Oceania Healthcare Limited (OCA) Earnings Call Transcript & Summary

Welcome to the Oceania Healthcare Limited Full Year Results Announcement for FY '24. [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.

Well, thank you, everyone, and a very warm welcome. I'm delighted to be presenting our financial results for full year 2024. This will be my last annual results briefing as CEO of Oceania. And it's been an absolute honor to join you each year and to see how the business has changed and adapted and succeeded in a tough market over the last few years. Oceania is a team, and it's our people's daily efforts that makes this business so great. I get to see our team in action every day, and there are just so many moments of brilliance, empathy, professionalism and innovation, where our residents truly feel the outworking of our belief and better promise. Well done team. You have made my role so rewarding, and I'm very proud of each and every one of you. To the market participants and commentators, I've enjoyed your questions, your interest and dedication to our business. We haven't always agreed, but we have learned together and we have a better business for it. To our residents, it's certainly been a privilege of mine to get to know so many of you personally over the years. It's wonderful to have our residents' lives captured in our presentation and annual reporting materials. And lastly, to our shareholders, I thank you for your investment in us, your confidence in us and your continued support. So turning to the financial results. I can tell you, it's always a bonus, as an exiting CEO, to have a set of numbers that demonstrate a positive direction of travel, a transformation of a business and an execution of a strategy. The team have worked hard to put us in a favorable financial position. At a P&L level, we have seen a significant increase in our total comprehensive income of $70.5 million, up 104%, and our non-GAAP measures of underlying EBITDA $82.6 million, which is up 3% and underlying net PAT, which is up -- which is $62.1 million, up 6% on PCP. Operating cash flow and new cash from sales of occupational right agreements, what we call ORAs have been a strong performance at $85.4 million, up 22% and $226.3 million, up 27% on PCP. The deleveraging of Oceania is well underway with total net debt headroom improving from $88.5 million on the 31st of March 2024 to around $100 million today. We are also in compliance with all banking covenants and Kathryn will expand on the success of these measures in her section of the presentation. We have continued to add to the quality of the Oceania portfolio with the delivery of 182 units and care suites in full year 2024, and we are well advanced on next year's pipeline of 224 units and care suites. It's been pleasing to note the success of our divestment program with 6 assets sold or under contract as at 31st March 2024. And I'll touch on this in more detail shortly. Pleasingly also, we are well underway on our climate-related disclosure reporting, and this will be published next month. Oceania resi business that's been investing in its growth and the directors have resolved to not pay a final dividend as we conclude the more intensive components of this growth and portfolio transformation stage. Turning to Slide 3, transformation through innovation. I've been part of a wonderful team that set itself an ambitious plan on transforming Oceania through innovation, capital investment and a genuine desire to reimagine the retirement in aged care sector. The graphic shows Oceania's progress from the IPO in 2017 through to today. And as it turns out, while I was not yet employed by Oceania at that time, I was part of a group of investment banking advisers to the IPO and as such, have journeyed with Oceania since 2017. It is pleasing to see that we have grown the assets of Oceania by over 200% to nearly $3 billion and operating cash flows by more than 100% to $85.4 million. People have often heard me say, we deliver critical infrastructure and essential services. And with this in mind, we sit about modernizing and transforming the portfolio of properties to the highest levels of Homestar certification. We pioneered the introduction of the news practitioner model during those tough COVID years. This provided a dual benefit for Oceania. Firstly, career pathways and retention of our clinical staff; and secondly, personalized, high-quality care for our residents when traditional New Zealand GP practices were in decline. We ambitiously tied our 5-year $500 million sustainability-linked loan to performance targets that focused on resident well-being, allowing our residents to evaluate our daily service and care for them and let us know how we were performing. We made staying together in later life possible with the introduction of couples care suites and have taken the next step of providing a private personalized care offering at The Helier. Strategic investment decisions. Oceania, as you are aware, has been an active industry participant in building, buying, selling and curating a modern, premium and resident-centered portfolio of villages and care properties. Since IPO, Oceania has delivered over 1,350 new units and care suites across the full spectrum of property typologies with the greatest weighting towards high-quality premium apartments and care suites. We've also had an active M&A agenda, having completed over 21 capital transactions since IPO, success acquisitions and 15 divestments or closures. In the full year 2024, we have sold, exited or have under advanced contracts a total of 9 property divestments. What is of importance is that in aggregate, these divestments have netted circa $40 million of cash proceeds for deleveraging Oceania and supporting new growth opportunities and have been transacted with various purchases and aggregate above book value. Some nice pictures of developments that we've completed in full year 2024. If we started with the left-hand side, the BayView, in '24 we delivered 28 further units, the P?hutukawa stage, the BayView development started with a new care building, which has been fully occupied and built up a great reputation in the region. The site development then turned into apartments, and we are now over 100 apartments across 3 stages, with harbor views to the mount, the Bayview as Tauranga's best kept secret, which we are unlocking for residents. We also highlight the stages of development potential located on the site, and this is in the picture highlighted in green. Turning to The Helier. It's a standing joke in the office that there are very few people that Brent hasn't taken to The Helier to show them around. But the truth is it just gets better every time I see it. It was born out of significant market research and deep resident insight. We have an integrated building sensitive to its location and landscape that delivers outstanding convenience and hotel-like services for both our independent and private care residents. We've also acquired neighboring properties on the Northeast boundary, providing protection of views and a future stage of development to connect the 2 roads. The Helier is a premium product, and it was opened in stages due to the impact of COVID and weather-related delays. The completed common areas were blessed and opened in August 2023, and our private pain care was opened on Valentine's Day in February 24 (sic) [ 14 ], of which we have seen strong demand for this new care offering. We are just over 25% of the apartments sold and under replication and nearly 20% of the care residences. Softer housing market continues to have an impact as people wait to see where rates are hitting. While the total sales proceeds are significant, it's circa $60 million from these initial sales and applications, we were expecting a stronger start. However, given the premium nature of the offering, the elevated inquiry levels since official opening, we expect to be cash neutral within the full year '25. We turn to the next page, Redwood and Blenheim, the delivery of 55 key suites at the Redwood Village is another example of right product, right place in the heart of Blenheim with our award-winning gardens. The Redwood Village has been part of Oceania's portfolio since the late '80s, and the recent completion of the care suite building has been well received by the local market. We already have 9 applications processed following our official opening and a wonderful karakia in Waiata [ Rangitane Iwi ] on a beautiful sunny day on 8th of May. The Bellevue, we completed all stages of our planned development at the Bellevue Village with the recently completed 46 apartments as seen in the image. This provides a fully integrated site comprising of 68 apartments and 71 care suites in a key location in Christchurch. We have 100% sold all prior stages of apartments and achieved significant presale success for this final stage of these apartments. We have settled and recognized 15 of the 46 apartments in the full year '24 and have a further 12 apartments under application. In essence, we have well over 50% of the village sold or under application within the first 6 months of opening. Turning to our development pipeline. Oceania is well underway with next year's development program. We have circa $147 million of development debt work-in-progress, with all buildings nearing completion early in our full year 25-year to allow for the maximum time for new sales and presale cash collection. By December 2024, we will have completed circa 85% of the 264 units in care suites under construction across 3 locations in Auckland. We will have concluded the last stage of development at our Awatere Village in Hamilton with 68 apartments. At our Meadowbank Village, we have undertaken a 40-room clinically researched and resident designed dementia building. And this is a very fitting way to complete all stages of development at Meadowbank, a journey that started over 10 years ago with apartments now 193, care suites now 63 and a bunch of happy settled residents with high levels of satisfaction and occupancy. The last graphic on the slide is an aerial photo of our greenfield site, [ Nam?ra ], which means the gardens. And this is in Franklin. With site works complete, we are well underway with the construction of a multiyear, multistage development of a wonderful new Oceania community. The renders to the right provide impressions of our finished community center, the entrance and villas. The last slide for me is strategy and portfolio transformation. Since IPO, we have added over 1,350 premium units in care suites and this has transformed Oceania's portfolio into a modern, market-leading and high-quality portfolio. We have observed significant sales price growth over the period 2017 through to today, with apartments up 2.6x to an average sales price of $970,000 and care suites up 1.7x to an average sales price of $338,000 and nearly a doubling of the average price for our villa product. In reshaping and repositioning Oceania's portfolio, we have simplified the offering as we have pivoted our portfolio to the present and future requirements of our residents. To put this in context, around 85% of our total independent property valuation is represented in 21 of these village and care properties. These 21 village and care sites 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 less. These are new, modern and resident-designed buildings with minimal ongoing maintenance required, delivering exceptional resident service and quality outcomes, and they have been built with a 50-year expected life. As communicated at our half year, we've been rebalancing the overall product mix with 44% independent living and 56% care, with a stated intention of getting to 50-50 as we build out the rest of the portfolio. We are proud of what's been achieved at Oceania and the transformation of the portfolio. We have also had an eye to the future, and we have an attractive, well-positioned land bank across 16 sites in the Golden Triangle, Central North Island and populated South Island locations. These 16 sites are already part of the Oceanian family and provide over 1,500 consented units and care suites for future stages of development. Thanks, everyone. I'm going to hand now to Kathryn Waugh, our Chief Financial Officer.

Thank you, Brent, and thank you, everyone, for dialing in today. We have provided in the appendices a pro forma for analysts on the call. This records the impact of divested and exited sites to allow for like-for-like comparisons of earnings. I will walk you through the rest of the slides, and then we will open for questions. Full information can be seen in our financial statements and the appendices to this presentation. Our annual report this year shows a clear step towards evolving our integrated thinking and integrated reporting practices. The inclusion of additional metrics and targets in the annual report to accompany our financial statements is just one step in this process. I'm happy to say that as a team, we have made great inroads on our sustainability and integration roadmap since we last spoke. In refining our value creation model, we have really been getting under the hood use in the Six Capitals framework to enhance our assessment and what drives true long-term sustainable value and performance. Aligning our value creation model with our strategic pillars and exploring the utilization of different capitals and business activities has helped us do this. Slide 10 details a small subset of this year's wins in relation to enhanced metrics, measuring the progress against our sustainability framework, which we introduced last year. Calling out just a few, we have met all 3 of our sustainably linked loan and performance targets this year. We have exceeded our construction waste diversion. We've exceeded our care resident well-being target and we have had our targets for GHG emissions validated by the science-based target initiative as well as seen a reduction in our Scopes 1 and 2 emissions. In relation to the offer pillar, we now have 10 projects, a total of 495 units, which are certified to Homestar 6 and we are aiming for our first Homestar 7 project under the much stricter version 5 at [ Nam?ra ], in Franklin, Auckland. Resident and people pillars have also seen a number of significant wins this year, with both our care resident and employee NPS stats increasing. While all this has been happening, the team have also been working hard to understand climate risks and opportunities over the short, medium and long term. In our first year as a climate reporting entity, we have completed lots of groundwork in relation to identifying and assessing physical and transitional risks and potential implications. We will be releasing our first climate risk disclosure statements in the next month or so, and our GHG emissions report has been loaded to the website today. At the start of this presentation, Brent touched on our statutory GAAP metrics. Here on screen, we have provided some of the non-GAAP measures and some of the highlights to our results. All in all, it's been a very favorable result this year with positive trends in all of our key measures. For our Care segment, we have seen an almost 11% increase in care premiumization, testament to the premiumization journey, which we've been on. For our Village segment, we have seen an 18% increase in new sales volumes, a 14% increase in resales volumes and an associated 14% increase in capital gains. It's really pleasing to see these favorable green shoots after the last few years of downward pressure. Overall, despite a 2.7% decrease in underlying earnings at the interim, we have been able to deliver a result which is 3% up and 6% up at the underlying EBITDA and underlying NPAT levels, respectively. When looking at the balance sheet, we continue a disciplined and diligent approach around capital allocation and have complied with all covenants. Our headroom of $85 million has increased since balance date to a healthy $100 million today, and we have a clear route to reducing our gearing levels. I will run through some of the detail behind these points on the coming slides, and we'll take questions on them at the end. Finally, for this slide, I want to touch on the divestment program. This strategic focus has been going exceptionally well with 2 operating sites and a land bank settling during the 12-month period and 2 operating sites settling in April and May. We have a further site currently under contract. Appendix 5 to this pack provides a view of the pro forma group underlying earnings for the sites that have been divested and exited in the reporting periods. As can be seen from the appendix, the earnings impact of the sites, which we have sold, was minimal. However, the conversion of value to cash for these sites has had a worthy impact to our debt position and ensures appropriate use of our capital. We still have a handful of other sites earmarked for divestment to complete this program. A month or so ago, we provided an indication of our sales volumes over the period. As some pointed out at that time, while our volumes were up year-on-year, the second half of FY '24 had seen slightly less sales than the first half. Pleasingly, however, during the second half, we have seen strong margins. On Slide 12, we provide context to the sales we've experienced over the last 12 months. When looking year-on-year, we have seen increases in a number of areas, namely new sales volumes, resales volumes and IOU sales. Care suite sales have been consistently strong year-on-year, maintaining sales volumes of 250-plus. We've recently delivered care suites at Redwood and Blenheim and the Elmwood care suite building will be ready for occupation later this year. Together with our existing portfolio of care suites, we are confident that we will continue to see strong demand for that product. Development margins have continued to moderate, something we have signaled for a while and resale margins continue to hold strong testament to our product and the demand for our established product. On the right-hand side, we provide our average sales prices. This cycle, we have provided the detail of our new sales and our resales separately. We've achieved pricing, which is just as strong in our resale product as our new sale product, and we have achieved price increases in all categories throughout our resale stock. New sale pricing, as we have often highlighted, is dependent on the product, the region and the timing that the development sites are delivered. So in summary, despite market backdrop, this 12-month period has seen our strongest sales volumes ever at 476 sales. The lighter volumes in the second half have been offset by the strong pricing and therefore, margins, which we have been able to achieve in the period. In a couple of slides' time, I will talk to the new sales stock which we have on hand, a key driver for future reduction of debt for us. Moving to Slide 13 in the Care segment. In our Care business, we're also seeing positive markers and movements year-on-year. Premium care revenues have increased 10% year-on-year. Occupancy is creeping back up to pre-COVID levels and care margins are stable with a road to increase further in future periods. Even more importantly, we are now above the $10,000 EBITDA per bed marker that we set a few years back. You have heard us talk in the past about how we remain confident with our premium care strategy. I have said many times that we had an aspiration to increase our EBITDA per bed, excluding DMF to over $10,000 per bed rising to over $17,000 per bed, including DMF. This year, we have achieved both and our aspirations don't end there. We continue to see positive trends with our wages to revenue stabilizing. And as inflationary pressure ease over the coming periods, we will continue to see a positive trajectory in this space. I must stress that the measure of $10,000 per bed relates to the core earnings of care sites, excluding DMF. Including those fees, we have seen an increase to over $18,000 per bed. This is something that will continue to increase, particularly as we bring more care suite product to the market. Our confidence in our premium care strategy continues. The EBITDA per bed is 1 marker, coupled with the cash collection experience from the observed shorter tenures of 2 to 3 years, and the contribution of care suites continues to be a benefit for the group. Shortly, I will address overall debt and gearing. And although we are seeing a pathway to reduce debt, we haven't reached that magic moment just yet. We are still in the tail end of the consequences and impacts of COVID, inflation and a softer housing market and an intensive period of investment in new product. I will talk to the current position now. Our debt is highly weighted to development debt and is supported by both current and future sales stock. On the left of the slide, I'll provide the usual graphic to provide the snapshot of our current development debt drawn to the value of our underlying development assets. As I have indicated previously, 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, we are in a position where we hold a healthy 1.15x coverage of our development debt. At the interim results, we gave you visibility of the unsold development stock, which we were holding. On this slide, we have provided an updated position, and we will continue to provide this slide moving forward until the point that we get to lower levels of development stock on hand. As I said back then, this is a key insight into how our current and future development stock will be used to repay development debt. We currently have $147 million of our development debt, which is development work in progress. This is up from $97 million in September as a result of the timing of completion of our developments. This will be recovered post completion and in future periods. Unsold stock. This represents the cash recycling from the developments that I touched on. 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. Unsold stock has reduced by $69 million in the last 6 months from $422 million at the end of September to $353 million to the end of March. With an average sales price per unit of $327,000, care suites totaling $51 million are currently occupied with transferred [ impact- ] residents. These care suites represent 15% of the total unsold stock at March and, importantly, represents sales for future periods. These units are not readily realizable, but also provide an ongoing operating cash flow and reduced slightly since September. Of the remaining balance, 60% or $213 million relates to unsold new stock, which was completed in the last 12 months. This includes key developments, The Helier, the Bellevue, the BayView and Redwood and is down $42 million from September. Finally, the remaining 25% or $88 million of the unsold new stock, which is readily available for sale relates to developments completed more than 12 months ago. Momentum is now on our side. We continue to focus on sales and particularly to reduce our level of stock on-hand, cash to be unlocked in future periods. My last slide of today touches on the balance sheet. As you will have seen from the previous slide, we are positioned well to sell through our current stock and move our gearing back to the low to mid-30s. We are coming off the back of the number of large care and apartment deliveries. The timing of these developments has not been ideal. And as we came out of the COVID years and delivered to one of the toughest sentiment markets that New Zealand has seen. This has resulted in large levels of drawn debt, debt that has seen a peak as flat as table mountain. In our favor, though, has been a low average cost of debt as a result of well-timed corporate bonds and well-timed refinance and a capital raise back at the beginning of the cycle. With this groundwork complete, our next refinancing event does not occur until FY 2028. This has meant that we have been able to maintain headroom on our covenants and have not needed waivers from our banking syndicate despite the tough trading environment. And we are at 3.4x ICR with a 2x covenant, and we expect it to increase from here. Our loans are organized so that we can switch between development and corporate facilities. With favorable margins in the second half and pleasing progress with the divestment program, we have seen our headroom increase from $88.5 million at the reporting date to circa $100 million today. Further to this, Brent spoke earlier to how 85% of our current developments will be delivered by the end of this calendar year. With future developments, you will see us focus more on filler product, a product which cash can be recovered more quickly. We are also in control of our own destiny as to where we deploy our capital and win. Thank you, everyone, for your time today. I'm joined in the room by Brent and Heath, and we will now hand back to the operator and open the call for questions.

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

So first question from me is just around your new unit sale prices on Slide 12. Overall, that's looking good, but apartment new sale prices fell. And I know you mentioned that depends on geography and products. But I was a bit surprised by that -- given that's what The Helier will be included in, so would you be able to talk about what's driving that decline?

Yes. Good question, Bianca. I think for us, it was really just the mix. So if we think about The Helier, the influence in that FY '24 year has only been 13 IOU and 4 care products. So as a consequence, we haven't yet seen the material uptick that's going to occur in the apartment side. We've been selling through, obviously, some of our Awatere product in Hamilton, which has the least [ in value ] BayView, Eden, the last of Eden, Bellevue, et cetera. So most of it is actually just mix rather than anything that we see untoward in our actual apartment levels. Looking ahead, we obviously see stabilizing pricing in the market. We haven't been a price takeout. We've been a price setter and we're expecting levels to be up around that, if not well in excess of that as we sell through some of those premium products.

Okay. And then just following up on The Helier. So you mentioned 25% of apartments are sold or under application and 20% of care suites. Could you share what percentage are actually sold?

So we have 13 that have been -- 13 IOU that have been recognized in April '24. And we have 4 care residents. We have 7 under application, where we've seen settlements in May -- April and May of IOU and 2 additional applications for care residence.

Okay. Okay. And then -- yes. Okay. So you mentioned the residential property market is still challenging and impacting sales at that village. And so with these more recent ones, I guess, did you have to lower prices at that village or offer any sort of increased incentives?

We haven't lowered prices, no. And I know that's a question that's been on people's minds. It's actually been more of just about confidence. People love the product. Lots of people are sitting there waiting for a stabilization in market. It's less about their expectations of what they're going to get from their homes, because a lot of the homes are obviously in the $5 million, $6 million, $7 million range that they are selling. They just want confidence that if they market and go through that change, that there's going to be a willing buyer on the other end. So it's actually been less about market prices and more actually about an incoming buyer. Are they going to be able to finance it. Are they going to be able to afford that financing at higher interest rates. As Adrian moves us to hopefully lower interest rates towards the end of this year or early next year, then I just think that it will help with sentiment. So people love the product. People are happy with the price. People are happy with the services, but they need to see some confidence. And as people know, there's an abundance of listing. So eventually, the market will clear that abundance of listings.

Yes. Okay. But -- so based on that, it sounds like first half of '25 may still be quite weak on sales for The Helier and then hopefully, we'll see an improvement in sort of second half of '25 for that village?

Yes. I think we're not necessarily seeing it the same as that, but I think we're just being cautious. And we know that it's something that people are focused. That's a flagship property for us, so we're been cautious. But what we have done is run various scenarios. And under each of those scenarios, we're confident that we will be cash positive with the sales that we'll make out to FY '25. So we would have recovered our investment effectively.

Yes. Okay. And then also there was a decent uplift in payments to suppliers and employees. And I remember you mentioned that The Helier would have high OpEx from day one. Could you talk about what drove the uplift? And how much of that is driven by the opening of The Helier?

Bianca, it's Kathryn here. I haven't got specific numbers for the call. But yes, as you mentioned, a few of our sites, because of the timing of openings, will be running at slight operating loss for the few months and The Helier, being one and also some of the other developments Brent had spoken to. That's natural in the cycle of it. And because of the level of service that we provide and the experience that we want for residents, we've always had the motto that the operating model will be there 100% on day 1, even if there's only 1 resident and that will decrease over time. The other thing you will have seen is in our Village segment, there's an intentional additional investment in marketing spend, in particular. We've been putting some more money to brand awareness. And you guys, if you got on early for the call, we'll have seen our recent TVC campaign, so -- and we're really proud of what that's done and the insights it's bringing to future residents and there's intentional spend from that.

Okay. And will that continue into FY '25? The marketing spend and all of that?

Yes. So what happens, the latest advertisement, Father and Son, as part of a series of properties that we had. So the first property was our residents telling their stories. The second property was around a couple playing piano in our care suites. The third property was around some residents moving into our apartments and taking their treasured dining room table. And the last has really been this notion around the care and the quality of care that we provide. So as a person's needs change, we are there. And I'm sure you love the theme song around sort of, "lean on me," and that's part of what we're trying to get to. That is the last of a major spend. We've seen significant increase in familiarity, brand awareness, and we're excited with the properties that we've developed. So that marketing will taper. Where that marketing gets directed, Bianca, is into our inquiry levels, into our research and resident insights to drive -- it's more demand driven around improving our sales cadence and performance.

Okay. Great. And then last question for me. So you disposed of some assets in FY '24, so more in the first half of '25. Is that, essentially, the completion of your disposal program? Or are there any other assets you are considering selling.

No. There are some more left there, Bianca. In our financial statements. We have a disclosure as to the quantum of those. So yes, there are still a handful, but we'd hope to have those underway by the end of 30 September. So at the interim, you'll hear more from us on those.

Your next question comes from Arie Dekker with Jarden.

Just starting on the development pipeline. So you give a clear steer to nearing completion for most of it in '25. Outside of Meadowbank and Franklin, where you're sort of commencing works. Are you going to commence anything else into FY '25. And can you just talk about what we should be sort of expecting based on that for delivery into FY '26, because it's looking a bit done if you don't.

Yes. Well, it's interesting, Arie, because as we build, our debt goes up, so we get hammered for that. But also, we're in a situation where we need to obviously sort of temper that pipeline. So if we think about into FY '26, we're moving into these broad acre developments, and they allow for staging, they allow for acceleration of capital if necessary. Two obvious developments in [ Nam?ra ], which is in Franklin and Auckland, but also the acquisition that we did some time back, Bream Bay, which is in Ruak?k?, which allowed us to access a large side across the road as part of that transaction. Coupled with that, we'll be continuing, we said earlier, future site developments at BayView future development sites. We are at Lady Allum, et cetera. So part of that is the job of the new CEO, I guess, but part of it is also the existing team, having a very strong view on the right product, right place, and where we are in the cycle. We've had a very, very intensive investment period around apartments and care suites. We're coming out of care suites. We're coming out of apartments. We're going into other product typologies. You can even see, with the deliveries that we have in forecasting for next year, [ roads are on them ]. We're starting to get to sort of almost the final stages of those buildings. There's plenty for us to pivot towards, Arie, and it's really a matter of in that Golden Triangle where we can see good support for the end product. We're obviously going to go hard, but that will also be part of Andrew and the team and the new CEO thinking about where do we want to spend that next dollar in 2026. And whilst we haven't, over this financial year, started maybe the same amount of development that we have in previous financial years, Andrew's team has remained very active in advancing design processes for our other care sites. Allum, where there's further -- there's further stage of development there, Lady Allum and Bream Bay as Brent mentioned as well.

I understand what you're looking to manage. So yes, the commitments that sit on the balance sheet at the end of financial year of $45 million, that pretty much is associated with those completions and finishing at Meadowbank in terms of further density. You're not looking to open anything up at this stage in FY '25?

Yes. No, and I think that's a good question. And hopefully, that's what we're providing assurance around. So you're exactly right, Arie. That's what it is. You can see in the graphics, scaffoldings are coming down, cranes are being removed, roofs are going on. In some instances, if we think about Elmwood, we're nearly ready to open the building. So a lot of the future debt, if you like, or development debt is already in-train or being spent or has been spent, I guess, to bring that new product to market.

That's helpful. And then final question just on this vein of questioning. So the reason you haven't looked to increase your facilities is pretty deliberate. You're essentially -- you're not worried about the risk of settlement timing in this market because actually, you're not looking to commit to a lot of new development. And so you'll sort of finish off what you committed to. It's not much and the settlement proceeds sort of come in. And for that reason, you haven't looked to increase your facility around that.

Yes. Sorry, you go ahead, Kathryn.

Yes. Brent can add to this. But, essentially, yes, Arie. I mean, we're sitting at $100 million of headroom today. That's plenty for what we need with the developments that we've got planned for the next 12 to 18 months. It's obviously something that we look at regularly. If the time comes in the future, then we will look at it. I talked about our key refinance date is out to '28, but obviously, we'll address it before we get to that point.

Yes. I think the other thing that we're mindful of, Arie, it's not a great time to be negotiating with banks' a favorable kind of financing facility at these sort of rates. So one of the hallmarks of Oceania has been to sort of peck windows, I guess, that bring our weighted average cost of capital down, bring diversity and tenure into our facilities, whether that's through bonds, whether that's through a refinancing event that Kathryn and I worked through, just trying to assist with that. But there's plenty of headroom. And this is a deleveraging story for us. We've got some fantastic product that we have in market with a recovering housing market sentiment, albeit it keeps getting kicked down the road. But we do see a recovering housing market into '25, and we'll be focused on doing what we've done over the last 6 months, getting through that sort of unsold stock and delevering the balance sheet.

Great. And then just 2 quick final ones, hopefully. Just on the receivables, that balance of ORA receivables is climbing. The vast majority of it, you expect to realize within 12 months. Kathryn, could you just remind us what the approach is there in terms of what drives that growth and the short-term part of that ORA receivable to $74 million now? And then also what's driving the increase of the greater than 12 months from $10 million last year to $20 million this year.

Yes. Thanks, Arie. So yes, you're right. The short-term receivable is ticking up at $74 million at March. What I would say is, though, and we obviously analyze this every month, the portion of that, there's a high portion that's with under 3 months. And as we bring more and more care suites to market, we are naturally going to see that number increase, care suites and needs-based product. It's one where we generally offer a 60-day deferral on entry because the person needs to be in that day or that week. And they're generally not having to sell the family home to pay that, but it's just a matter of getting the paperwork in order. So it's a low-risk thing for us on the care suites. Occasionally, we'll allow a portion of an IOU to defer a small amount for a short term as well. And so it generally, we'll build but not age, if that makes sense. On the longer-term stuff, again, occasionally, sometimes we offer a 10% deferral or what you'll find is some of those have just only marginally ticked into the 12-month period. They're not delayed forever or not delayed till settlement, but they are more than 12 months. So we can't classify them a short term.

Sure. And then a final one for you, Brent, and, like, I appreciate it's not something you'd be there to execute on, but you guys have had some success in getting close to book or around booked for the divestments, albeit pretty small assets. Can you just sort of comment on whether the Board has considered divesting assets of larger size given the large value gap that's there and that being a potential means of sort of looking to close it?

Yes, I think that's a good question, Arie. I mean, it's frustrating when we think about the value gap, and part of that might have been sort of coming out of an index and not having a marginal buyer for the stock at that time. But I'm talking about the shares, obviously. But from my perspective, we're in a situation where we look at the capital allocation of our sites. We looked at the portfolio transformation. So where do we want to be. Where do we know that there are good buying signals for residents. How do we create fantastic communities for people. And how do we make sure that these have embedded value that goes on, so how do we get that annuity. So Kathryn, myself and the team went through, and we looked at sort of what's the trade-off between operating earnings. What's the trade-off around maintenance capital. What's the trade-off around competitive environment. What are our capital allocation rules and hurdle rates that we've got ahead. That's how we came up with our initial kind of divestment portfolio. But we also know that we've got some crown jewels. So what do we think about those. Are we the best and highest owner of those and a deleveraging of the balance sheet. At this stage, we've taken a pretty prudent approach. We have tried to demonstrate to the market that we have kept our operating earnings kind of roughly in line and being able to recycle cash. And that's been our primary focus, first and foremost. It will be for somebody else to consider. But I think we're pretty happy where the portfolio's at. I touched on it earlier, Arie. [ It's ] one of our total sites that represent about 85% of the $3 billion. So we think we've got the sort of portfolio that we want to keep. And we think that we're going to start to see some pretty attractive annuity DMA coming off there. Our occupancy is lifting, resident satisfaction's lifting. So that's a challenging one. We're also talking about a market where the types of sites that we have divested, there's -- and we've spoken to before, a theme in the service offering of those sites, largely care-focused. And there's a reason why, for the market that's out there, that's desirable. When you start going into the other end of our portfolio, it doesn't have the same features that, obviously, that market would look for. So it would be a completely different proposition.

Your next question comes from Aaron Ibbotson with Forsyth Barr.

Brent, good luck with your future plans and thanks for good, robust discussions. I got a couple of questions. I guess my first question is on what I would call core debt, I'm not sure what you would call it, but basically, the difference between what you highlight as development assets and net debt. So a year ago, you had $600 million of development assets and $550 million, call it, of net debt. Now you still got $612 million over development assets, but $630 million of net debt, call it. So there's a quite material increase and particularly, in the second half, there was a big jump. So I'm just trying to understand your view of this and how you expect this core debt to develop as you potentially, depending on what the market does, sell down some of your inventory. Is this quarter that's going to continue to sort of creep up, this difference between these 2 numbers?

Yes. Thanks, Aaron. It's Kathryn here. It's a good question. I mean, a couple of years ago, 3, 4 years ago, core debt, we'd really only use it as a kind of month-on-month working capital to have a buffer and occasionally, from time to time, we'd use it for dividends. If you remember when we did the project to purchase Remuera Rise and Bream Bay, we used our core debt facility at that time, which is why it's ended up at a higher, more stable level. And we have also been using it recently to buy small parcels of land. So you will have seen our disclosures and we've been buying a few of the pieces of land at the back of The Helier. So I guess that explains why it's where it is at the moment. To your question about how do you see it...

I'm sorry. Kathryn?

Yes?

Buying land should not increase it, because presumably, you pay and then you put that land in unsold, undeveloped plan, no? So I'm looking at Slide 14 here, and I'm comparing the $612 million with your net debt number. So if you buy land for $20 million, that $612 million goes up by $20 million and your net debt goes up by $20 million. So that gap does not open up because of land acquisitions.

No, I understand, I understand. I was just touching on the drawn amount to start with. So -- but kind of -- sorry, rounding out what I was saying. So the drawn amount, kind of that's where we've got to the level it is. If I answer your question first about how we see it going forward and what's going to happen with that core debt, we touched on, a few times, myself and Brent, about how, as we sell down developments, that cash obviously goes against the development facility in the first instance. Going forward, once we're at a cash-neutral position, which we're expecting we will be by the end of this next financial year with The Helier, we can use those funds to be kind of allocated against our corporate facility. So that will see us bringing that number right down and having more of a headroom in our working capital. And you'll note this morning, you also touched on how we can move between the 2 facilities, so between our corporate and our development. And so that's kind of the roadmap for where it's going. And yes, I don't know if Brent wants to add anything about the…

Sorry Kathryn, I'm not asking -- sorry, Kathryn, I don't really mind which facility you put it in and how much you draw. I'm looking at the total overall amount, yes? So you reported net debt of roughly $630 million and development assets of $612 million. That's a negative $20 million. At the half year, you reported $634 million of development assets and roughly $607 million of net debt. That was a $25 million positive. So your -- the way I would think about core debt has gone up by $45 million over the last 6 months. We don't have to call it core debt. We can just call it the difference between these 2 numbers. It's gone up by $45 million in the second half, so effectively, what I'm saying is your development assets seem to have gone down a lot more than I would have expected given what your sales proceeds are and how much CapEx you're spending. So I'm just trying to understand maybe these are the ORA receivables or something. But I'm just trying to understand why the difference between these 2 numbers have gone up by $45 million in the second half since the first half.

Yes. Okay, I understand.

So some it, Aaron, might be buybacks. So that's probably a consideration.

That was positive in the second half according to disclosures.

Yes. So I'm just trying to think about what is driving that difference that you've just given us. So let us answer it, call you off-line so that we've got time to just work through that. We don't have the materials in front of us. But if I think about what's happening with the development assets, some of it's going to be valuation. Some of that's going to be buybacks and how we've used the facilities, effectively, in our switching.

So your unsold new stock, has it been valued down in the half?

Not on mass scale, but yes, the other point that I'd add to these numbers is these come from CBRE valuation. So they are subject to movements in things like in-going prices, even other little changes, like parts of sites being changed, I guess, the treatment of how they're valued. We've had parts of sites that have been moved from being treated as development land, actually, back to going concern, so it comes out of some of the buckets in here, if you can really dig down to that level of detail. The other one on which you point -- which you referenced as well, Aaron, is we refer to, on this analysis, for -- I guess, for conservatism, we refer to unsold stock per our CBRE evaluations, which doesn't account for deferred settlements or, yes, for sites that are -- there's a bunch of The Helier sales, which are not included in our unsold new stock, which settled after balance [ debt ], for example. So that receivable is the other side of it.

Yes. It's just a bit unnerving when these numbers move unexpectedly by such large amounts. But anyway, second question for me. Just -- you touched on CapEx and $100 million being comfortably enough to finish off, I'm not sure if that's a net or a gross number, but I think it would be really helpful for me and maybe for others, if you could go through what CapEx you've got remaining on sort of the 3 or 4 projects you're finishing this year, so Elmwood, Waterford and Awatere. How much -- I mean, if I look at the pictures, it looks like it's not that much left, but I remember thinking that for The Helier and there was quite a lot left. So I'm just curious to understand, is this, what, $20 million a village or less? What are we looking here, approximately, to finish these 4 listed projects this year? I appreciate there's other CapEx as well.

Yes, yes. No, you're right. So I think the easiest way of probably looking at it as if I look back to the question that Arie asked, which was around the -- in our stat account where we talk about what are we committed to. So we committed to another $45 million in the next 12 months. That covers those kind of the top half of the slide that Brent had of the pictures that are underway. That doesn't include the cost of Franklin. We are out for tender on that at the moment. So it includes what we need to finish, the earthworks, but not the development as such. So I view it as a $45 million for Elmwood, Waterford and Awatere and Meadowbank. And then Franklin, as we said, we're the controllers of that destiny of when we start. When we do start, Stage 1 will be a handful of villas. We're also going to start the development of the community center and the care facility at that time.

That's super helpful, Kathryn. But just to spell it out, though, I guess Arie and I are asking the same questions in different ways. But looking at this then and looking at your sort of wait-and-see approach to a few of the new developments, which personally makes sense to me. It looks like CapEx can fall pretty dramatically this year, and then again, next. Is that fair, assuming no other dramatic developments?

Well, we can't -- we don't have a crystal ball, Aaron, on where the market goes. But I think in essence, yes. I mean that's all part of this transformation of the portfolio. We grew the portfolio from $900 million to $3 billion. And now we're going through a tapering. We had COVID and other activities that kind of meant that we were truncated with all of our developments coming on stream at the same time. Helpfully or unhelpfully, all of those developments, as you are aware, were large-scale capital intensive apartments and/or care buildings. So I think what Kathryn and the team are referring to is there's some flexibility, I guess, in terms of how and when and in what proportions we allocate our capital going forward. We're not going to be stuck in the ground for 3 or 4 years with delivery of 190 apartments or 160 care suites or things of that nature. So that's a long answer to a short -- to your question. But yes, capital can moderate from here.

And the nuance is that this time, 18 months, 24 months ago, we had twice as much under construction as we do at the moment, committed. And this time last year, I had I think 409 units. So whether we made new decisions or not, we were committed to those projects. Whereas now, we don't -- we're not giving guidance as to what those CapEx numbers are going to be. We have more control over whether we accelerate or delay further development.

The next question comes from Stephen Ridgewell with Craigs IP.

Just first, first of all, good to see the pivot and I see your development strategy to more broad acre and general tapering of development activity in the next couple of years. Just first one for Kathryn, just for the divestments that you've announced and looking to settle, what is the expected EBITDA impact from those divestments, please?

For the future ones, yes, good question. I might have to come back to you on that one. The ones that were sold today, it's only about $100,000 impact. Going forward, it will be between $1 million and $1.5 million. So for FY '25, it should be between $1 million and $1.5 million.

Okay. That's helpful. And then I guess just on the improvement in aged care EBITDA we saw in the second half. I mean, it was good to see following the DHB funding increase. I guess just interested, do you see that run rate in the second half is kind of a good base level as we enter currently FY '25 year? That $12 million per half, is that a sustainable run rate? Were there other kind of cost pressures that we should be mindful of that perhaps sort of dials back a little bit from where it's been. And then can you -- also just interested in occupancy rate towards the end of the period.

I think those are good question, Stephen. We're actually really pleased with the direction of travel in the care business. It's been hard yards. We overinvested during COVID, as you know. We're starting to unwind that. I made a comment a couple of years ago that we've become full-time recruiters rather than running a business as we think about the unavailability of sort of clinical staff in particular. So what we're seeing is a very pleasing improvement in our wage-to-revenue ratios we're seeing a really positive improvement in our occupancy, and some of our sites are setting up around 100%. And as we're selling through our care suites and some of our new developments, we're seeing EBITDA margins improving. We're seeing bed -- if we want to use non-GAAP measures, our EBITDA per bed materially improving. And that's before we get the windfall of some of this new innovation around private pain care and other forms of premiumization that's occurring in the portfolio. If the government are of a mood to improve our funding, the net material improvement in our performance. And because we have the right sort of platform in place now, then hopefully, what happens is that it's true margin improvement for us rather than pass through. So I think from where we're sitting, we are actually seeing, for the first time in a long time, a real improvement, cost coming down, stabilization of workforce, medical cost inputs are coming down, occupancies going up in premiumization, i.e., the share of the wallet from our residents is improving our overall kind of financial outcomes.

Got it. That's helpful. And then maybe if I just go back to the -- I'd ask another question on -- I guess, if we go back to the interim results, I've probably asked this question at the time about sort of direction of travel. And I think the comments that we noted at the time was an expectation for management debt, that it would be kind of steady or perhaps down a bit, depending on, obviously, sort of activity at The Helier and a few other things. We've seen net debt sort of pick up about $26 million half-on-half. I'm just interested compared to the internal projections that you had 6 months ago. What was kind of the key line item that was a little bit worse than expected? Was it mainly slower settlement at The Helier and some other sites? Like, just a little bit more color would be helpful, please.

Yes. Thanks, Stephen. I think probably the key thing is a few of those divestments we thought might have settled in March. So you will have seen we've had another $16 million of sales proceeds in April and May. We've got another site that's under contract at the moment. Had they fallen into 31 March, then we would be a lot steadier. As you say, there's a $26 million left, $16 million of that is funds that we've received post the balance date. There's also a little bit of reinsurance funds that we would have hoped to have had by now, but that's kind of trickling through in May and June as well.

Yes. But also, I think if we address the -- we probably expect it to be a little bit further along in the sell down of The Helier. We did -- the team have done an outstanding job, Stephen, as it relates to sales, $476 million. That's the best performance we've actually had. All of the markers, from my perspective, were up. But those were very, very material kind of outcomes for us. So as Kathryn said, $10 million in divestments and $16 million in other elements and then maybe 2, 3, 4 more sales at The Helier, we'd be back down to sort of our debt starting with a 5 rather than starting with a 6. And so that's probably giving us some of the confidence that you're hearing on the call around this kind of deleveraging and what's actually happening in the business.

That's helpful. And just one last question from me again, sort of -- but maybe putting the front book to one side, and maybe just looking at the cash generation from the existing assets, which is something we do track pretty closely, and you have good disclosure as a company that we can actually work it out. We can actually work it out for a lot of [ operators ], so we thank you for that. But I guess if you sort of look at the kind of operating cash flows and your backed out deal interest to allocate it to development, back out the new sales receipts and then subtract the maintenance CapEx that the company, on numbers, kind of burst out $27 million in FY '24. And I guess I'm just interested, how much of that is start-up losses on new villages? Obviously, there's been a lot of new product that you've come out with in the last few years. And then, I guess, the pathway to really get into a positive cash generation or positive cash generation from existing or back book of assets. I think it would just be quite helpful how management kind of thinks about, perhaps, the time frame to achieve it as you start to kind of wind down the front yard, the development book in the next few years.

Yes. Thanks, Stephen. I'll start, and then I'll let Brent fill some of the gaps. So you're right about the operating losses. Where we've experienced that the most is on our care developments. And so as you know, we move over as many residents as we can to make them as efficient as they can from day 1. But inevitably, until you've got a full building, there will be a little bit of a drag. And Elmwood comes online at the end of this year, so we'll have that impact in '25, but that is really the last of our brownfield care development. So we do expect that kind of drag that we've experienced over the last couple of years will disappear in the future. And I might let Brent talk to…

I think you've covered it wonderfully, Kathryn. I think all that's happened, Stephen, is that we've had this pivot out of care, so we're doing the last of that large-scale premium care and those assets are really -- you've got to operationalize them from day dot. And as a consequence, they come with a pretty heavy operating impact. We're stopping that. We're moving away from that. We feel like we've got a pretty full portfolio now of where we want to be around care. And it goes to my sentiment around wage-to-revenues coming down. Occupancy is going up, but also the disruption that we've had in our numbers in past years. We've decanted residents, undertaken an intensive developments around care. We're kind of at the end of that. So Elmwood is the last sort of major key suite delivery. And therefore, people will start to get confidence around 18,000, including DMF. We would be moving well into the 20s and possibly into the 30s over time. So that's probably what the strategic intent is. We've just got to deliver it to it.

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

Just on the new sales stock. I was just wondering if you can provide any color. You kind of mentioned, "I will start reporting it when we get to an appropriate level." Any color on where you think that should be for the business?

I think a nice rule of thumb will be when we're at a point where there's nothing over 12 months, really. And so it's kind of the general churn of what we're bringing to market each year. It's coming through. Yes, I don't have a magic number, Nick. I'll probably stop disclosing it when people stop asking about it.

I think the other thing that I'd say, Nick, is that we brought a lot to market. And what's helpful is that of the $350-odd million, there's $50 million that you can't sell anyway because you've got a resident that's already in occupation from previously being decanted. So you're down to $300 million. Of that $300 million, $200 million of it is the last 12 months. And I think the desire is to get through it as quickly as we can. The $88 million that's left over, we're already -- we're starting to see really good kind of applications on that part of the portfolio. So the team are desiring to have, as Kathryn said, sort of stock sitting not least than 12 months old from a seasonality point of view. But we're starting to make the sort of traction that the market would expect us to be making on the inventories that we built up.

No, that's great. And then I know there will be some sort of difference in views as the new CEO comes in, but sort of medium-term development out for this business, and I think $250 million to $300 million, as you've talked about before, where do you guys stand today?

I think we probably stand to the -- sort of to the lower of that booking. I don't think we're going to be rewarded for bringing 300 units to market tomorrow until we can demonstrate that we've got through the stock that we've got. So the desire by the business is always to be in sort of the lower bands of 30% to 35% from a gearing perspective. That can change a lot by just having in -- your asset values being considered in a different way. But I think the reality is, Nick, that the market is probably tapering. The market is moving to product that you can see greater and faster recycling of cash. And it's at least, probably for us, in terms of the development of our pipeline, around 250, 300 units per year. It's actually right product, right place and an ability to demonstrate presales and adoption of the product that we're delivering. I think as a consequence of that, we're probably something starting with a 2 rather than ambitiously starting with a 3.

And on the back of that, where do you see that sort of $250 million of undeveloped land and WIP sitting? Where do you think that needs to sit as you transition to that sort of follow-up [ cadence ] of development?

So you mean in terms of land holding costs, meaning turns or how quickly we turn that soil? I wasn't -- I'm not entirely sure, Nick, what the line of questioning there.

Sorry, the sort of $112 million of undeveloped land and $147 million of WIP at the moment. In aggregate, does that need to go up or down or sideways to deliver what you're talking about in terms of the medium-term target [ you're building ]?

Right. Yes, okay. I think for us, we've got enough in the consented pipeline, and we're in locations that we know we've got to have the right sort of residents at the end of it. But we've always been curious around -- and intentional around building optionality into the pipeline. When we're in more favorable market conditions, we did some acquisitions. Andrew looks at property opportunities every day. There's availability of land banks. So I think as market conditions improve, it then allows us to just be a bit more expansionary as we think about key locations that we might not be in that we want to be in. But within the existing portfolio, then we've got plenty of time just to develop out what we have.

Next question comes from Shane Solly with Harbour Asset Management.

I've got 2 quick questions. The first one, just picking up on the -- getting cash neutral at The Helier in FY '25, what was the sort of key stepping stones to get to cash neutral in FY '25?

Not too many more sales, to be honest, Shane. I think the reality is that this project is going to demonstrate some pretty compelling free cash flow above the original investment. It's also going to develop -- it's going to give a pretty outstanding development margin. We don't put a lot of weight on development margins, obviously. We focus on cash. But I think from our perspective, if we think about the cadence that we're seeing if we think about the inquiry, elevated inquiry levels that we've got, we've got a lot of confidence that a bunch of sales ahead of us and get us there pretty quickly and leave plenty of cash for that sort of upside that the market has been expecting.

Great. And just a second question then. In terms of your confidence to lift your build rate, and I appreciate what you've just kind of gotten to Nick, but, just, what would actually see you want to lift that build rate? What are the sort of preconditions that you need to see?

Well, I think it's about the confidence of the residents. So if it's a care product, we've got to basically see that there's still a willingness for share of wallet, i.e., government/resident paying combinations. If it's apartments and villas, then that's kind of right product, right place. So we've got some fantastic sites that we would accelerate with just some better market conditions. An obvious one is Lady Allum. We've built a beautiful care building there. It's already fully occupied and great reputation and there are sites available for some apartment developments. And those apartments would have outstanding views and be highly attractive to buyers and they're present, particularly as other participants, other competitors have pulled the -- hold the product in close proximity to ours. So the market is opening up for us to develop. We need confidence that residents are going to be able to sell through the houses or be able to sell through the share portfolios or other forms of assets to move into occupation with us.

Your next question is a follow-up question from Aaron Ibbotson.

Apologies, but I just need to follow up on your sort of unsold new stock and the valuation of it, because it's -- if I look relative to the half year, you've delivered -- what did you deliver in the second half? 120 or something. And then you sold for $60 million or something like that. So you delivered 120 units and then you sold for $60 million. So I'm just trying to understand how this number went down by $69 million or whatever you said during the call.

Yes, I think…

That's quite a big number.

Yes. So I think probably, given we are sort of 15 minutes over what we have allocated, Aaron. Certainly, Kathryn, I, Heath, we're here. We're happy to sort of answer that question, and we're happy to make it available for others, so can we take that off-line so that we can actually do the maths that you've just done to actually provide the right response?

Absolutely. Thank you.

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

There was just a question -- well, there are a couple of questions from the website, but I'm pretty confident that we've covered those and they're were actually just around visibility of sales, and, I think, we've been very transparent about that. There were some comments around these, and I think we've canvassed that to a degree. We'll certainly circle back on this last question that Aaron's raised. I would say, in conclusion, this is my last time doing this for Oceania and it has been an absolute privilege for me to work with this team, and I love this job very much. And I think Oceania has delivered a fair result to the market. We've got plenty of cleaning ahead of us, and that's a great opportunity for the incoming CEO. But I do want to thank everybody for their support of our business. We've certainly enjoyed the robustness of these discussions over the years. and we're really proud of what we've done. So thank you for people, making time available and engaging with us in the way that you do.

Thank you, everyone.