Ryman Healthcare Limited (RYM) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to Ryman Healthcare's Full Year Results Presentation for the year ended March 31, 2020. My name is David Kerr. I'm currently the Chairman of Ryman Healthcare. To my right, we have Gordon MacLeod, our Chief Executive Officer; and beyond him David Bennett, our Chief Financial Officer. We decided to make our full year presentation a virtual event, so everyone can keep themselves socially distanced and safe. We didn't realize at this stage, it would be Level one. There will, despite it being a virtual event, however, be plenty of opportunity to ask questions either online or over the phone for those of you who've called in. I'm going to give you a brief overview of the year, talk about how we responded to the COVID pandemic. Gordy will then give you his analysis of the year and thoughts on what's ahead. David will then give you some greater detail on our financial results. The end of the presentation, we'll then open the session up for questions. You'll see on the right-hand side of your screen, you have the chance to ask a question online. And for those of you calling in by phone, our operator will advise you when you're free to ask a question. We anticipate wrapping up around 11:00 a.m. So 2020, what a year. We seem to have had more than our share of what might be called once in a lifetime experiences down here in a nutshell. It was a normal year for the first 9 months. We started hearing about and worrying about COVID-19 early January, and we immediately began preparing to cope, and we really haven't stopped worrying about it since then. There's still plenty of uncertainty about COVID-19 ahead, I'm afraid. Let's look though, first at the headline numbers. The audited underlying profit was $242 million, which is up 6.6%. That was driven by strong demand at the new villages. The reported or IFRS profit was down 19% to $265 million, which is due to COVID-related property valuation changes. The full year dividend is lifted to $0.242 per share, in line with the underlying profit, which results in a dividend of $0.127 per share with a record date of June 26 and will be payable on July 10. The operating cash flows rose 12% to $449.8 million, and cash receipts were up 12% to $1.13 billion. As you can see, our full year underlying profit came in below our medium-term target of 15%. This 15% annual growth in underlying profit has been our target of many years. As it means, we double our profits every 5 years, and we continue to believe that, that remains an achievable aim. At the half year, we said we expected to end the year with an underlying profit in the range of $250 million to $265 million, which gave a range of between 10% and 17% higher than the prior year. We believe this to be an entirely achievable range. However, as you're aware, we suspended this guidance prior to year-end to reflect the fact that our sales of occupation rights would be significantly restricted in March as a result of the COVID-related emergency announcements and that we've been forced to seriously curtail construction activity as we focused all our attention and our resources on our residents' care and safety. The months leading up to our suspension of guidance was one of the best months ever in terms of sales. Also, we incurred very significant costs, which David will talk about later in preparing for COVID and to cope during the lockdown, which has also impacted our bottom line. We think that being able to report an underlying profit of $242 million, still ahead 6.6% on the year before, under those circumstances, is a solid result. We believe the measures we took and the investments we made from January on to prepare for COVID-19 put us in good shape to weather the challenges of the virus in the months of lockdown that we've experienced and for the future time that COVID-19 is a threat. I personally think there's a risk of resurgence, and this risk will be with us for some time. There's also a heightened risk of a recurrence for the colder temperatures that we're now experiencing and that we'll also have with us for the next few months. Some modeling has suggested that as few as 3 COVID-19 positive cases going about their normal activity in the community for as little as 3 days here in New Zealand, will result in an exponential increase in cases. So we need to be very cautious for quite some time yet. One of our team members described the last 5 months as being a bit like living on a knife edge, and that's a fair description. My heart was in my mouth whenever I saw Gordy's name come up on my phone, but we got pretty good at quickly advising each other that there was no infection present at any village before then getting into the specific discussion. It was clear from very early on that older people were particularly vulnerable to the virus. And sadly, that's what's played out in New Zealand, where all 22 people who've lost their lives were aged over 60. In Victoria, 19 people have lost their lives. Nevertheless, there have been in other countries, many deaths in those younger than 60 as well. So COVID-19 has been an enormous healthcare challenge for us as a company as well as a once-in-a-generation economic challenge. The clarity of purpose of this company has been critical, really. The residents who entered any Ryman facility joined us because they trusted us to do the right thing by them. Our response internally was called Project Safe Haven. So our aim was: Firstly, to keep COVID out of our villages at all costs. Secondly, to turn the villages into safe havens, where our care residents were secure, had the best of care and to give our more independent residents the peace of mind that they could stay put without having to leave because our team would take care of everything else for them; and finally, we needed to be fully prepared if we did get COVID infections with a plan to contain it, eradicate it and then return to normal. We wanted to make sure that the well-being of the residents, their families and our team didn't suffer as a result of the measures we took. As a Board and a management team, we were determined to do everything we could think of to make sure everyone was happy as well as being safe. As you know, we haven't had a single case of COVID-19 among any of our residents or our teams, but we take nothing for granted, and we're going to continue to be extra vigilant. The current COVID world is a much different place from 6 months ago, and we've had to change and adapt on a daily basis. We've managed throughout, primarily, because of the superb, professional, can-do approach of all our team. Our people are amazing. They made huge sacrifices, and they continue to do so to put our residents first and to keep them safe. They've been working under very tough clinical conditions, and they've done so with huge professionalism. Without wanting to embarrass any specific staff, we had staff members who left their families to go to other parts of the country throughout the lockdown, some who took up living separately from their family, so they could focus only on their support to the residents. And there were many, many staff who went many extra miles. They showed themselves to be very resilient. And in some part, this was a function of the culture gas tank in the company being full. They demonstrated in a way what a privilege it is to look after our residents and our residents responded in kind. We learned that our infection control systems are resilient, and our nursing teams can cope with long periods of time working in different patterns with strict controls in place. Our rosters were robust and coped well with the demands that COVID placed on them. At its peak, we had 282 residents and 345 staff in COVID isolation or off work as a precautionary measure, and yet the care continued to flow. Over 10 weeks, our teams delivered 80,000 individual happy hours in a bag because we couldn't have the usual happy hour gatherings. And more than 10,000 grocery deliveries were undertaken for our more independent residents and of course, the teams also kept all our residents in care safe. All along the way, our team has enjoyed the trust, cooperation and goodwill of our residents and their families. Our residents have thanked them with poems, pot banging, home baking, impromptu concerts and serenades. We've had thousands of e-mails and cards to say thank you to them. We asked our residents to go into lock down early, and they did so with no complaint. We stopped all visits, which we know is an extraordinarily hard thing to do on our residents and families alike. We had to make some tough calls, but our residents and families understood our intentions, and they gave us their support. We explained carefully why we were taking the measures we took, and why we were taking a conservative approach to risk. The communications that Gordy led were excellent as they were honest, authentic and frequent and were tailored to the different groups of our residents, their families, our staff and our leadership. We went harder, earlier and we put additional resources and measures in place, which at times put us out of step with the government and the Ministry of Health. That's because we had our own team of clinical specialists working on the unique problems that we faced. While the ministry takes a whole of population view, our concern was purely confined to the safety of our residents and our staff. Our Clinical Governance Committee met regularly with our operations team led by Cheyne Chalmers and her team of highly experienced aged care nursing specialists. Our independent advice comes from Ben Harris, a microbiologist and infection control specialist, Dr. Doug Wilson, a researcher and aging specialist, who spent a long career in the pharmaceuticals industry and University of Otago Gerontologists Professor Tim Wilkinson. We were really blessed with this very good external advice, and we're even looking to confer an honorary medical degree on Gordy. He's expanded his medical knowledge very quickly. Cheyne worked closely with the ministry and with other nursing leaders, and we work collaboratively with the rest of the industry. It's a tribute really to the leadership of Gordy and his team that our staff and independent residents were happier than ever during this crisis, as we've discovered in our most recent surveys. That's an extraordinary result given what they've all been through. So thank you, Gordy, and thank you, Cheyne, and thank you to everyone on the Ryman team. The COVID challenge has really proven that the Ryman model of retirement living and care is more relevant than ever. Our residents have told us that living in a Ryman village during the crisis gave them a great sense of security. The care we took was indeed good enough for mum. We're a values-based company. Safety of our people come first. If we continue to do this, we'll weather the storm and enhance our reputation as a safe haven for people in their retirement years. I mentioned that COVID is an enormous healthcare challenge as well as a business challenge. It will continue to be that healthcare challenge for some time. So you can expect us as a company to be taking a conservative stance. In terms of the business challenge, we have a few key things in our favor: Our business model is robust. We've tested it. It remains strong. We're not a disrupted industry. Our balance sheet was able to cope with the stress, and our bankers have been very supportive, and this reflects our mutual respect of each other. We're also fortunate that we operate in 2 of the few countries in the world, New Zealand and Australia that have dealt with COVID well. Our response and our geographical advantages mean that we are well placed to continue to manage COVID in the future. And we have a great base to launch our recovery, which is already underway. A few weeks in, we began putting together the lessons that we had learned along the way and what we'll do differently in the new normal. That may be that we'll look at ways of designing and building a little differently, but we remain nevertheless committed to the full continuum of care. We'll look at new ways of communicating, and we've certainly learned a lot about the digital capacity of our residents and a host of new services like the grocery deliveries that they enjoy. COVID-19 will, in a way, help us to innovate and change, and we look forward to that challenge. The big challenge we face is the balance between our aspirations for future growth and the reality that currently exists with COVID-19. We're committed to continue our growth as you -- as we see very real opportunity for our continued significant build program. Gordy is going to tell you more of this. So I'll now hand over to Gordy to talk you through the year and what's next as we recover from the COVID emergency. Over to you, Dr. Macleod.

Thank you very much. I always wanted an honorary doctorate from a doctor. Hi, everyone. Thanks, David, and thanks to everyone for tuning in. We started January in good shape, actually, and we were traveling well towards our financial year-end. We had our strongest February ever with record sales, and we were looking good for March, which is always the biggest month of the year and a natural peak in our selling season. I was confident we would be hitting 15% for the year, and we were launching into our biggest ever build program with 12 sites underway and on track to be delivering over 1,000 beds and units in the year ahead, but a cloud started to appear across the horizon. We first began worrying about COVID-19 in January, and we sent our first warning out to our residents, staff and families about restricting access to our villages to anyone who had traveled to China in late January. Gosh, that seems a long time ago now. We allocated $2 million for our first order of PPE early in February to secure supplies. And in total, to date, we've actually spent $26 million that we weren't expecting to spend to protect our residents and our staff from COVID. Over the next 6 weeks, we progressively closed down our villages to overseas visitors, canceled open days, and suspended our heavy-duty marketing activities, and we were fully closed to all visitors in mid-March ahead of the Level 4 lockdown in New Zealand. On the construction side, we shut down all of our 6 sites in New Zealand from March 26. In Victoria, the rules were actually slightly different, and we were able to continue with building at Burwood and Geelong, albeit with reduced numbers. And that's because of physical distancing. However, we took the decision to close our Nellie Melba construction site because we had a fully operational village in lock down right alongside the builders. And at that time, we just thought the risk was too great. We've sent home all of our Christchurch, Auckland and Melbourne office staff. We redeployed some of our office staff to support our villages by keeping in touch with residents, doing welfare calls and supporting with communications and logistics. And I want to give a shout-out to our technology team because moving a few hundred people to home-based working pretty much overnight was no mean feat. We also had to figure out how to keep our aged care residents and touch with their loved ones with no visitors allowed. And this is a wonderful picture. This is our resident, Ella, up at Jane Mander, there with her caregiver Jay, actually on her 106th birthday. So I was delighted to -- delighted that our technology team were able to deploy Zoom across several thousand tablets overnight early on. This was a real benefit in having deployed myRyman because there is a tablet in every aged care room. Next thing you know, we -- our residents have made 8,500 Zoom calls, totaling nearly 6,500 hours. And you can even see Ella here celebrating her 106th birthday over Zoom. I think her 104th one, when we showed it to you shareholders a couple of years ago, was her paragliding, so Zoom probably wasn't quite as exciting, but I think it was a great -- next best thing, and I'll let Simon know, our old Managing Director because he was really passionate about myRyman, and he was delighted to hear that we had been able to do that. Hi Simon, by the way, he's still a shareholder. And even the Prime Minister got in touch with Bruce Cunningham over the tablet in his room. Now that's a true benefit of the digital age for you. When we redeployed our builders to help out at our villages that worked out really well, too, they became our delivery and security team. Our sales advisers hit the phones to keep in touch with people under contract and prospects and are busy back selling again. No staff were made redundant, and everyone was flat out. We're beginning to see sales activity returning after losing pretty much most of March, April and May. And in fact, our last 2 weeks on resales were well up on this time last year, so that's good. It's also great to be back building again. Our construction team were chafing at the bit to get going, as you can imagine. We now have 1,700 construction workers back on the job, and we're at about 95% of where we were prior to COVID. We faced a major logistical exercise to get building again and to handle our refurbs at existing villages under the new COVID rules. At Level 3 and Level 2, we had a nurse on each site to make sure our construction teams will fit and well on arrival. We achieved a lot during the year, a whole lot of work to improve the experience of living in a Ryman village continued, and we were once again named the most trusted brand in the aged care and retirement sector in New Zealand. That's actually the 6th time we have received this award, and it was also backed by the continued clinical excellence with more than 80% of our villages achieving gold standard 4-year certification. So well done, team. We completed the rollout of our myRyman Life Dementia Training Program, which aims to support people living with dementia to live in the moment and to feel kindness, love and security. It promotes spontaneity, laughter and happiness by de-stressing their environment, allowing them to make sense of their world, lifting their quality of life and demystifying dementia for their loved ones. More than 3,200 of our team members have completed the training and even better, more than 840 family members took the time to train as well so they can better understand dementia. All of our New Zealand villages have been granted the dementia friendly [ tech ] by Alzheimer's New Zealand. We are the largest organization of our client to receive this status, and we're really proud of this. Every aspect of what we do was examined to ensure we're a truly an organization that is committed to providing kind, caring and supportive environments for people living with dementia. We are Alzheimer's New Zealand lead partner, and we support the mission to demystify and de-stigmatize dementia. A whole lot of other work went into improving life for our team members, including our LEAP program and senior leadership development work, health, safety and well-being and also continuing to improve the pay and conditions of our staff, you name it. The net result of all this work was the strongest staff survey results in our history, which we just received the good news about. This puts us in a great position to get even better. During the year, we purchased 4 new sites. Here's some of them coming up on the screen now. The first up was Ringwood East in Melbourne in April. And in August, we purchased Northwood in Christchurch and Highett in Melbourne. And here's something new for you. Just prior to year-end, we purchased a new site at Takapuna in Auckland, which we're announcing today. It's a superb site, well, you can see it can't you? It just looks amazing. A superb site with stunning views in one of the premier real estate markets in New Zealand. Most importantly, it's an area people love, and we think it's perfect for a Ryman community. It's subject to OIO approval. And in total, these new sites added another 1,077 beds and units in our land bank. We also had our best ever year at getting sites through planning. We secured 7 resource consents or development approvals for a whole range of villages. And here they are, Havelock North, Scott Road in Hobsonville, Riccarton Racecourse in Christchurch, Highton in Victoria, Aberfeldie in Melbourne, Highett in Melbourne, and Ocean Grove in Victoria. And that's an amazing list, isn't that? When I first read through that the first time I thought I was reading like the All Black team going to South Africa. It's an incredible work by the team actually to have so many sites approved in 1 year. So in total, we received approval across those sites for 2,029 beds and units in our consented land bank, taking us to the 3,900 beds and units consented, up from 2,900 beds and units the year before. And in addition to this, we have submitted a further 7 applications currently being processed that are under review with local councils, and that's in addition to what I was just talking about. And those next 7 sites are Karori in Wellington, Mount Martha and Mount Eliza, which is in the Mornington Peninsula in Melbourne, as shown here; Kohimarama, Auckland, Park Terrace and Northwood in Christchurch and also Ringwood East in Melbourne. These 7 additional sites represent another 2,235 units and beds that are currently being processed by councils. Now some may take longer than others, and that's why we have plenty of irons in the fire, as you can see. And look, in my 15 years at Ryman, the pipeline has never been in this sort of shape. And that includes even the building consents that we've got lined up for villages we've got underway right now. They're well into this year. And in fact, we've got building consents going right back -- right through into '22, '23. So it's a real credit to the team and means we are well placed for growth over the next few years. Now before I get into some construction activity detail, I thought I'd show you where construction activity was this time last year and where we've got to today. It's like a good Flip-O-Rama. So if we start off with the '19 one, Pauley? Yes that one there. And there might be an internet drag on this, so I'll do it a bit slower. So back in March '19, that's where the construction activity was across our sites. And then if you flip forward to 2020, you can see that the whole bunch have got a council approval and consenting sorted out and have moved on to the construction phase. So let's do that one more time. And again. I really like those Flip-O-Ramas. I had one of Geoff Boycott batting in cricket, when I was a boy, which I always watched. Anyway, we're building on 12 sites, and we're not planning on starting any other new sites this year, even though we have options to do so. We're hoping to hit over 1,000 beds and units in this new financial year -- well, we were hoping to hit 1,000 beds and units in this new financial year in terms of our build rate. However, we have basically lost a couple of months to COVID, and we're probably a little bit more conservative, I guess. So I would expect us to be developing more like 900 beds and units at this stage this year. And as my Board remind me, it's possible we could do more than that. And if the demand is there and we're able to, then we will, but it's early days, of course. And look, we're really proud of the work our construction team do. There's another sort of Flip-O-Rama thing. And here's a great example of their success. The picture you see is Linda Jones, the first taken in January 2019 and the second just a little while ago. So let's go back and then forward. And look that photo of our village goes right up to the top of the screen, where you see there's townhouses there. That's not a residential subdivision. That's the townhouses at the front of the village. So that's an extraordinary amount of progress. We started work on the Hamilton site in June 2018, but we had to stop almost immediately after some historic bones were found on the site, and we lost about 3 months as a result of the archaeological requirements. 2 years later, we have 100 residents living in the village and townhouses and apartments and the main block is opening soon. And when I had a cup of tea with them in one of the front townhouses there a few months ago now, they were just absolutely loving living in the village and loving some of the new design features and just how the construction team are looking after them as well. So that's great. And there's now 350 construction workers on site. And as you can see, it's going to be a beautiful village when it's completed. As well as stepping up the amount of new villages on the go, we've also put a lot of energy and investment into improving the design of apartments, townhouses and villages that we are delivering because you always have got to lift your game. For example, our interiors team has revamped the design of our public areas, cafés and apartment kitchens and bathrooms. The new kitchens and bathrooms have been a hit with residents. They love them. They feature Italian style wall and floor tiles, warm wood tones and new lighting and cabinetry. We've introduced new kitchen cabinetry looks and materials, and new waterfall style bench tops. That was a new word I learned last year waterfall -- waterfall benchtops. But you can see there in the pictures, we've got the bar on the left side there. We've got the grand entrance at Murray Halberg, looks beautiful with new reception desk there. And then down to the bottom left, we've got new cafe there. And in the middle, just in the community center and then across the 2 bottom right ones, you got a new kitchen island there with a waterfall benchtop going down side and the new sort of floor to ceiling tiling that we're doing in the bathrooms. They look absolutely beautiful actually. So they've been great enhancements. Right, we'll keep on ongoing. We're fortunate to be operating in 2 markets that are largely free from COVID right now, New Zealand and Australia, which puts us in a great position to keep on growing. We've been through a short-term crisis, no doubt. And of course, there's uncertain times ahead, but when you look at the slide showing the aging of the world's population, you see what an opportunity we have that is extraordinary. And that's why I believe that the best years are ahead of Ryman yet. If you just look at that graph where today is, that vertical line. Just -- if you just dwell on that for a moment. Everything to the left is where we are and where we've come from and everything to the right is what's planned to happen. So even just in 50 years' time, the global world population of 80-plus will go from 125 million to 425 million, and that is an extraordinary change. So our plan is to get back to business as usual. Of course, there are some things that won't be quite usual, but we're going for it. We plan to continuously improve what we do for residents, build wonderful villages in great locations and make the best of new technology, and we're going to make sure our residents continue to get a great experience, and our staff as well. Our growth is never growth for growth's sake. What we do meets a real need. And to be honest with you, COVID has taught me more than anything else that, that's the case. And just one sort of last thing to wrap up or maybe one second to last thing. You, as shareholders, can feel very proud of your investment in Ryman. And the people that work for you and for your company, have done an incredible job and have done our residents a tremendous service and have gone above and beyond the call. And I hope you feel really proud of them. We certainly do. And I just wanted to finish off just with one quick thing, is that we all have teams of people that report directly to us and the company. And I'd just like to acknowledge my senior executive team, who have had put up with meetings with me every single morning at 9 o'clock, and it starts with Jane, who's here today, my executive assistant, who's been great, Dave sitting beside me, Dave Bennett, Jeremy Moore, our Chief Development Officer; Cheyne Chalmers, our new Chief Operations Officer, who probably wasn't expecting to deal with this on her first few months on the job. Nicole Forster, our Chief People and Technology Officer; Tom Brownrigg, our Chief Construction Officer; and Mary-Anne Stone, who's our acting sales and Managing Officer. And I can tell you that all of those people have gone above and beyond the call as well as their teams and all people at Ryman. So I just want to thank you all. Take care. Over to you, Dave.

Thanks, Gordy, and good morning, everyone. Our underlying profit of $242 million is an increase of 6.6% on last year. Our reported IFRS profit, which includes the unrealized fair value movements on investment property, was $265 million, down 19% on last year. This reflects a $173 million decline in unrealized fair value movements due to the changes in valuation assumptions related to COVID-19. CBRE property valuers have reduced its near-term growth rates to affect an expected decline in the property market due to COVID and also softened its discount rates to reflect the increased uncertainty at a macro level. During the year the New Zealand government decision to reintroduce tax depreciation on buildings, has reduced the deferred tax liability. And together with an increase in the recognized tax losses, has resulted in a $93.6 million increase to the reported profit. We booked a record number of sales in the year of 1,436 units, which is a 16% increase on last year. Our operating cash flows, a record $449.8 million, up 12% on last year. Also pleasingly, our cash receipts from residents were $1.13 billion for the year, and that's also up 12%. So we've benefited from cash collections at some high-value villages and from the increase in our resale volumes. We have strong cash flows from -- throughout the year, and this has allowed us to invest a record $711.4 million in new villages and care. Our investing cash flows were spent as follows: $497 million were spent on building new villages, $101 million was spent on land, supporting a land bank of 6,595 units and beds, $30 million on bed licenses in Victoria, $39 million was invested in upgrading our existing villages to further enhance the resident experience and the care we provide, and $44 million was invested in a range of projects, which include the development of the next stage of system integration and technology, along with some new kit for our construction sites as we ramp up our build program. With such a major investment during the year, our working capital debt has increased to $1.7 billion as we are now building across 12 sites, and we've also significantly lifted our investment in Victoria. We regard it as productive debt. We invest the bulk of it in new villages, where we recycle capital, and this establishes a growing tail of recurring cash flows. We have a strong financial position with total assets of $7.68 billion, which is up 15% from March 2019. We continue to have very supportive banking partners and our syndicate of 7 banks understand our growth plans and strongly support us. Our debt to debt plus equity ratio is 42.6%. Our bank facility has lifted to $2.3 billion, with more than 90% of this having a tenure of 3 or more years. We are continuing to see the benefit of the developments being concentrated in high-value centers, and our development margin for the year is 27%, which is higher than our target range of 20% to 25%. The resale bank of gains still to come on our existing portfolio currently stands at $856 million. So this is the amount of resale margin we would crystallize today based on current prices. These pent-up gains mean we can expect our resale earnings to keep on growing even if the housing market was flat for several years because volumes will increase as our villages mature. Deferred management fees also reset to these new price levels with each resale, so this creates a compound effect. Our resale volumes in New Zealand increased by 10% over the year, while the volume in the wider New Zealand market was up just 1.8%. Demand remained strong with only 127 units or 1.7% of our portfolio available for resale at the end of March. This represents a little over 1 month vacancies, and is a solid achievement if you consider the significant momentum lost in March due to COVID-19. This demonstrates the continued appeal of a Ryman village. Demand for the care we provide remains very high, and we closed the year with occupancy at 98%. The aged care sector in general is averaging only 87%. So we are significantly outperforming the market. At the end of March, we had a significant amount of unconditional sale contracts for new units, and this totaled $337 million. This is the highest amount we have ever had. And this time last year, the number was $273 million. The majority of this will be collected over the next 12 months as construction stages complete. However, some of these settlements won't occur until the next financial year in line with the build program, so it shows the strong forward book we have. This has given us a very strong basis for which to restart our significant build program. Affordability of our units is something we continue to monitor closely, and our residents in Auckland and Melbourne free up significant amounts of capital when they move into a Ryman village. In fact, property prices in Auckland would have to drop 18% at our developing villages before residents stopped freeing up capital and 30% in Melbourne. It's obviously early days, but the housing market seems to be holding up in both countries we operate, with more resilience than most commentators predicted. We have the largest service department portfolio in the sector, with approximately 30% of our retirement village portfolio being serviced apartments, and these are priced even lower in a purely needs-based decision. What triggers our ability to grow is simple, our model of recycling capital at each village. Since listing in 1999 and raising $25 million, we have now invested $4.4 billion in our portfolio. We've paid out a growing dividend stream to shareholders of more than $920 million and we have never had to raise any new capital. And as Gordy mentioned earlier, the importance of what we do for residents is higher than ever. To give you a sense of how we're going, just on the resale front alone since the beginning of May, we have transacted 131 resales, which is higher than the same period last year. We're also seeing residents settling their homes in an orderly fashion as restrictions have come off. And in the last few weeks, we have seen over $60 million of settlements. It's also reassuring to know that our profits will continue to lift as our villages mature. So what this means is that we would expect our profits to lift by approximately $100 million due to the increased resale volumes and deferred management fees on our existing portfolio. In addition to this, our land bank of 23 sites is expected to contribute capital sums of a further $4.3 billion. And so if you assume an 8% return from the deferred management fee in resales alone, it will generate an additional $350 million of recurring profits each year. So this excludes the development margin, of course. There's obviously a lot of water to pass under the bridge but we thought it was important to paint a picture for you about what the land bank could deliver in terms of value, and we don't intend to stop there. We've got a lot of future growth ahead of us, and we'll come through a time where what we do has really been valued by the people we look after. So thank you very much. And over again to you, David.

Thank you, Gordy, and thank you, Dave. Great presentations. So look, we'll now open up for questions. And if we have any callers on the line, maybe if they could introduce themselves and then the question. So do we have any questions?

[Operator Instructions] The first question comes from Andrew Steele with Jarden.

Just the first one from me is on your -- thinking about development planning and I guess, phasing. And you've said that you have no intention, at this stage, of starting up any new projects in this year. If the circumstances were to change, which pile of projects would you be looking to accelerate or could we decelerate depending on market conditions? And within that, you're thinking of deploying incremental capital in the Victorian markets versus New Zealand markets? Did you have a preference at this stage from a risk perspective?

Yes. Thanks for that question. I -- so with the 12 sites that we've got on the go going into the next year, there are 2 new villages that we're committing to. Riccarton Racecourse, which we're just starting. In fact, Andrew Winch, who's going to be our project manager. I saw him here a couple of days ago, he was recruiting people. So they're sort of busy getting underway at the site there. The second one is Ocean Grove, which is down the Bellarine Peninsula in Victoria. And we're just really waiting for the final dots and crosses to be signed on the endorsed plans from Council. We've got the development approval. We're just getting the endorsed plans done, which is like the equivalent of the building consent for the entire site. So those discussions are going well. And that is a site we expect to be our fifth village open in Melbourne by December 31, 2020. So in terms of other sites, though -- and I think it's probably better for us to just sort of take a read on the market. There's actually a number of sites we could start on. For example, we've got a consent for Coburg, we've got 1 for Highett. We'll have other sites that come through that might come quicker through the 7 that we've got in the pipeline, for example. And we'll just have to take them on a case-by-case basis, Andrew, depending on how we travel, but we think that a spread of 12 sites, which we have under really good control, the ones we have been building out for a while now. We've got a really good sense of all the timings and demand. And the 2 new sites we're adding in have a greater proportion of townhouse elements to them. So they won't require quite the same capital commitment moving into them. So we think that's about the right sort of balance. When we looked at the sort of sales for the year ahead, if we get slightly more sales than we expect at some of those sites, we can quite easily turn on another couple of stages. And that's why speaking with the Board last week at our meeting, when we caught up, I think there is a potential to flex between sort of 900 and a 1,000, but it's early days yet, so I'd really take 900 is where we're targeting to be.

Thanks, Gordy. And just 2 follow-up questions on that. The first thing, given the, I guess, the flex in the pipeline of -- you just highlighted between 900 and 1,000 beds and units. Is there sort of a flow on impact into the following year? And can you sort of get back to sort of the pre-COVID trend if you wanted to in terms of build rate? Or is it sensible to expect that, that it will be lower?

Yes. Now look -- Dave hates it when I answer his questions, but I'm going to anyway. But we would want to do 900 this year. It's possible we could do more. In the year ahead, it's very much possible we could do in the region of 1,300 as we lift our build rate in Victoria and as we get some good site underway in New Zealand, which have good momentum. So our overall plan, Andrew, is to continue to lift our build rate in Melbourne and Victoria to match the historic build rate in New Zealand, it's roughly 800 on each side. And I guess to slightly skip ahead to your question, which was our favorite nation? Well, we love them both. But there may be opportunities that turn up in Victoria, and we decide to do some more there for a period of time or vice versa. So we've got some really good options, and we're lifting our build rate. And my goal, would be -- we would still get back to the 800 per country type target that we were hoping for a couple of years ago, actually.

I think Andrew, maybe part of your question is are we going to are we going to pivot towards Australia. And that really isn't a decision we've taken. I think we'll be driven more by demand and what opportunities come up. And given the environment we're in now -- there will be opportunities around land acquisition that we will have to look at closely. So yes, we need to sort of stay reasonably agile around that.

The main thing really, actually, is that we're getting great feedback from residents in both countries. So we've got a lot of confidence from which to build from. And as Dave said earlier, we've got a really substantial forward order book. So we're chafing to get back into it, and we are.

Another question?

And just one last one related to that. Given these updated development expectations. What -- can you give us some sort of sense as to how you think development CapEx, how much development CapEx might be for this year?

Yes. Look, we don't normally give development CapEx sort of forecasts, but I would expect it to be less than what it was this year. It might be in the sort of the 5s. And that would hopefully be worth actually more units and beds delivered. And that really reflects the fact that we've done a lot of pre-civil works and preliminary works at a number of other sites. So I guess it's just getting a bit of advantage from that.

The next question comes from Stephen Ridgewell with Craigs.

[ Credit to Ryman with the way you've the current environment the way you've protected your residents ]. It's clear the company's been a world leader on this [ this year ]. So just in terms of my questions [ you were just asked a few of them ]. But...

Sorry?

[ In relation to trading ]...

Ridgewell, can we just...

[ Bad connection. ]

Sorry. Ridgewell, can you hear me?

Yes.

Can we come back to you? We just have a very bad line, so we might just jump to one more caller and then come back, if that's okay? Or just try now, just really slowly.

Okay. Sure.

Just really slowly and loudly. Let's try that?

Okay. Sorry. Could you hear me now?

Yes...

Yes. Go for it.

Okay. So I'm not sure if you heard anything I said before, but I'll start again. So David mentioned resales were 131 units. I think it was for resales since May, and that's up on last year. Are you seeing new sales improve also? And perhaps could you split -- do you see any different trends between the New Zealand and Australian businesses?

We're really seeing resales as the first ones out of the blocks because as you can imagine, Ridgewell, from a resident point of view, it's nice being able to see a fully completed mature village, and it's something that people can look at quickly and have that confidence. I think for new sales, we're starting to see new sales transactions absolutely occurring in the last sort of couple of weeks, particularly, and we've got great sites with stages coming on. So the build program is really important to initiate again because we've got $336 million of unconditional sale contracts, where residents are keen to move into our villages, and they've really worked with us during COVID delays and so on. And I think for other prospective residents, they're going to enjoy seeing the building teams being recommenced. And I suspect it might just take sort of another few weeks for new sales to pick up at the same sort of rate, actually.

Yes. And I think on that, Ridgewell, you saw the value of the needs-based portfolio because in the first sort of couple of weeks as we came out Level 4, the demand for our service apartments was really strong and independents have caught up on the new -- on the resale front in probably the last couple of weeks. So I think we'll see the same with the new sales now, as Gordy said, but it just shows that a good mix of portfolio is important.

Australian transactions are coming through. They're still in a bit of a tougher lockdown than we are, actually. So they're still winning a few cases each day and that sort of thing. So -- but our teams are absolutely transacting with people and the villages got good vibrancy back again. So they can very much see that things are changing for the better in Victoria as well.

So Stephen, I imagine that part of it is that the resales will be to people whose need -- health need or care needs are highest and they can't delay. And so they will transact more rapidly, whereas if you're looking at a building that may not be completed for 2 or 3 months, that's potentially a different market. So you can imagine that the resales will be potentially higher-need residents.

That's helpful. Also, I mean, we're seeing some operators offer promotional terms, if you like, deferred settlements or fee discounts. Is Ryman doing -- offering those sorts of promotions at all? Or can you talk us through what incentives you're offering or planning to offer to get activity going again?

What we're doing, Stephen, is offering a set of terms and conditions that are market leading. So for example, my perspective is, let's start with deferred management fees. Our deferred management fees are capped at 20% for your life in the village as a resident. Now I think in a situation where there's financial pressures on families and other people that some deferred management fees are different by, say, 5% or 10%. If you apply that to, say, an $800,000 unit, people need to ask questions about what does that extra $80,000 deliver. And so I think those sort of questions will be scrutinized more closely in these sort of times. And so our Ryman peace of mind guarantee is around a lower deferred management fee, a fixed weekly fee for life. No one's ever waited more than 6 months to be repaid in those sort of things, our terms really stand out. And the second thing is that obviously with the large-scale care centers that we have throughout COVID, we've been able to offer people a huge amount of peace of mind and very, very high-quality care, probably during the most trusted environment we've ever experienced, where family couldn't see their loved ones for a number of weeks. And that is a very high-trust environment, and the feedback we've had has been great. So I think that over COVID, we have been able to build closer relationships with families and our residents, enhance our brand. We already have what I would view as leading terms in the sector. And so that's the basis on which we're going to market.

Okay. That's helpful. Just on --Andrew has already asked a few questions on CapEx plans. But just in terms of new site acquisitions, it was interesting to see the site announcement on Takapuna, so just given in the context of the environment we're in. Was that a deal that was, if you like, cemented a few months ago and before COVID? Or is that a relatively recent agreement? And should we read that as Ryman's got back in the market for you?

Yes. Look, we were delighted to buy that site, Stephen. I guess the only thing that you could ever argue about if it's in a pre or post-COVID environment is might the price have been slightly different? But the bottom line is that site is a cracker, and we wanted it. And it's really great that it's got the existing resource consent on it at a sort of -- with the levels and style that actually looks really good. So we will make some enhancements to it, make some changes, and then we'll look to get it into the -- get into pipeline. You can see from the photograph we showed, it's really beautiful. I think that during these times, obviously, subject to capital constraints and clearly, we'd be careful about committing to large cash outflows for land anytime probably in the next sort of 6 to 12 months. There's lots of different ways we can deal with vendors to make sure that they achieve what they want to achieve, and so do we. So we're still having land being brought to the Board for review actively so. And it's an important part of our growth. We don't -- we're not pulling back on our long-term growth.

So Steve, we had a Board meeting several days this week. And we had a good stream of bits of land coming in. I thought one of the interesting comments from one of the directors was it's really good to miss out on something you want from time to time because it reinforces to you that, in fact, you're not paying over the -- over the top. So we do miss out from time to time, and it is a good thing. I've been at times thinking it wasn't such a good thing, but there you are.

Okay. And then just maybe one final one. Just on debt levels. I can appreciate this is sort of an unusual period with settlements at least for a period of time, have been unusually impacted and that has pushed up net debt [ a bit higher ] than what the markets, [ thinking, particularly ] pre-COVID. Just gearing [ 42.6% ], just interested in how the Board have been, and the [ management think about ] a comfortable gearing ratio? I mean are you comfortable at that 45% level? Can you just give us a [ steer on how the capital is actually about the emerging ] debt gearing ratio?

Yes. You got it. The thing that we monitor the most closely, Stephen, is the composition of the debt. So the vast majority of it is around the land bank and the work in progress that we have at different sites. And obviously, we have, I guess, timing differences where we invest in refurbishments at different villages and that sort of thing or invest in myRyman. But the vast majority of it is purely work in progress, reflecting our land bank and what we're doing at sites. And given how much cash we free up each time we complete a village, that's how we get the most comfort from debt. We do look at the amount of recurring income we get from resales, deferred management fees and care fee income because obviously that provides good surety over servicing of debt, even without development margin actually. So that makes us really comfortable with our debt levels because we know that we're only really incurring debt to make productive assets, which will fundamentally recycle capital and create a very long tale of growing earnings. And that's one of the reasons why Dave in his presentation talked about even if we do nothing else, our existing portfolio will increase in annual earnings by about $100 million just from our current villages maturing without any further expenditure. And then with the overall risk to the land bank itself, generating $4.4 billion, that sort of 8% return, $350 million, wasn't it? There are substantial amounts of recurring income that we're adding to our portfolio. And so we're happy to incur the work in progress required to do that. And of course, we are expanding into a new state. We do keep a careful eye on debt, of course. It's the right thing to do. And that's one of the reasons why we extended our syndication facility during March to $2.3 billion, and we have an incredibly supportive range of bankers. And as you'd expect, we are also and always looking at maybe 1 or 2 different ways through different debt-type arrangements to diversify those funding lines.

The next question comes from Jeremy Kincaid with UBS.

Just following on from Ridgewell's question. It sounds as though recycling capital is probably one of the most important things the banks are looking at. So I suppose if worst-case scenario sales did slow up, slowed or dry up, what sort of levers would you be keen to pull first to encourage more sales? Would it be price cash incentives? Can you give us an idea on that?

No. No. I don't want to go into what our market reaction might be other than, obviously, Jeremy, we would be very mindful. And the -- one of the things that I'd be really mindful of is making sure that we don't continue to build too much. Like if demand dried up, the most important thing would be to not commit to another apartment building if there weren't enough sales -- presales going on or if there weren't enough sold in the previous one. So I think that's one of the most important things that we do around managing our debt. And if we had sort of -- we've obviously got land that we haven't committed to, I guess, that's a potential. And fundamentally, the best way to just progressively over time, sell units is to do a great job and to price them reasonably in the market so that people can free up capital. And I guess the graph that Dave showed earlier demonstrates that people have got pretty good headroom there and also for service departments are incredibly affordable. So I don't want to sound remotely complacent because we're not -- we're watching it all the time. If we needed to do -- be a bit more responsive than clearly we would be, but we see that the fundamental selling points of what we do and pricing units fairly so that people can free up capital is really our best strategy that we are very focused on.

And just -- also, we have that very strong forward book of $337 million worth of contracts. So we match that against our construction pipeline very closely. We do watch that. And if you also look at our existing portfolio, embedded sort of gains in the -- at the moment, $860-odd million worth of resale bank, about $440 million of accrued DMF as well. So there's another $1.3 billion of sort of pent-up cash in the existing portfolio.

So that natural buffer that exists between what's realized from the sale of their home and what our pricing is. It's really important. But I think, as Gordy is suggesting, the factors that, that the vast majority of these people are 80 or more, and they have a need. They have a health care or a supportive need. And so it's a needs-based decision. So I think that, that -- that really means that people can make the decision and they -- because of the buffer, and they actually have a need that means they are not prepared to delay. So we've been through difficult real estate times in the past. And we've managed before. So I think that will be fine.

Okay. Second question, just on the value of contracts not yet settled. It jumped up a little bit this year. Was that a steady increase throughout the year? Or did the jump ups really occurred because of coronavirus issues?

No, it was a steady increase during the year and really represents the fact that we are preselling well out. For example, probably about $70 million or something of those related to the first couple of stages at Burwood East in Melbourne. And there's also some of it actually, I think $276 million is stages that will complete by 31st March '21, and then the balance is actually going right into the following year. So we're sort of preselling well out, actually, which is great. And our sales advisers have done a terrific job, well done guys, of making sure that our residents have been really well looked after during lockdown, good communications and are really looking forward to coming into those stages when they complete.

The next question comes from Jeremy Simpson with Forsyth Barr.

Hopefully, you can hear me loud and clear. Firstly, well done on a good performance in terms of looking after your residents and your staff for this period. So that's great and certainly a market leader and effective leader in a way, sort of thing, which is awesome. In terms of some questions, just not too many from me, but I guess I'm interested in, I guess your current thoughts around margins -- development and resales margins in this environment. Year-on-year they came back a little bit, but are still comfortably within your sort of target ranges. Is there any thoughts around the sort of near-term trajectory of those?

Yes. Look, I think with development margin, that was a very good year we have just had. So I would assume more development margin within the target range in the year ahead in the sort of 20s to 25s or maybe in that sort of region. I think we've had a couple of years of really strong margin as we've had some exceptional villages come through. But look, we've got a broader range across 12 sites now, Jeremy, and I would expect the margin to just be more in where we would normally target. We wouldn't see that as a negative, probably the last just couple of years have been really good.

All right. And just on the construction side and any sort of initial thoughts around potential opportunities around construction costs? Given the outlook, there's a lot of activity still happening but it's not like there is a lot of -- there's a lot of follow-up activity, if you like, in terms of construction in New Zealand. We're talking outside of the retirement sector. So any opportunities there? Plus in Melbourne, around the construction costs?

Yes. Well, look, it appears, though, Jeremy, that the environment for building from a cost and also labor supply point of view, may be quite good over the next 2 years. It's always hard to predict, of course. Governments do things like commit to massive horizontal infrastructure projects and all that sort of thing, and you're not quite sure where the resource comes from, but certainly in residential and sort of mid-rise commercial, those are 2 sectors which look like there'll be under a bit of pressure, hence -- and look, that's the sort of work that we're going to be doing. So we're starting to see the first glimpses of perhaps a little bit of price pressure coming off. Certainly in the last 3 years, particularly in Auckland, there's been significant price rise pressure as everybody knows about and resource pressure. In Melbourne, it's been not as bad actually. And so I'm not sure whether the Melbourne will change significantly or not, but hopefully, in New Zealand, we'll have more resource availability and perhaps at a more settled price, but it's early days, of course.

And just lastly for me, just on regulatory/political environment in New Zealand. Where do you think your -- I mean some sort of funding shortfall, I guess, particularly around nurses, and you have some extra costs of COVID. Clearly, and a little bit extra funding associated with COVID, but how do you think the sectors tracking from a regulatory sort of lobbying perspective and the ability to perhaps get better funding, certainly on nurses, over to some medium term, any sort of thoughts on how it's tracking?

Well, how it's tracked to date this year has not been very good. The sector wanted to receive around about $80 million, which was built up in a very detailed specific way through the finance people in the sector, which was shared with the Ministry of Health officials of $80 million, relating to COVID. And the government funding response was $26 million, which I think worked out was about the same as 2 takeaway cups of coffee per resident per day over a 12-week period. So I would regard that given the massive costs involved, I think that, that was very low, actually, but of course, there's more to come. There's a negotiation currently underway with the aged care-related contract groups between the 21 DHBs and the aged care sector. And that fee increase, whatever it is, will be effective from the 1st of July. Don't know what that's looking like at the moment, Jeremy. However, there wasn't much -- well, there was nothing for aged care in the budget that I can recall. And so that's a shame given that I think if this is probably a time where -- I think really aged care has shown to be an extremely effective part of the health care system and also really a cost-effective part of the health care system. So I guess what I hope for is that there's a bit of dialogue with the Ministry, governments, DHBs, aged care, as it becomes a much more important part of how we deliver health care in New Zealand and particularly with COVID sort of hanging around. So look, I don't hold out any massive short-term hopes, though, of any significant funding changes I have to say because I believe that would have probably been signaled in the budget if that was the case.

The next question comes from Shane Solly with Harbour Asset Management.

I just like to echo the thoughts of the other callers. You've done a stunning job in what is a very challenging time. So congratulations to your team. I would just like to understand a little bit more about if there is further COVID waves how you would approach or deal with this? What have you learned from the last few months? And how has it changed the way you would perhaps approach dealing with additional waves?

Okay. So the first thing we do, if there's additional wave, we would shut the villages down immediately. We will deploy masks, and any interaction with residents immediately, all of our infection control procedures would be reescalated. For example, if there was a new admission, that would be admitted for 14 days isolation in their room. We would be insisting on COVID tests for any new admissions into aged care or service departments and ideally independent living units. And that's been a bit of a challenge with the DHBs actually, but the screening test they introduced did help to make that more frequent. And I think we'd want to see more testing availability for staff, new staff and probably randomized testing of staff. I think that one of the optimistic things from what we have been through is that we've learned that there's some -- actually some pretty simple protocols that can benefit all of us. And even if you talk about the complications of aged care, hand washing, distancing, wearing a mask. The World Health Organization has confirmed that mask wearing is a really helpful, good thing to do, contact tracing, wearing surgical mask at least all of the time if you're caring for people. So there's a bunch of stuff that I think we now know that we've got the equipment for, the resources we've done. We've trained reducing visitors. So I think we would move and be able to move really, really quick, and our residents would want it just to make sure that safety factor was in place. Obviously, we're hoping we don't go back there. But you never know, do you? This is an unknown time. David, do you?

Yes, exactly. I think we'd go back, Shane, to exactly the situation we had previously. And we'd hope for some higher level of cooperation around testing of residents before they moved in and testing of staff. And I feel a high level of anxiety after seeing the Television One News last night around the relatively loose arrangements that exist for people in quarantine. I just feel that this could jeopardize the COVID-free status that we have. So we are very aware of it.

We'd like to see more -- the fundamental thing we'd like to see is more testing in aged care for new people coming in and new staff, that would be great. It's great we have the capacity for it, and we should be doing it. And actually, we've been insisting on it, but it's been too much of a fight.

So look, we're running out of time, but if we take one more question and then we'll close.

The last question comes from the [ Nick Gerald Fye with North Shore Corporate Nominees ].

Good morning, guys. Wonderful result under the circumstances. A couple of questions. I'm based in Australia, although a Kiwi, my questions are relative from that perspective. Any intentions of obtaining a secondary listing in Australia?

So the question was whether there's any intention to have a listing, a secondary listing in Australia. Look, we've talked about that, [ Nick ], at times. But to date, we haven't felt a need to do that. We're getting good volumes of trading. And so we haven't felt that's necessary.

So it's not something that we're actively looking at, and we haven't explored it for a long time.

Now there was a Royal Commission on aged care in Australia. Was Ryman involved in that? And has there been any feedback from that Royal Commission?

Yes. So we submitted to the Commission at the start of last year by writing. And what we focused on was the fact that we don't believe that the aged care allocation round where people are allocated free aged care bed licenses is a very -- and then keep them and potentially don't use them for a long, long time. And then if they decide not to use them to make an economic gain by selling them, we don't believe that, that is a very effective market for older people in Australia or obviously, Victoria where we operate. For example, in the last year, we've paid AUD 30 million for new bed licenses off providers who were -- received those licenses for free from the government and then sold them to us in an open market. Now they're obviously very welcome to do that. From a resident point of view, though, you have to ask the question, what's the best thing for the resident? And I think the best thing for residents in any nation in relation to aged care is that new providers are encouraged to come in and innovate and to be able to provide their version of care, which they think works and for the consumer who then decide to have the opportunity to make that decision. And I think that any licensing regime, which makes it difficult for new entrants and which puts a financial barrier in place as opposed to what the emphasis should be, which is purely around care provision and the ability to look after people well, we fed back to the Royal Commission yesterday. In fact, Dave and Cheyne and Paul Sutton. Those were our main points of feedback, really, that we think that the bond system, the way that the licensing works, really needs to open up to encourage innovation and new players and let consumers decide what they would prefer.

In a bigger picture sense, Nick, I think that fundamentally, we would welcome anything that raised the standards of care and the reputation of the sector because some of the stories were pretty harrowing to read that the Royal Commission have presented. We sort of look carefully at how we perform against some of the recommendations that have been evident from the commission. And our staff ratios are in excess of what they're talking about anyway. So look, it's probably damaging to the sector's reputation, and that's not good for anybody. So we want to engage and want to see some outcomes from it. Look, we're -- I'm sorry, we're probably out of time now. So if your questions haven't been answered, then we'll get back to you. And it's really my role to thank you for your time and for giving us your attention today. As I said, what a year, we look forward to reporting back to you in 6 months' time. So thank you very much. Goodbye.

Thank you, everybody.

Thank you. Catch you later.