Oceania Healthcare Limited (OCA) Earnings Call Transcript & Summary

[ Welcome to ] the Oceania Healthcare Limited Half Year Results Announcement for FY 2024. [Operator Instructions] First, we will hear from the presenters followed by a question-and-answer session. [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, thank you for that introduction, and a very warm welcome to our investors, market commentators, our Board and the wonderful team at Oceania. The format of today's interim results briefing is an update on our strategy, our trading results and please submit questions online throughout our presentation to inform the questions and answers at the conclusion of our presentation materials. This market update reflects the first 6 months of the full-year 2024, and it's certainly pleasing to see the constant progress that's been made, moving far beyond the formation phase and now well into the execution phase of our strategy and the transformation of Oceania's portfolio, both in our built form and resident services. It's a privilege also to see many new Oceania residents joining our community of over 4,000 living the life they love and experiencing firsthand the personalized Oceania service and our model of care. Thinking about market conditions and our trading updates. What are the observations of the general market conditions in the macro environment. Well, it certainly remains tough out there and we suspect that this will continue well into 2024, but it's not all bad news. New Zealand is turning the corner on peak inflation and this will be beneficial for our business. Without exception, our input costs have seen material price increases and this has eroded some short-term margin. So it's pleasing to see that these inflationary pressures are starting to ease. We have watched with amazement that almost daily volatility of bond yields and note that interest costs will remain a challenging headwind for the sector over the medium term with a higher for longer interest cost expectation. Having said that, ANZ are forecasting that the OCR stays at 5.5% at the 29 November NPS update and further ANZ are forecasting a possible OCR rate cut as early as February 2025. We are encouraged by the positive sentiment returning to the residential housing sector. Reserve Bank of New Zealand, Real Estate Institute of New Zealand and major trading banks are all signaling a reversal of fortunes with predicted increases in house price inflation into 2025 and '26. The NZX 50, our local equity market is near year-to-date lows when rebased from the preceding 3 years and this has been tough on shareholders and investors. The National ACT New Zealand first government is expected to implement a business-friendly policy. So let's hope that they get the deal organized shortly. Visitors are aware of the compelling demographic change for our sector with over 25% of the population being over the age of 65 years of age by 2030. And with improving market conditions, we may see the confluence of tailwinds versus headwinds for the retirement and aged care sector. If we think about Oceania resi business, we are very pleased with our sales volume on new and resale product and this has been a highlight in the 6 months trading. Despite having a more regional bias, our new sales of ILU were up 84% on the second half '23, and our care suites, new and resales were up 40% on the second half 2023. Our development and resale margins were down, but they were in line with our expected long-run average at 23% and 21%, respectively. We look forward to continuing strong sales volume and value, especially in this recovering property cycle. There are recently completed key major city site developments such as The Helier, Bellevue, BayView, all available for sale in the second half of 2024 to complement the success we've had in our first half with a more regional bias. Our key business has benefited from improving government funding awards. Wage inflation and competition for labor and we are a very large people business is improving with unemployment expected to lift to 5% by September '24, up from 3.9% in September '23. We expect to see improving care margin from the 9% trough levels experienced over the previous reporting period. Balance sheet and more particularly, cash management, cash recycling and positive cash margin from first-time sales at new developments has been a key focus and Kathryn will touch on this a bit later in terms of her slides. Oceania has been transforming its portfolio and we are now $1 billion of net assets and $2.7 billion of total assets. We have signaled peak debt as we completed key investments such as The Helier, Bellevue, BayView and Awatere. We've maintained good levels of headroom in our deep facilities with gearing higher around 37.7% but in compliance with target range and full compliance with our debt covenants. We have circa $365 million of unsold stock available for sale in a recovering housing market. What is important is to highlight that 70% or $255 million of this unsold stock is in brand new properties developed and delivered in the last 12 months with The Helier Auckland opening on the 24th of August and the Bellevue opening on the 9th of October. In addition, due to our brownfield development approach for our Care segment, we have care suites totaling $57 million that are currently occupied with a transferred NPAC resident. These care suites present first-time sales opportunities as they come onstream for sale from exiting residents. The Directors have resolved not to pay an interim dividend to provide for investment in Oceania's continued growth. And you'll see examples of the growth over the next few slides. The payments of dividends will be reconsidered at full-year '24, noting the payment dividend ratio of 30% to 50% of underlying net profit after tax. Turning to the funds that we've deployed for growth and also the success that we've had with divestments. Since we last reported, Oceania has deployed just over $20 million into further greenfield land banks. These strategic land parcels offer the replenishment of the pipeline with a total of 7.5 hectares of development land in Bream Bay, Northland and 0.5 hectare of aggregated adjacent land at The Helier in Auckland. The 7.5 hectares of land acquisitions at Bream Bay comprised of 2 private purchases, Lot 60, which we did in the second half of '23 and Lot 61, which we did in the first half of '24, allowing us to complete the existing site with new villa product with no further community amenity required, followed by 6.7 hectares of future masterplan community living across the road from the existing site and we plan to build around 115 to 135 villas on the site. The additional 0.5 hectare of Helier land represents about 1/3 of the total land acquired from the original development and this future development connects both Waimarie Street and Glover Road precincts. It also allows for future premium apartment or townhouse living on a site without the need for additional investment in common facilities and amenity. If we think about divestments, we've been actively repositioning the portfolio with 6 divestments and exits over the period. In addition, we are holding another 7 sites for sale, representing around $44 million of net ORA proceeds. Despite the tough market conditions and commentators' observations on property valuation, we've successfully divested 2 sites; Amberwood and Greenvalley at/or around CBRE independent valuation. In addition, we have exited 2 leasehold sites; Wesley and Everil Orr, and closed 2 sites; Otumarama and Whareama. One of these has an unconditional contract and the other, we are well advanced with negotiations. Our existing portfolio is currently comprised of 45% ILU and 55% care with over 60% of the entire portfolio accented to premium. As we build out the pipeline, the post developed portfolio will be 50% IU and 50% care with 80% of the total portfolio premium. Recent greenfield land acquisitions included the previously reported 8 hectares at Franklin allow for future development phase and to move more into a villa product, providing easier built form, targeted deployment of development capital and a faster recycle of cash from first-time sales proceeds. If you think about the developments that we've completed in the first half 2024, we've completed all the stages of our planned development at the Bellevue Village with the recently completed 46 apartments, which you can see in the image on the left-hand side. This provides a fully integrated site comprising of 68 apartments and 71 care suites in a key location in Christchurch. We have now sold 100% of all prior stages of apartments and achieved significant presales success, around 35% for this new and final stage of apartments. A blessing of Karakia was conducted by Minita-a-iwi, local councilors, executive and management on the 9th of October 2023. Of the 16 applications we have received, 5 settled in the first half of '24, with the remaining 11 expected to settle in the second half 2024. We've completed the remaining 17 apartments at The Helier in the period, bringing total apartments to 79. These final apartments are sleeved above our 32 beautiful care residences. In our first half '24 trading result, we recorded 1 sale. And following our official residence launch on the 24th of August, we have secured a further 6 applications, which we expect will settle through to the second half of 2024, bringing total sales and applications to around 15% of the total apartments available. We have observed significant interest in The Helier with widespread media coverage. The Helier been cited as a recent example of the evolution of the retirement and aged care living with a focus on intelligent design, premium amenity and, of course, a tailored resident service experience. If we think about the developments that we have under construction, we have 382 units and care suites currently under construction. The composition of this development is 193 care suites across 3 locations, 40 dementia suites and this completes our total investment at the Meadowbank site and 149 apartments across 3 locations with 1 greenfield masterplan community in Franklin. This represents around $97 million of our development work in progress, which will be recovered post completion and in future periods. The Franklin site on the bottom left-hand corner, it's around 8 hectares made this slide, but it's important to note that this development is at the earth works phase. So we've not included a number of villas, apartments and care suites and now 382 under construction. In the near term, The Helier care residents, Stage 3 of the BayView apartment and care suites at Redwood and Blenheim are scheduled to be completed in the second half 2024. And this development capital was around $60 million and will be recovered from presales and new sales in future periods. If we turn to my last slide around strategy and portfolio transformation. Since IPO, we've added over 1,400 premium units and care suites. And this has truly transformed Oceania's portfolio into a modern, market-leading and high-quality portfolio. Over this time, we have observed significant sales price growth from 2017 to today with apartment pricing up 2.25x to an average sales price of $847,000 and care suites up 1.7x to an average sales price of $336,000 and that's been in a tough housing market. Oceania now has 43 villages and care properties nationwide. Importantly, however, 85% of our total independent property valuation is represented in 20 of these village and care properties. From a product mix perspective, these properties have had a significant rebalancing of our overall product mix with recent developments making up 58% of the portfolio accented to independent living and 42% accented to care. These 20 village and care suites are either brand new or have had major development within the last 5 to 6 years and have an average building age of 3 years or lease. These are new, modern and well-designed buildings with minimal ongoing maintenance capital required. More importantly, they deliver exceptional resident service and quality outcomes. They've been built with a 50-plus year expected life. There's been a disciplined approach to the development of our capital allocation as we have repositioned the entire portfolio. Most Oceania sites are integrated villages offering both independent living and care. We have a focus on obtaining positive cash margin out of every dollar spent from our developments from first-time sales. And we recognize that the cost of building care is more expensive than traditional villa or apartment properties and Kathryn will touch on the actual observed cash margin across a number of sites in more detail later. The 9 villages shown on the slide represent a cross-section of new product delivery and acquisitions with most offering further stages of development opportunity. These all include developments in major key cities like Auckland, Hamilton, Tauranga and Christchurch, as well as urban and rapidly growing regional locations like Ruakaka in Northland and Blenheim. Our sites are bespoke. They are boutique, and we have smaller resident numbers. Our villages have an eye to sustainability and we build on smaller land parcels. Examples include less than 2 hectares at Remuera Rise, which is a 7-storey vertical apartment. The Helier been built with exceptional views on 1.6 hectares in a residential street and the multistage but now fully complete Bellevue is also on 1.6 hectares at our Christchurch site. On average, the site size is about 3.1 hectares and this includes our larger villa format sites and our high-density apartments and care suites. As we continue with our successful divestment of noncore assets, our continued investment in new and premium properties, our portfolio will truly be one of the best in market. I'm going to now hand over to Kathryn Waugh, our Chief Financial Officer.

Thank you, Brent, and thank you, everyone, for dialing in today. It's been encouraging to see the progress we've made over the interim period with strong sales momentum, solid progress on divestment of noncore sites and a continued focus on cash recycling. We've included additional disclosures in this presentation in relation to unsold development stock. The stock on hand presents plenty of opportunity for us in a recovering housing market. Debt levels, they've currently plateaued. Each of the positive trajectories that I will touch on today will see debt come down and gearing levels come down in future periods as we further unlock cash in our business. I will walk you through the rest of the slides, and you will note that we have also provided the usual financial information in the appendices. Also in the appendices is a pro forma for analysts, which I'll touch on later. This records the impact of divested and exited sites to allow for a like-for-like comparison of earnings. On my first slide, we note the trading position of the Oceania Group for this interim period, the 6 months to 30 September 2023. Underlying earnings of $37.6 million and underlying NPAT of $27.4 million are both flat when compared to the prior corresponding period. This is largely a result of lower development and resale gains, which we will come to later in the continued, albeit muted cost pressures from the beginning of this year. We have seen a clear improvement in both village and care trading with continued increases in village deferred management fees and a significant increase in premium care revenue from the prior corresponding periods. Sales volumes have improved significantly to the best levels Oceania has ever seen from a volume perspective with 84 new sales in the period, up from 61% in the last half of financial year '23 and from 67% in the first half of that year. Resales have also recovered to significant levels, with 171 resales in the period, again up from 115 in the last half of the financial year and up from 165 from the first half of the financial year. From a balance sheet perspective, our diligent and disciplined approach around intentional capital allocation has assisted in reaching the $1 billion mark for our net assets and $2.7 billion total assets, while at the same time complying with all covenants and preserving debt headroom in our banking facilities of $114 million. I will speak to each of these points in more detail over the coming slides, and we'll have plenty of time for questions at the end. Financial year '23 was a hard year for all New Zealand and the retirement and aged care industry was no exception. FY '23 saw labor pressures, inflationary pressures and a softening housing market. This cumulated in the 6 months to 31 March '23 has been one of the hardest periods that Oceania as a company has been through. Since then, however, we've seen a positive rebound across the board and we've seen a return to growth in many areas. On the left of Slide 9, we provide the headlines for our Village segment. Sales volumes, both new and resale, both care and independent have not only returned to previous levels but have surpassed them. On this slide, we provide half-on-half results and it's clear to see that from a volumes perspective, we've experienced a strong first half to the year. As you can see from the slide, we have had an increase in all categories. Despite only one sale from The Helier being captured in the interim period, new ILU sales have almost doubled, increasing from 26 in the last 6 months of '23 to 48 in the first half of '24. On resales, care suites have been very strong, increasing from 69 in the last half of last year to 117 in this reporting period. These trends have continued with October of this year, seeing the highest level of applications that Oceania has ever seen. Margins from our resale stock are holding strong, particularly in the regions where our product is now established. Development margins are dependent on the type and location of the stock, which is being brought to market. We note a moderation in our development margin this interim period as a result of the large amount of stock being sold outside of premium Auckland sites. As we note in our interim report, our development margin has seen a moderation from the prior comparative period of 31.7% to 21% in ILU product and 39% to 29.9% in the care suite product. We expect stronger development margins as we sell down other new apartment developments across New Zealand moving forward. On the right-hand side of this slide, we provide the headlines for our Care segment. Since March 2023, we have seen a number of positive trends. Wages to revenue is stabilizing, immigration has aided our workforce and we're starting to see a reduced staff turnover. The cost of providing care continues to increase, but positively, New Zealand is starting to see core inflation start to ease. We remain confident with our premium care strategy. I've said many times that we have an aspiration to increase our care EBITDA per bed excluding DMF to over $10,000 per bed. While we haven't quite made it there this period, we have seen a recovery when compared to the second half of last financial year, with increases in both the EBITDA margin and the EBITDA per bed. We have now exited 6 care sites, 2 leasehold exits, 2 disposed and 2 closed. As we continue our divestment program, we expect this to be a net positive contributor to increased margins. Finally, for this slide, we continue to see growth in our premium care revenue, particularly care suite deferred management fees as care suites have rolled off around the country and strong retail care suites continue. The heightened focus on cash recycling from developments for the sector continues. When we spoke to the financial year '23 results, we noted that Oceania has always had a disciplined approach to capital management and we continue to focus and build on this. Slide 10 provides an illustration of the historic cash recoveries we have received on 3 of our fully sold down developments. Gracelands in Hastings was a villa development on an existing mature site, a product which we were able to successfully sell down during the build phase. Meadowbank in Auckland was a multistage apartment and care suite development in an urban location. We've commenced the final stage of the site, a purpose-built dementia facility. And The Sands, another Auckland urban location in Browns Bay. Oceania has been a successful brownfield developer. The actual cash margins received are more than those on screen. However, in order that we can provide like-for-like comparisons of our sites, we've adopted a land value from the time that we began the development in each of these situations. As you will appreciate, the land values adopted more than the actual land purchase prices paid plus any demolition costs incurred in removing the old sites. These numbers also relate to first-time sales only. Deferred management fees received on exit, capital gains on resale and cash margins on care services are excluded from these calculations, but they are an important part of the model. Both The Sands and Meadowbank are fully established and in resale cycles and we continue to see solid cash margins on resale, which has been extremely pleasing. The next slide provides an insight as to a subset of our more recent developments outside of Auckland, those that are in various stages of sell-down and each of which have a care component. Each of these are also brownfield developments where we have had the benefit of holding the land for a period. And so consistent with the last slide, we have taken the land value from the point that the development commenced to allow like-for-like comparisons. Although margins are lower than on the previous slide, you can see that despite increase in construction and funding costs and despite these sites being outside of Auckland, in some cases in areas where the high-density developments are untested, we are still achieving positive cash margins, a direct out-working of our disciplined approach to developments and cash management. As these sites are still in sell-down mode, the calculations for the all-in cash margin represent the portions that have sold down to date. As is demonstrated on the slide, despite increased funding costs, despite a softer housing market backdrop and even in these previously untested markets in Tauranga, Christchurch and Hamilton, to date, we have achieved positive cash returns on an all-in cost at all 3 developments. As with the previous page, these cash recoveries are on first-time sales only. Deferred management fees received on exit, capital gains on resale and cash margins on care services are again excluded, but again, they are a really important cash source. Being brownfield developments, the care buildings at all 3 of these sites currently home residents from previous care buildings. These residents are not subject to an occupation right agreement but do provide ongoing operating revenue and cost recovery, which is not included in these numbers. As these residents depart and as we achieve first-time sales on these care suites, we have been experiencing strong development margins, which will further enhance our cash recovery in future periods. Those of you that attended or dialed into our AGM in August will be familiar with the contents of this next slide. Since the IPO 6 years ago, significant strategic investment has been made to transform the Oceania portfolio. Over 85% of the value of our portfolio relates to 20 sites, which have either been acquired or received significant investment over that time. That's over 85% of our $2.6 billion total assets, which are of premium nature. The investment since IPO has been in brand new developments, acquisitions and new product transformation. This has occurred alongside the rightsizing our portfolio, which is seen in recent months as exit 6 of our sites. Further sites are earmarked for held for sale. With a net carrying value of $44 million and minimal earnings contribution, these sites are a small part of the portfolio, but a very important final step in the repositioning of Oceania to a best-in-class portfolio, one which integrates independent living and care in a premium, bespoke and boutique resident population environment. Our net tangible assets broke through the $1 billion mark in September, over double the NTA position of $451 million from the date that we listed on the NZX and ASX and provides a 2-fold increase in net tangible assets per share from $0.74 to $1.40 today. Importantly, the strategic investment into the transformation of the portfolio was made during the good times of a lower interest rate environment, utilizing fixed rate bonds with fixed interest in the 2 and 3 precincts. We undertook to position the balance sheet with an attractive cost of debt. The bonds coupled with hedging and the extension of our banking facilities was all done ahead of the significant repricing of debt that has recently occurred in New Zealand. Our effective capital management allocation continues to allow us to unlock future build-ready programs despite the recent and current market headwinds. There is a lot on this next slide. This is all part of new disclosures that we will look to provide and build on moving forward. We see this information as helpful context in relation to what stock we are holding and the age of it. Our debt and our gearing has increased slightly since March. This is something that we have previously signaled and as a consequence of delays in high-density developments, coupled with the softer housing market that the industry has experienced. In my first slide, I gave you the headlines. We continue to meet all covenants. We have debt headroom of $114 million and we have gearing of 37.7%. Brent and I have also talked about the positive trajectories that we are seeing in the trading results, particularly positive increase in sales volumes to both new and resale. Oceania's development pipeline will shape moving forward to include an accent towards villa developments, a product which we have historically achieved strong presales. These items all contribute towards a clear pathway to debt coming down. Oceania's debt is primarily development related and supported by both current and future new sales stock. To the left of my slide, we provide a view of our current development debt drawn to the value of our underlying development assets. Our banking facilities are structured such that once developments are fully paid down, the proceeds from sales can be paid against current development drawings. As a result of this, as at 30 September, we have 1.25x coverage of our development debt. To the right of the slide, we have a key insight into how our current and future development stock will be used to repay development debt. $97 million of our development work in progress. This will be recovered post completion and in future periods. And sold stock is a key focus for Oceania. This represents the cash recycling from the developments that I touched on earlier. The faster we release these funds through sales to pay down our development debt, the faster we will return to gearing levels in the mid-30s. Of the $422 million unsold stock that we have as at 30 September 2023, with average sales price per unit of $890,000, care suites totaling $57 million are currently occupied with transferred and pack residents. These care suites represent sales for future periods, which are not readily realizable but also provide an ongoing operating cash flow for us. Of the remaining $365 million, 70% or $255 million relates to unsold new stock, which was completed in the last 12 months. This includes key developments such as The Helier in Auckland and The Bellevue in Christchurch. Finally, the remaining 30% or $109 million of the unsold new stock, which is readily available for sale relates to developments completed more than 12 months ago. This is a significant focus for the team over the coming months. And with positive changes in market, we look to the unlocking of this cash as we sell down. And finally, sustainability in action. I have spoken previously to how sustainability is becoming integral to all that we do and how it underpins our strategic pillars. Over the last month, we've continued to develop our integrated thinking approach and embed sustainability to our strategic work plans. Before we move to questions, I will quickly touch on a few of the need things that we have been working on and participating in. Many across New Zealand started this calendar year dealing with the impacts of the Auckland floods and Cyclone Gabrielle. At Oceania, we have now completed our detailed physical climate risk and opportunity assessment, working with the Property and Retirement Village segment and the New Zealand Green Building Council prior to establishing the impact to Oceania specifically. Ahead of March '24, we will be refining our transition risks and opportunities across our value chain and we will be publishing our first climate risk disclosures in quarter 2 of 2024. It's been really great to see our residents and staff immerse themselves into recent initiatives. The national theme for Mental Health Awareness Week in September was 5 ways to well-being. This was particularly relevant to Oceania as we've been applying this framework to our resident experience offerings for the past 18 months. Step Together Better Together. This provided an opportunity for us to meet the give and keep active pillars. Together, we are walking the distance of Oceania spanning over 1,200 kilometers from Ruakaka in the North to Haddington in South, and we're determined to do it by the 1st of December. Today, we have exceeded our target and currently the #1 team on the move for Mental Health leaderboards. In relation to the concept of learning, we held several resident and staff awareness workshops with the National Foundations for the Deaf and Hard of Hearing. We are very proud that Oceania is now the first retirement village and aged care provider in New Zealand to become workplace hearing accredited by the foundation and we look to working with them in partnership and promoting hearing inclusivity for our current and future residents. Our focus on waste, carbon and resident well-being continues as we track our progress against our sustainable-linked loan targets. A subset of our long-term aspirations to create long-term value for our stakeholders and partners, while we continue our desire to create sustainable retirement and aged care living experiences for today and for our people of tomorrow. Thank you, everyone, for your time. We'll turn to questions now. I'm joined again by Brent and Heath in the studio.

[Operator Instructions] Your first question comes from Bianca Fledderus from UBS.

Thanks for the presentation, Brent and Kathryn. So my first question is just around your development. So as at FY '23, your commentary suggests that you were on track to deliver 200 to 250 units and care suites during FY '24? Today's presentation suggests sort of just over 180 units and care suites. So just wondering what is the key driver of this lower number for the full year? And could you provide some color around what annual developments you will be targeting in the medium and small-term fees?

Bianca, it's Brent here. All that's happened is that Elmwood is going to be delivered later than we had planned. So Elmwood's 106 care suites in Manurewa, it took us a bit of time to get underway with the build. We had some complications on site. And so as a consequence, it's probably going to fall into a couple of months after our year-end period. We've certainly got the site under control as it relates to the building program, but that's the more material change in terms of development pipeline. Obviously, we indicated that we have an accent towards villa product in the future. So we'll be coming out of large-scale apartment blocks. And so that will complement our pipeline going forward. But our focus is obviously on ensuring that we're matching our sort of gearing expectations in our debt and our sales proceeds as it relates to development. So we certainly haven't slowed down our intentions to grow the business. We're just going to make sure that we allocate our capital to those projects that are going to allow for more efficient recycling of our cash.

And then moving on to gearing and net debt. So gearing at 37.7%, just looking at the second half of '24, as you alluded to on the call as well, we should see an improvement with high-value units selling down during the second half. So my first question here is, could you share how much of your debt is development debt and what is core debt? And then secondly, is there any color you could provide around where you're expecting gearing on net debt to set at the end of the financial year?

Bianca, it's Kathryn here. I'll get Heath to turn the pages on the stats to give you exact numbers of Facility A versus Facility B. But I think your point is correct. So Facility B, which is our development debt, I spoke to, we see a really clear path room to reduce that. And debt will come down for a number of reasons. And as you've seen, sales volumes have improved significantly. Going into the second half, we've seen that continue. We have a lot of new sales stock on hand for us now and divestments will also help us on our core debt. And from a core debt perspective, and so that facility we've generally used over the years for a number of items. There's around $85 million in there that's from acquisitions that we've done over the last 18 months. We've also used the core debt facility for dividends in the past. So there's probably another $25 million. And then the rest of it is really working capital movement. So -- and for both of those facilities, we have a very clear pathway. And I think we touched on debt is kind of at a peak at the moment for all the reasons we talked to in the presentation. It has plateaued. It will be there a little while longer before it drops. But certainly, we've seen the signs that both debt and gearing will come down over the next [ year, well ].

Yes. And I think just adding to Kathryn's comments, I mean, the long-run expectation for gearing for us and the Board has really been 30% to 35%. With the delays that we had as we came out of the tail of COVID and some of the building programs that meant that we had a bunch of apartments, in particular, that were all coming to market at the same time. That's why we're sitting on sort of $255 million of unsold debt that is less than 12 months old. I think the other important aspect and we're showing some progress is obviously repositioning the portfolio. So part of our debt reduction is obviously the continued success that we're having with divestments and we're hoping to make progress on the other 7 sites that we have held-for-sale as part of that contribution, as Kathryn said, to bringing our debt down.

We have disclosure in our presentation and our financial statements as well, Bianca around balances between our facilities at September, it was $112 million and our general corporate facility.

And then last question from me. The commentary around the Board reconsidering a resumption of the dividend at the full year. Could you share if that decision will be based on anything in particular. So for example, is it mainly based on what gearing will fall to at the end of the year?

Yes, that's a tough one for me to answer because the Directors obviously set dividend. I think the first thing to say is that the dividend policy was reduced to 30% to 50% of underlying NPAT. We've had some great opportunities where we want to further invest our capital. And you can see a couple of recent examples of that with The Helier land that we've purchased and also executing on the Bream Bay land. But I think the reality is that the Directors will consider sort of the general market. We're seeing really strong confidence in terms of our new sales and resale volumes. So we hope that, that continues. And we'll just be looking at the broader macroeconomic conditions as part of that consideration. We're mindful that as we sit here today, we're one of the higher geared in the sector and we want to do something about that obviously.

Your next question comes from Arie Dekker from Jarden.

Just on the dividend, congratulations on persuading the Board to suspend that. I mean, I guess, market conditions and cash were cited as factors as well as growth opportunities when you review it at the FY '24 results. I mean given underlying profit and your current policy would have allowed you to both pay a dividend and keep some over for growth this underlying profit really did represent cash. Can you just like confirm that you are going to look at a new basis for how you pay your dividend going forward as well when you resume? So I mean, clearly, the current policy isn't working. Is there going to be a move to looking at the cash that business is generating and then the allocation of that cash to dividends and growth?

Yes. I think it's probably incorrect to say that the current policy isn't working. I mean it's a decision that the Director has taken. We're balancing the needs of all of our investors and shareholders and the consideration of that. But I understand, Arie, the sentiment of your question. Underlying net profit after-tax is a non-GAAP measure. I think the whole sector is focusing on cash and cash recycling and a recovering economy. So we are positive around that. And as we move forward, we are trying to as we have in the past, ensure that we are providing good disclosure on the business. We've added some new information this time. We'll certainly be getting information in considerations around dividend and how we think about that and what is the appropriate form for that to be paid from. But we're also thinking about compliance with covenants and other measures that we can provide a look through for investors.

Yes. So on to that one. And like I said, okay on persuading the Board on the dividend, but perhaps [indiscernible] that, market conditions and cash have been factors in the dividend suspension. Why aren't you providing visibility for investors on ICR and these quite tough market conditions?

Arie, it's Kathryn here. I'll probably start on this one. So as you know, a couple of years ago, we did kind of state exactly what our ICR is, but we haven't for the last kind of 2 or 3 years. And we have met all our covenants and we've been quite open on that. There are a number of covenants in addition to the ICR and so in our statutory accounts within the reins of what we can disclose, we try to be as open and transparent as we can. And I do appreciate that everyone wants to know exactly what the number is and we haven't given that this time around. What I would say is we will work with our Board and our kind of banking partners ahead of March and just to kind of tie that in and ensure we can give additional disclosures in March for people. Just tying it back to the dividend though, and you kind of touched on, we could have done both. The dividend, if we had a pay debt would have been around the $6 million mark, the interest on that would have required about today's number is about $800,000 of interest. So from an ICR perspective, it's really lost in the round and we're talking about 0.1x coverage to cover a dividend. So that context may help.

Yes. I mean you alluded there to what you are able to provide in terms of color on covenants. I mean could I really just -- I'm sort of on a bit of a crusade on this one, but the banks essentially said they're lending against LVR and then with a suite of covenants that probably make it all work, whereas investors are sort of sitting there as we saw with Ryman as recipients of poor lending from the banks and too much lending. So I do really think for equity investors to not be getting that visibility because of something the banks allowing you to do is very problematic and I really would suggest that you work on that. Two quick ones for me just to end. Visibility on stock. Just some comments around the time frame you expect or hope to realize that $255 million that was added in the last 12 months. I mean, obviously, a lot of that's going to be in The Helier and Bellevue. What are you currently sort of factoring in? And are you looking at price in terms of -- to sort of move that on more quickly?

Yes. I think that's an excellent question. It will be on people's minds, Arie. Yes, I think a lot -- we've got a lot of stock in brand new products. So The Helier obviously is a flagship property for us. Like I said, we are 15% sold already and that's before we consider the care resident. So we didn't mention that specifically in the presentation, but we're already receiving applications on our care, which will open February of next year. We're delighted by what we've seen at the Bellevue, 46 apartments we had Karakia only on the 9th of October and we're already 16 sales and applications on 46 apartments. So those are 2 examples that are giving us some confidence. But that's before we consider other properties. Awatere has turned the corner with more than 50% sold on that site. Eden, we're at the tail end of 100% sold on that site. So we were up around the 70%, 80% mark on that site. BayView, et cetera, and Tauranga has been a key development for us with the recent addition of 28 apartments. So we are seeing our sales cadence lift. We're seeing prices sell declining from what was probably at its peak about 183 days. And we want to get through that unsold stock as quickly as we can. We have considered price. Price in some of this new product hasn't really been a factor. It hasn't influenced our ability to sell. But some of our older stock, we have had some price initiatives in place. And we've been able to bring it down to about $100 million of our $400 million of unsold stock as a consequence. So let's all hope that we continue to see positive new sales around this product delivery. And it's gone really well would be our view over this period.

And then just on Franklin, when do you see yourself in a position to start delivering producing dollars at Franklin?

That's a good question. With the flooding, the earth works took us a little bit longer than what we expected. So we did some earth works and then it became a swimming pool. And then we did some more earth works to sort of remediate that. But from our perspective, it's actually been just the allocation of capital into other projects, Arie, that's probably slowed that down a bit. It's a key delivery for us in the '25-'26 year basically. We'll start with the villas and a community center and then build out from there. It provides some higher density for us in the later periods. But our intention is to have a wonderful community center up and running, get 20, 30 villas underway and then build out from there.

So with the pivot you're making to, does that sort of suggest that we could sort of see the delivery in '25 a little bit lower than where it will sort of get back to in '26-'27 and certainly below 200?

Yes, I don't have all of that in front of me, Arie. But no, I'm sort of -- I'm expecting that we continue on with pretty full developments in '25-'26. We've got we probably take a bit of a dip in '27, we're back up to those kind of levels.

Yes. With the delay to Elmwood now into FY '25, yes, we expect FY '25 deliveries to be -- will be higher than this year.

Your next question comes from Aaron Ibbotson from Forsyth Barr.

Kathryn and Brent, and thanks a lot for some of the extra disclosure, which I think is appreciated and presumably part of a continuous improvement across the sector. A couple of quick ones for me. So first of all, maybe I got it wrong, Brent, just on your Helier sales just for clarity. You mentioned 15% or I assume that's sort of 11, 12 units, but then I only heard you say 6 or 5 or 6 or something. So I just want to make sure that I have that right, for The Helier.

Yes. So we had 5 in the March year-end period. We had 1 sale recorded in the first half and we've got 6 applications underway. So you're exactly right. There's 12 total sales that have been made of the 79 apartments that are available.

And then if I look at your -- and maybe you've answered this before, but your 422 inventory, but maybe we focus on the non-care suites. So how are these valued? And could you give us an idea of roughly the sales you're getting compared to whatever goes into this 422 if they're coming at par, below or above?

Yes. So these balances, Aaron, are based on independent valuations that we receive every 6 months. We have had disclosure in the past, haven't got it in this time, but our numbers in terms of what we sell at tend to track slightly above CBRE valuations, and that's consistent with the sales that we've experienced in this half as well.

So I'm just basically, if I -- as an example, focus on The Helier because you talked to quite high development margins on The Helier. So if I look at this $255 million, that will be -- you will have baked in a development margin quite significant into that number. Is that correct?

Yes. Not a significant development margin, but certainly a margin that's well above our moderated average of 20% to 23%. If we think about what we've achieved in some of those prior periods, you would have seen a spike in March on The Helier slides that Kathryn had, which would have showed some of the high-value product coming through. So yes, is the short answer to your question.

Okay. And secondly, just on -- maybe Kathryn, I know you sort of semi answered it, but on this peak debt or plateauing debt, and I guess the full year, both me and Arie asked about sort of peak debt? And I guess the suggestion that was that around May, we were peaked at the moment. Please that's what the transcript says. Do you think -- you talked about debt having plateaued, but it did increase by $60 million or so from the full year. But if we look over the coming 6 months, is your base case largely flat, it could be better, it could be worse, depending on what sales do, but it's the base case that it will remain around this 600 level?

Yes, I think that's a good way of looking at it, Aaron. And like you say, it kind of really depends on what's happening on a sales perspective. But yes, given where the developments are at the moment, one of Brent's slides touched on, there's still a number of apartment developments underway, including Elmwood. So it will kind of bounce around that 600 level for a while before it comes down. But we're certainly forecasting the down. But as you say, sales is a really big contributor to that.

Yes. And alSo we talked about $44 million of net or proceeds from 7 sites as part of the final transformation of the portfolio. If we continue to see ready buyers for our non-core assets, then that's part of it as well in terms of the moderation of our [indiscernible].

We've also spent circa $20 million, $25 million on land acquisitions in this half, which were obviously part of the suspension of the dividend is around maintaining flexibility to continue to pursue those sorts of opportunities. So that's obviously another factor that influences that.

And just a very quick one, which I don't know if you have the numbers turn or willing to share, but is there any chance you could just share a ballpark remaining CapEx to deliver those 382 units and care suites just to give some sort of range, not expect -- not going to hold you to it, but just to get an idea.

Yes. I think in my slides, I'm just going back to my notes, I think of the sites that we have underway, we've got about $97 million of development work in progress. If we think about the near-term sites that we're delivering in the second half '24, being Helier care, BayView Stage 3 in Redwood, that's about $60 million. So that's sort of the better part of $150 million that we have given some visibility on my case. That's before we start Franklin and some of the other projects we have.

That's good enough for me. Final question. If you manage to sell these 7 sites, Kathryn, could you give some sort of ballpark on P&L impact from that? What are we looking at?

Yes. So I think there's an appendix that we've added to the back of the investor presentation that shows you what the impact of the 6 that we've already closed. As you can see from that, it's quite negligible. It's about 105. And I think the max we would absolutely get to is around a couple of million mark. And one thing I would say that isn't included in the numbers is even from those 6 that we've already kind of exited or sold, they are currently having quite a drag on our care earnings. So from an EBITDA per debt perspective, even though 6 would see our EBITDA per bed number get up above the [ 10,000 ]. So we are expecting that with the divestment of the rest of them, it will be even more of a positive to our results.

Your next question comes from Stephen Ridgewell from Craigs Investment Partners.

Look, first, I just wanted to just follow up on the reasons for the suspension of the dividend kind of at this point in time, has been talked a little bit already. But I mean, I guess from where we sit, Oceania is not at apparent risk of breaching either its covenants on our calculations based on what has been disclosed. And Kathryn, I think you seem to confirm that in answering Arie's question. And if the company is also expecting cash recycling to improve the net debt to moderate in this -- the $114 million of headroom, I guess the question is why the decision to suspend now. And I'm just wondering if you could comment on perhaps some downside risks or concerns that might have helped drive that decision. I mean is the concern, for example, that when Oceania has got pretty low cost to deal at the moment, locked in for a few years there, but is the concern that when that resets that might create some problems. Just interested in the thought process.

Yes, I think that's a really good question, Stephen. I think it's actually just been more a matter of keeping a bit of powder dry. The Board obviously determined that they've certainly tried to signal that they're going to consider a resumption of dividends at FY '24. So we're certainly not concerned about where we're sitting as it relates to covenants. Kathryn touched on it, it's circa $6 million cash outflow before we consider the dividend reinvestment plan that we've had operating. So it's actually more to do with what we see as some growth opportunities that exist in the market for us. But we've also been listening to the market. The market are wanting to reward us for disciplined capital allocation and growing the portfolio as opposed to potentially as has been commented paying dividends out of debt. So from our perspective, we feel very comfortable with where the business is trading. We don't feel under any pressure as it relates to any -- our covenants. It hasn't been factored into the Board's thinking around dividend. It's actually been listening to the market and signaling back to the market that we are here to invest over the longer term and into growth opportunities. So Kathryn may have some other comments she wishes to make.

No, I agree with everything that Brent said. And as is kind of stressed a few times, we have kind of made it clear that the Board will reconsider this when we come to March.

And then just pivoting a little bit. Thanks for the disclosure, detailed disclosure on where sales and applications are at The Helier. I mean it's clearly a stunning side, arguably one of the best in the country. But I guess just from our asset applications seem to be tricking a little bit slower than perhaps you might have hoped for 6 months ago. Is there sort of much consideration going into, I guess, perhaps of rejigging the pricing of the fees or the offering more in the financial package just to perhaps speed up demand and sell it down a little bit faster on the first go? Just any thoughts there, please?

Yes. I think that's -- I mean, we've had good success across new product deliveries. You would have heard me talking about The Bellevue. But as it relates to The Helier, there's only 79 apartments and we're already 12. There's already the emergence of scarcity factor starting to emerge. We probably got to that building a bit later than we had hoped, Stephen. We only had a resident welcome on the 24th of August. And that brought about quite a slew of applications following that. So from my perspective, that type of product is probably going to be lumpier. It's not your 2 sales a month. It's 4 or 5 residents all moving in at once, then a bit of a pause and then another 4 or 5 residents. So we've got high hopes for the property. We appreciate the compliment around the quality of it. And we remain very, very optimistic in a recovering housing market that will be fit for purpose and we'll have that fuller quicker than other new product deliveries we've done in the past.

And then maybe just one last question for me. Just on the new disclosure around the cash development margin and certainly a good trend we're seeing across the sector. There's more discussion on that as opposed to accrual margin. I just had a couple of questions on the way it's calculated. And I did see the footnote, but I guess, first of all, you're using the estimated land cost to calculate the cash margin. And I guess, sorry, just an aside, Oceania is obviously redeveloping the sites as opposed to, say, a Somerset, which is acquiring new sites, that's pretty identifiable what the cost is there for Oceania to redevelopment. So it's a bit perhaps a trickier. And so I guess I was looking, could you just to get some confirmation that the value you've used for land in those cash development margin calculations is lower than what the value was estimating the value of the completed site where that you then demolished. Could you please confirm how that was -- was that typically lower in those calculations for the valuable and or not?

I wouldn't be able to give that straight off the top of the head. But what we can say is, I guess, the point that we use, it's consistent with how we treat for development margin is the point at which the development decision is made. So that's when the efforts go into design and consenting that stage of development. So how it compares to the going concern on the site at the time, don't have that to hand. But it's certainly not -- I mean, in a lot of cases, if you think about our existing portfolio, CBRE will value a piece of land, which we currently have potentially bought back villas on. They'll start to value that as development land and we often see an increase rather than a decrease going that way.

Yes. I guess the point -- I guess, my thing is that if you've got an existing built asset on the site, they'll have a cash flow profile. Obviously, you're then demolishing to rebuild a completely new site. So there's kind of an important consideration to calculate the margin, but I will move on. And then sorry, just as a follow-up question. It seems like the demolition costs are they kind of put to one side in that calculation as well, please?

They are included.

They are included. Okay. Thank you. And then the overhead -- office overhead for development, is that allocated to the site? Or is that separate?

So I'll take that one, Stephen. And sorry, there's a portion. So we have certain teams at support offices and clinical teams and operational teams, for example, where they would be directly allocated to our Care and Village segments. There are certain kind of more head office costs that come with being a listed company, though that remain at support office level.

And then maybe just one more just on development strategy, maybe one for Brent. I guess, like if we look at the sort of unsold new stock at the moment, over 400 units in the sales run rate and about that sort of mid-80s, particularly in the likes of taking around about 2 years a bit over to sell down product. I guess the question at a high level is, the build mix on site the right one. You did lead into perhaps more of a pivot towards retirement living. But I just even wonder if you -- given we're seeing faster capital recycling the operators have got broader acre, more retirement tilted stock, whether that's under consideration or Oceania for new sites?

Absolutely, Stephen. We've prided ourselves on bringing to market really compelling integrated site. If we think about a partner mix and care mix, ourselves and our peers are thinking about what the right balance of that is. You'll see us sort of moving to a higher weighting of apartment and a lease waiting of care. And that's represented in Helier as example. It's 79 apartments, 32 care residents. So that's the first part of it. The second part of it is that we have been certainly pushing into more greenfield acquisitions. And as a consequence of that, those land parcels allow us to have a greater bias towards ILU and/or villa product. I think I mentioned in my note of the developments that we've done recently, 58% of that development portfolio has been accented towards independent living. So we're still -- Oceania is care business, and we're very proud of our heritage and the service that we deliver in care, but we are absolutely pivoting towards apartment, villa product as we build out the pipeline over the next kind of 3 to 5 years.

[Operator Instructions] Your next question comes from Nick Mar from Macquarie.

Just on the unsold stock. I was just wondering if you've got a view on sort of where a natural level set, I guess, taking into account the fact that you've got the transfers, which is sitting there, which hopefully won't be as big in the future. And then the sort of mix of units being sort of low value once you look for The Helier as well as the volume aspect. Just how much do you think you can take out of the 422 over a couple of years.

As much as we can, that would be the short answer. I think the good news is that -- and you've alluded to it, we've come out of the brownfield disruptive phase as we've converted product to the premium and as were decanted residents. So we've got a small rump there, $60-odd million or $57 million to be exact. That is part of that. And Stephen and others have commented on it. If we are taking a couple of years on an integrated site, which includes both apartments and care, then that allows people to have a look at that and figure out where we might sort of land on a completed stock basis.

And then in terms of head office costs, can you just talk about why those came down so much? From what I understood you were sort of trying to recentralize some of the stuff from care, which is going to push it back into the head office, but any details would be appreciated.

Nick, we haven't changed our allocations as such, but one thing that is kind of front of mind is we did a lot of investment a couple of years back that ticked up those care costs that I think you're referring to. So when we first went into and kind of establish and integrating our model of care, there were a lot of kind of people costs and setup costs and legislative costs at that time, which have now come down. And we, obviously, in this environment, inflation has been really right. So every single person at Oceania is keeping a good eye to costs and keeping them as low as we can.

So is that sort of a rate that we can annualize in the second half? Or is it going to step up -- step it up?

Yes. I think from a support office cost perspective, yes, second half will be very consistent with the first.

And then just lastly, from sort of the resale side of the -- are there many more development buybacks that may still go through the business?

No. I think we're sort of getting to the end of that Nick, which is part of being able to signal kind of more consistent earnings going forward. And that's part of the consideration for how [ details ] got to sort of more elevated levels as well. So it's a good question. But we're pretty much through that now. And we can see a pathway where we have brownfield developments. We've got those sites available for rapid development. So that's helpful for the CEO and it's helpful for the CFO that we're kind of through that period now.

You have another question from Arie Dekker from Jarden.

Just a follow-up on Elmwood just so I get the understanding right. So of the 106 care suites that are being developed there, how much of them will go into '25 and will any be delivered in '24? Or just...

They're all going to go into '25, Arie, because it's a complete building.

Yes. So that being the case, sort of, you can quite get it from when Bianca asked you. So on that basis, you clearly '25 is going to be higher than '24, can you sort of talk about what your delivery expectations are for '25 inclusive of the 106 that are shipping from '24?

Yes. I think from our perspective, Arie, and let's assume that we continue to see some recovering housing market, then we are sort of -- we have set up to deliver around that 200 units a year. And with the variability in our product, then we can obviously push some of the boundaries of that to higher levels if we wish or we can moderate it back if we continue to have soft market conditions.

So taking all the comments together, delivery this year may be around 100 or so. And then '25-'26, no reason why they should be around 200. And then as you sort of raised earlier with the potential depth then in '27 as you start to transition to more of bed villa stuff. Yes, I think that's perfect. You've got a better model than us.

Thank you. There are no further questions on the teleconference at this time. I'll now hand back to Brent, Kathryn and Heath to answer any questions from the webcast.

Yes, there are a couple of questions on the webcast, but I think a bunch of those we've already covered. So one of the questions was around our pipeline and our development aspirations. One of the questions was around CapEx guidance for the full year, which we covered. One of the questions was around gearing range. And our gearing range is expected to be in the 30% to 35% on the long-range average basis. So yes, I'm not seeing anything on the online questions and thank you for people putting online questions that we probably haven't already covered as part of this presentation today. I think we might wrap it up there. Thank you for everyone's participation today. And we look forward to seeing a newly formed government and we look forward to continued improving market conditions and we'll see you all again back in March.