Touching on Gracelands as to an example as to why this is important. Gracelands saw a 12.3% cash recovery on first-time sales. What is important is that this is the cash margin on first-time sales, which excludes deferred management fees and resale gains, which are clearly well in excess of this initial cash margin. The same applies for both Meadowbank and The Sands. These sites have also delivered better cash margins, as you might expect from a key urban location. Keeping up with the theme of capital expenditure and development. Slide 14 provides context for where our capital investment is focused. And we provide more detail around spend in areas of investments such as IT, refurbishments and maintenance of our assets. Acquisitions over the last 2 years refer to the purchase of Waterford and Franklin, funded through capital last year, and the purchase of Remuera Rise and Bream Bay, funded through debt in this financial year. Development capital expenditure remains our largest spend, particularly in this year with the Helier, our premium site development, coming to an end in the 409 units and care suites under construction at the 8 sites that Brent spoke to earlier. While development CapEx has grown, our overall spend is consistent with last year. The illustration on the right of this slide provides a snapshot of our development drawn debt to the value of our underlying development assets. As a result of the structure of our banking facilities, proceeds from sales of developments, once fully paid down, completely get paid against current development drawings. As a result of this, at 31 March, we had 1.3x coverage of our development debt balance. For my last slide of today, I end with the balance sheet and a view of our current position. Starting with our capital raise in 2021, followed by the issuance of 2 retail bonds and followed by our recent refinance of our banking facilities back in July of last year, which maintained our current interest rate swaps, we strengthened and future-proofed our balance sheet. This upfront effort has resulted us standing here today with substantial headroom of $175 million in our debt facilities, a long-dated tenor of debt with the next refinancing date in FY 2028, a blended fixed interest on our retail bonds of 2.7%, and an average fixed rate including margin and line fees on our banking debt of 4.1%. During the period, we funded the acquisition of Bream Bay and Remuera Rise through our banking facilities, a payment of around $60 million. Coupled with the slower new sales and the delay to the completion of Stage 2 of the Helier, that sees us at the expected peak debt point around now. This will continue for the next few months into FY '24 as we complete developments at the Helier, the Bellevue in Christchurch and Redwood in Blenheim, all of which were originally scheduled to be completed in FY '23. Despite this, with a loan-to-value ratio of 36.9% as of March, the upfront investment in our capital structure has allowed us to continue to execute on our 5-year plan. It is also important to note that with Stage 1 of the Helier now open and Stage 2 opening later this year, we will begin to see significant cash recovery for the investment made. Finally, dividends, which Brent touched on earlier. We continue to look to reward our shareholders through our dividend program, and today have announced a final dividend of $0.13. This is at a slightly lower level than investors would have noted in the past, that of 38% of underlying NPAT in respect to the full year. Our directors have announced a change to the dividend policy today and specifically to reduction to the dividend payout ratio from 50% to 60% of underlying impact to a level of 30% to 50%, a signal of how we are looking to diligently manage our balance sheet and investment of capital and intend to preserve cash for future growth while also continuing to reward our investors through the payment of the dividend. Thank you for your time today. We will now hand back to the operator and open the call for questions.

[Operator Instructions] Your first question comes from Arie Dekker with Jarden.

Just on the change in payout on the dividend policy. Can you just talk a little bit about how you sized -- resized that down to 30% to 50%, what the factors influencing that were?

Yes. I think from my perspective, first of all, Arie, it's a Board decision. But if we think about the factors, it's actually just recognizing the part of the cycle that we're in. So we want to hit the right mix of reward for those investors that are looking for a yield, and we're paying a pretty compelling yield. But also, we want to signal confidence around reinvesting cash back into the business. Traditionally, we've operated a DRP, and a lot of investors have chosen to take up that DRP with the confidence around us reinvesting those cash proceeds. So part of it is just reflecting the environment that we're in and getting the balance right between yield and our aspirations around growth.

Yes. There's not a lot of commentary on outlook today. Could you just give an indication in terms of where you sort of sit now on a guide as much, whether you're likely to be at the lower or higher end of the range for [ FY '24 ]?

As it pertains to dividends, you mean, Arie?

Yes, the percentage payout.

Yes. I think, well, that's a matter that the Board considers it as we get to each of those judgment decisions. But I think traditionally, we have a range. And traditionally, we've paid in the middle of that range if we think about when it was at high levels and even with the moderation that's occurred. So I'm certainly not prepared at this stage to give guidance, it would be inappropriate. But it is fair to say that from a historical basis, we paid around middle of the range.

Sure. And then just on debt outlook. I think the commitments on the CapEx side are a bit less than this year and the development that you've sort of committed to is sort of broadly in line with this year. You've got a lot of inventory coming on in the early part of the year and in the late part of FY '23. So I mean on your outlook, are you expecting debt to be lower at the end of FY '24 than it is when it sits out of FY '23? And sort of what sort of quantum?

Yes. I think I'll answer some of the questions and I'm sure Kathryn will jump in as well. From my perspective, Arie, being around the sector for a while, you have moments of farming, and you have moments of harvesting. And I think if we think about the key developments that we've done over the last couple of years, we're in a situation where we are expecting a good cash return coming from that. That's obviously going to go to reducing our gearing, reducing our overall debt and increasing our headroom. So it's something that we've signaled. We've talked about 2023 being sort of a peak gearing window. We noted the sort of the later delivery of a couple of those products, but we are definitely expecting to see a moderation or improvement in our debt position.

Yes. I think I'd just add to that, Arie, the key point there as well, and I touched on it in my slides, is the Helier is coming online for Stage 2 slightly later than we would have expected. But being a premium site, we expect to see the cash coming in there to the latter half of the year will significantly aide our debt balances.

I think just to round that out. I think in terms of overall holistically, the debt position is probably a few too many unknowns, such as -- we announced a couple of divestments with this result. So when that comes, we'll get there. But I think the gap between development CapEx and new sales process is probably one that we would expect to narrow in this year.

Yes, just on that point. I mean, obviously, the 2 sites that sold post balance date, I think, worth for $10 million. And then there's the Everil Orr site that you talked about, what's the net book value on the remaining sites that you're holding for sale post Everil Orr and those 2 sites?

Yes. So if we kind of look at the information that's in [indiscernible] I think from a held-for-sale asset perspective, we have around $100 million, but it is important that you also include our held-for-sale Orrs. And so, from a net perspective, we're always looking at divesting around between $55 million, $60 million of our assets. As you've said, we haven't disclosed the sales price on those 2, but we did disclose the carrying amount, which was $10 million. So we're looking at -- and we're currently working through the process on the other $50 million.

Yes. Okay. Just in terms of beds that you're looking to exit from here. So 52 with Everil Orr. How many beds went with those 2 other sites? And how much have you got remaining that are held for sale?

They were smaller sites, so those 2 would be less than 100 combined.

Yes. Yes, around 100. And yes, there's probably another couple of hundred in other sites.

Couple of hundred. Yes. And then last question. Just on pricing, there wasn't any fair value movement in second half and embedded value refinancing gains were down a touch on first half '23. Can you just sort of talk a bit about what happened to pricing in the second half? And what your expectations are with regard to pricing in the next 6 months, noting also you've obviously got quite a lot of inventory that you'll be looking to release as well?

Yes. So if I start with the latter part of your question, Arie, and then Kathryn can probably pick up the former part. If we think about pricing, we're obviously a portfolio business. We are delivering higher quality properties. And as a result, across all of our categories, pricing has gone up. That allows us a bit of a buffer. So if we continue to see choppy waters from here, there's obviously an opportunity to think about the trade between sort of price and volume. There are a couple of areas where we have taken a fresh look at pricing. Tauranga would be a good example of that. We saw that the peak to trough was sort of more acute in Tauranga. There's a lot of high-quality operators there. And so we've modified our pricing slightly at the Bayview, in recognition that it hadn't really recovered to the same degree that it had in other areas. Another example would be in Hamilton at Awatere. And we've certainly seen a significant increase in inquiries and applications in Awatere as a consequence of there. But overall, we are dynamically pricing. We certainly haven't pushed any levers aggressively as it relates to cash backs or other inducements. And we take a very conservative position as it relates to the settlement of those -- or the cash recognition, if you like, of the settlements of our portfolio. You are right to say that we have larger balances of unsold stock, but we're actually seeing good inquiry. If we think about April 2022 through to April 2023, on an inquiry basis, we're up about 90%. We've got a good head of steam as it relates to applications. And we're actually starting to see residents recognize that the market is the market. And as a consequence, we're starting to see an increase in activity, but we're also starting to see a moderation of days to sell. We look back over the last 2 years, our days to sell as it relates to care suites haven't actually changed. So we're sort of -- so that's so good, and we know that that's a needs-based product. Villas, their days to sell are up about 15% on what they've traditionally been. In apartments, the days to sell are up about 20% on what they've traditionally been. So it's about product, it's about mix. But we're also here to capture value and maintain those kind of margins that we've enjoyed. So Kathryn may have some other comments as well, Arie.

I think Brent probably covered all of it, Arie, unless there's a follow-on question from you?

No, no, that's great. The only one that could prompt me on was actually just Awatere. Just timing for delivery for Awatere Stage 3 and Waterford Stage 1. I mean, you're not calling them out for '24. Are they going to be early '25? Or are you slowing down there?

Yes. Well, I think that's part of the optionality that I talked about before, Arie. We're well advanced in the design. And I just think we're taking a more sort of prudent view to delivery as about sales as much as it is about product delivery. So I think at this stage, we've got -- well certainly, Andrew has plenty on his plate to delivery. He's got about 400-odd units. But those are areas of optionality in the portfolio, that we could accelerate if we have a more positive, more favorable environment. And so it doesn't include some of the other sites that we have more villa product to deliver. A good example will be Franklin. So that might be something that we choose to accelerate. If we were to conclude an option on Green Bay in North Auckland, then that would be another example. So there's definitely things within the pipeline to accelerate if we choose to do that.

Your next question comes from Bianca Fledderus with UBS.

Firstly, just the 2 care assets that you conditionally sold. So I appreciate you didn't share the sale price. But could you comment broadly on what the price-to-book value and what price-to-book they were sold at? Or I guess if you can't, were they sort of a premium on discount?

Yes. I think the easiest way of describing that is probably market, but I'll let Kathryn give us a more scientific response, Bianca.

So I think Bianca, as you'll recall at the interim, when we announced we're doing held-for-sale, there were a few people that kind of said, "Are you sure in this market, there's going to be huge discounts given where people's sales prices were?" That's certainly not what we've experienced, and we obviously can't give you a number and the other party wouldn't thank me for that. But we've disclosed the [ MCBRE ] amount. And I think it's safe for us to say, it's very close to that. So yes, we're not seeing discounts coming through in these types of transactions.

Okay. That's great. And then just on the demand side. So on new sales and in particular, focusing on care suites. So you delivered 167 care suites during the year and [ sold 74 ]. I'm just wondering what's really driving that? Because I would have thought that care suites would be less dependent on the residential property market, given the lower price points and as it's needs-based.

Yes, I think you're exactly right, Bianca. That's part of our confidence around the product type. I think some of that is just timing. We touched on the deliveries around that kind of product mix. But also, there has actually just been a more challenging backdrop. So what we've also observed is that there are a number of people that have been increasing their hospital stays and using that as a way of delaying a decision with the uncertainty of either the weather events, the cyclone and/or just the economic conditions. So you're seeing aged people living at home, making regular visits to the hospital system as a way of getting that kind of initial care. So yes, we're confident that care suites is an adopted product. People like the convenience of it and the services that we offer. So it's as much about the timing as it is the desirability of the product.

Okay. And then just on -- yes, I'm just wondering what sort of demand you're seeing for the different kind of products, because you mentioned you're seeing high demand for the more premium product. And so in particular, I'm wondering, is there still demand for your more dated products? And do you have to lower the prices for the sort of older products compared to what you saw a year ago?

Yes. I think those are all good questions. I think we've definitely seen a move to premiumization. And so therefore, we've seen a greater adoption of sort of new products. Our resale portfolio, given the tenure of the residents, is actually still very fresh and still very new and obviously, of higher quality. So most of the standard beds that we have, we've undertaken a disciplined approach over many years to start the conversion process of those into either a premium accommodation room or a care suite so that the portfolio represents a great experience and a consistent experience for people up and down the country. I just think that with resales with that tenure, then it does mean that, that becomes a larger feature of what we're doing going forward. So it's no longer just about new sales of care suites, it's getting the balance right. And maybe that's the essence of your question.

Yes, sir, I was more wondering about independent living units in your older villages, if it's harder to sell those and if you have to low the prices for the older stock, I mean, compared to your newer villages.

Yes. So quite the opposite. If we think about the acquisition of Waterford as an example. That villa product is highly desirable. If we think about some of our regions, and we called out the cash margin or Kathryn did the cash margin at Gracelands, which is a regional location in the Hawkes Bay, we've seen really, really strong resales and actually very impressive prices. If we think about our Green Gables, which is a new development that still had some villas on site, as they get refurbished and as residents leave, then we're also seeing good favorable outcomes there as well. So I think as the portfolio matures, we're seeing actually good activity, and that's probably represented in our resale margins. By now, we were probably expecting our resale margins to decline a bit. We're certainly expecting our development margins to decline. And we've been able to sort of maintain them at similar levels over the last 2 to 3 years despite a very, very different housing sentiment now than 2, 3 years ago.

The next question comes from Stephen Ridgewell with Craigs Investment Partners.

It's good to see the progress in the ongoing transformation of the portfolio and that the care suite model is delivering much better returns per bed than many of your peers in our reporting. Just wondering if you could give us a sense of what underlying EBITDA growth would have been if you had not bought the 2 villages, Remuera Rise and Bream Bay, earlier in the period? And that is -- what was the organic underlying EBITDA growth, please?

Yes, sure. Those 2 sites, noting they were picked up a few months into the year, they contributed probably $2 million to $3 million of underlying EBITDA in this period. There's -- yes, and obviously, there's -- particularly at Remuera Rise, there's a lot of embedded value, which will [ shot ] itself through in the resale gains that underlying EBITDA. But in terms of operationally, there's not a huge underlying EBITDA impact flowing through in this period.

Okay. And then just on the [indiscernible] inventory, which was up from $191 million to $348 million, and you have touched on a few issues behind that. But can you just remind us where most of that new sales stock is located? Is that mainly Blenheim, Lady Allum? Just to be clear, how much of Helier is in that $348 million, please?

Yes. I'll answer your first part -- your last part, Stephen. The Helier, we've only had a couple of sales reflected in this year. It probably got delivered slightly later than we anticipated. We have taken a phased approach to that. So that obviously lies ahead for investors in the '24 year. As it relates to the rest of the product mix, which Heath will comment on as well, I mean, it's pretty much across the board, to be honest. So Eden, Bellevue, Bayview, Awatere as well as kind of recent deliveries around Lady Allum, et cetera. So what's helpful about that from my perspective is there are sort of regional accents and there are urban accents and there are varied product types, which gives us some confidence around kind of recovering our sales momentum in cash.

Yes. Not too much more to add there. We've had 62 apartments at the Helier and what are included in this financial year, which obviously hits our unsold stock balance. And then yes, we've got kind of development sites from the last -- from across the last couple of years, Awatere, Bayview. And Lady Allum, significant amount of care suites online during the period. So those are the key balances of stock for us.

Okay. And then I guess just on the same semantic, I mean, and I appreciate a lot of those deliveries were late in the period. But if we just kind of go back to the beginning of the period where we had $191 million of unsold stock and you've delivered new sales of $51 million. Kind of looks like it's taking around 2 years to sell down stock. I guess is that a reasonable expectation going to FY '24 that that's the kind of pace of sales, if you like? Or would you perhaps expect, just given the inquiry [indiscernible] noted before, Brent, would sell down a little bit faster in the current financial year?

Yes. I think let's wait to see what the Reserve Bank do at 2:00 today. But from my perspective, Stephen, I think that's a really good point. We probably have observed as we've bought apartment developments to market, particularly, we are -- the market hasn't had that type of presentation before. Awatere, we touched on. Green Gables and Nelson was an example; the Bellevue in Christchurch were examples. They've all now got traction and kind of well underway. But it probably has taken us a couple of years to get through those sort of product deliveries. We've been ambitious with Lady Allum as it relates to the delivery of care. It's the largest single care delivery that we've done. But it has gone really, really well. It was delivered later in the [indiscernible] for the first time we had presales. Some of it is location. It's located very close to the North Shore Hospital, as you appreciate. So it is a bit horses for courses. Villas, you're almost building and selling. Apartments taking a bit longer, as we know. And care suites have actually have been well received. And increasingly, presales is becoming part of our care suite expectation.

Okay. Great. And just probably a more medium-term question. I guess, Brent, you touched on -- it has been a tough market in it, some of the development, it sounds like it's going a bit slower in terms of completions. But with the 128 new sales, we delivered, that was new sales during FY '23 that were booked. I think the company has previously indicated target run rate medium term sort of 250 to 300. Is that still a reasonable expectation? Or is it -- we should be thinking of that as more market dependent? Is that something you'd expect to deliver perhaps in FY '24 to '26 or wait a certain moment?

Yes. I think it is a bit market opinion. I think all of us are just a bit cautious. We saw the housing market. We've seen persistent inflation. We've seen reserve banks here in New Zealand, but also globally, trying to bring inflation under control. So from our perspective, it is a bit market dependent. But what we have done is try to allow ourselves the maximum optionality in our pipeline so that we can, as we see a more favorable market, accelerate some of that development. And I touched on it earlier. Franklin is a good example. It's largely a villa product in the first couple of stages of design. And as a consequence of that, you're selling to -- you're building to a sale rather than building, spending a couple of years in the construction and then waiting for the cash. So we've said 200 to 250 over this next period. And that's just, I think, acknowledgment that market conditions are a bit more tough.

That makes sense. And maybe just one last one, if I may. Corporate costs were down a couple of million bucks in the second half and the first half. Just wondering if you could give a little bit more color as to what's driven that. Does that -- a bit more capitalization of cost to the development of -- sort of taken across out of the business? And should we expect that second half run rate to kind of into FY '24? Or just some guidance on corporate cost will be useful.

Yes. Thanks, Stephen. Yes, I think in this year, there has been a kind of conscious effort of and -- keeping costs down where we can. In previous years, we've obviously had a lot of establishments costs, particularly about kind of our clinical excellence model and a lot of investment in IT and kind of the setup phase is a lot of things that we've done that we haven't needed to have coming through this year. And I mean, as far as guidance, the 1 thing I kind of would point out is obviously, in post floods, everyone is going to be seeing a sizable increase in their insurance. So -- and that will be 1 thing that we're looking very closely at for what's going to come through '24. And yes, as a team, we've still got that kind of critical eye to costs and keeping them down where we can.

Yes. And another thing that I've done, Stephen, is obviously reduce the executive team. We brought on some new capability. Those people have been able to add -- and develop teams underneath them. So I think there's just been some simplification that's occurring in the business as well. We talked earlier or I talked earlier around bringing clinical and operations so that we have a single delivery mechanism and a resident leans under single leadership. So that's something that's different from what we've had in the past. And I agree with Kathryn, one of the areas that we really went large, but we're getting the benefits of it was in this kind of model of care and clinical investment. So we've been able to taper or moderate or remove some of those costs going forward. Staff turnover is turning the corner. So we've got a compelling brand. We're not full-time recruiters anymore. And I think that's helped as well. We've got a more stabilized workforce who are enjoying what they're doing and providing great outcomes. And so I think that's just kind of helped in the cost moderation.

[Operator Instructions]

So there's a couple of questions from the floor. So I might just address that. There's a question around with investors being wary about cash flows. Does that sort of signal difficulties for Oceania? No. We've obviously been focused on cash. The sector is focused on cash. But for the longest time, we've been good stewards and managers of our balance sheet. There are a lot of things that we can do to obviously improve cash flow, we can slow our build rates. We can obviously recover cash through sales, et cetera. So we're sitting with a comfortable position about where we are. We've invested in the cycle. And the next couple of years is our opportunity to kind of recover that investment, if you like, and turn it into future growth. Another question from the floor was, "What was driving pressure on development margins." Well, I think there's no secret that the construction market is tough. We've seen a couple of people in the construction market that have gone to the wall, and we're disappointed about that. What we are seeing is that supply pressures are easing. So -- and Oceania has always been accented towards fixed-price contracts. So we don't take the cost of construction teams, we get involved in the design and delivery and manage with fantastic partners the construction risk. So in time, we expect development margins to become comprised, particularly if you think about regional settings. It's actually quite difficult in some regional settings in New Zealand to be able to get staff and sub-trades, et cetera. So development margins will moderate over time, but we're very comfortable with where they're at.

Another couple of questions here. First of those, "To add a bit of context of the cash margins on Slide 13. Could you translate those into rough IRRs?" I'll respond to that by saying, we don't look at development stages on -- from an IRR perspective on just first-time cash sales, given a significant portion of that return comes from future resales and the DMF realized and resale gains captured at that point in time. So no, we don't have -- we don't look at it on that basis. Second part of the question, "Have initial cash margin targets or IRR hurdles changed in response to the funding cost environment?" To that, I would say, the targets themselves, no. We don't -- similarly to the first question, we don't exclusively look at, I guess, cash margins on a target basis, as the analysis we had in our presentation showed we do -- we have a track record of generating a cash margin, but we don't exclusively look at that as a target for our developments necessarily. The IRR is generally a bigger focus of ours and whilst -- I guess, in some instances seeing the gap between our hurdle rate and what our feasibility is showing narrowing. I wouldn't say that we -- yes, we're certainly not getting more lenient on the IRR hurdle side.

We've just had another question through from Aaron Ibbotson at Forsyth Barr. The question was, "If debt is peaking, shouldn't new sales cash flow be higher than CapEx? You talk to closing the gap, that seems overly conservative." And so, yes, I'll just start off with this one, and we'll probably all have a bit to add on it. So when we talk about we're at peak debt at the moment, the Helier as a kind of flagship development in Auckland has obviously taken up a lot of banking facilities from a land perspective and also build, which has gone over a number of years. And also being our flagship, we do expect that there will be significant sales proceeds coming through from that. So this point of peak debt has risen as we've ramped up our build rate at the time that our flagship is coming onboard as we get to the second half of '24. And we'll finish that development and sales will be coming in and we'll be seeing that they will be offsetting. And so the sales and proceeds coming through were there. And then we're replacing the developments in our pipeline with kind of more smaller, more bespoke, more regional development. So that's where we see the closing of the gap.

Yes. So I think we're just about at the end of the time that we have allocated. Any last questions from the floor?

There are no further questions on the teleconference at this time.

Well, thank you, everyone, and thanks for participating. Thanks for your questions. Yes, we look forward to getting on with the business and the execution of our plans. So thank you, everyone.

That does conclude the call.