Ryman Healthcare Limited (RYM) Earnings Call Transcript & Summary

[Foreign Language]. Good morning, everyone, and welcome to Ryman Healthcare's First Half Results Presentation. My name is David Kerr, and I'm the Chairman of Ryman Healthcare. To my right, we have Gordon MacLeod, our Chief Executive; and David Bennett, our Chief Financial Officer. We've opted to make our half year presentation a virtual event again. We find this as the best approach when we're planning this announcement because it takes the guesswork out of which COVID level we are in. Of course, being virtual doesn't mean there will not be plenty of opportunity to ask questions. [Operator Instructions] I'm going to give you a brief overview of the first half, an update on the COVID pandemic from our point of view; Gordy will give you his analysis of the half and thoughts on what he sees ahead, and what we plan to achieve; David will then give you some greater detail on our financial results. At the end of the presentation, we'll then open the session up for questions. [Operator Instructions] Well, another eventful 6 months for Ryman Healthcare. I'm happy to report we're still COVID-19-free. That's entirely down to some extraordinary hard work on behalf of the team and some outstanding patience and goodwill from our residents and their families. It's been a huge team effort, and the Board cannot thank everyone enough for what's been achieved, particularly in Victoria. It has been a very difficult 6 months, and this is reflected in the results. I'd also say that we do not feel like we're quite out of the woods yet. We've spent roughly $50 million on a range of responses to COVID-19 as we put the protection of our people first. And as a result of that spend, we are now well-supplied with PPE. We believe our staff are familiar with how to respond to COVID and its associated threats and are well-equipped to respond to an outbreak in the vicinity of a village. The recent news about the COVID-19 vaccine or vaccines is encouraging, but the reality is that the impact of COVID will be with us for some time yet. I don't want to sound too overly cautious, but in reality, the vaccine results being discussed are only interim results, and no data has yet been published to enable critical review. Press releases are not quite the same as science. A lot more information is needed before a vaccine can be utilized, and then there are the massive logistical challenges of getting sufficient uptake for the virus to then be controlled. So I suspect we have at least another 12 or more months with a similar knife edge for us all to be sitting on. Nevertheless, let's look first, though, at the headline numbers. The unaudited underlying profit was $88.4 million, which is a decrease of 14.2% due to these COVID-19 challenges. The reported or IFRS profit increased 12.8% to $212.4 million, which is due to property valuation changes and additional stock added during the half. Our half year dividend is $0.088 per share, which reflects 50% of our underlying profit. The record date is December 11, and the dividend will be paid on December 18. The total assets of the company rose 14.9% to $8.34 billion. We're building across 12 sites, up from 4 new sites 2 years ago. As you can see, our half year underlying profit came in well below our medium-term target of 15%. This target has been a holy grail for many years. If we achieve 15% annual growth, it means we double the profits every 5 years, which indeed we have for many years. We are, however, very conscious that we've not hit this target in recent years and this is an area of significant focus for the Board and management. For the year ending March 20, we were indeed on target to hit 15%. And then we were hit by COVID, which significantly impacted the last couple of months of the financial year, which is always our biggest trading period. In the first half of this year, we were expecting strong growth from Victoria, and this has been significantly impacted by COVID right across all our trading despite the team's best efforts. And on top of this, New Zealand was, of course, significantly affected as well. The plain fact is that COVID-19 has been a once-in-a-generation challenge, and that is why we're not in the position to be providing guidance for our annual result at this point, but we've learned a lot about COVID and about ourselves and still managed to achieve an awful lot this year. This puts us in a good position to again meet that target in the medium term. The Board's just held deep dive strategy days with the senior executive team. The sort of areas we've been discussing are as diverse as what will our residents seek out in 10 years' time, and what challenges might we face with staff recruitment. Everything was on the table as it should be, and we believe Ryman's business model remains entirely sound. That's not to say there are not things to work on and places we can improve. Our model is tried and tested, and our aim remains to deliver as many Ryman communities as possible in New Zealand and in Australia, wherever there is demand. Our main conclusion from the days was that major transformation is not required, but continued iterative change that we have undertaken over 30 years is appropriate. And of course, we'll continue to listen to our residents and their families, innovate, improve and make sure we are as relevant as possible to them. We will continue to reinvest 50% of our underlying profits in expansion. The other half is returned to shareholders as dividends. We've confirmed our commitment to our construction plans, and we have 12 villages being built, and we remain absolutely committed to further expansion in Victoria and, no doubt, beyond. We invested in the Victoria leadership team over the last couple of years, and they have performed superbly. The whole team has done an amazing job in very tough circumstances. There have been 1,986 cases of COVID in aged care in Victoria, including 655 deaths. That is a great tragedy, and shows how devastating COVID is when it takes hold in aged care. Our 18,000 staff and residents have stayed COVID-free in both Victoria and New Zealand. Gordy will outline our progress and what's next in a minute, but what is heartening is that no one has taken their foot off the gas during this COVID epidemic. Despite long hours in PPE, COVID alerts and an ever-changing work and home environment, our team's commitment to clinical excellence has never wavered, and we've maintained our rate of more than 80% of our villages achieving 4-year certification in New Zealand. This is the gold star standard. We're also acutely aware, as a Board, that continuing to invest record amounts and expansion at a time when operating costs have risen substantially and trading has been restricted places pressure on our balance sheet. Supporting our team to ensure we're doing everything possible to maintain our villages as COVID-free safe havens costs money, and we're very mindful of our debt. While debt has risen in the first half and increasing cost put pressure on cash flows, as David will outline in a minute, our balance sheet remains strong, with assets of more than $8.3 billion. By continuing to invest and seeing through our current plans, we will place ourselves in the best possible position to continue to grow. Our focus remains long term. And while the here and now of the past 6 months has been fully absorbing, believe me, we still have our eyes on the long-term prize. The prize is the extraordinary demand for Ryman's quality homes and for care needs of our communities that we see ahead of us. Only by investing and continuously developing now can we put ourselves in the best position to meet that demand. Not only that, we'll be fulfilling a very important social need through investing in long-term critical healthcare infrastructure, which will create more than 2,000 permanent jobs in addition to over what will probably be 5,000 construction jobs over the life of the project. When these 12 villages are complete, we would have created over 4,000 new homes for older people and freed up their existing homes, which eases pressure on a very tight housing market supply in both countries. So you can see why it's a win-win for everyone, from the government, through to our residents, our new team members and also home buyers. As I've mentioned, COVID is an enormous challenge, but adversity is a great teacher. If we've learned one thing this year, it is that security and reassurance of living in a village community is more important than ever. We think this will result in even more demand for the quality of life that living in a Ryman village offers in the years ahead. Our residents have told us that they love the comfort and security of living in a supportive community, where there's plenty of help on hand to take care of every need. They find it reassuring that they can easily hunker down during the lockdown, surrounded by caring and experienced health professionals who are there to help with anything they might need, and their families' love that we share the responsibility to keep their loved ones safe. I'll now hand over to Gordy to talk you through the year and what is next as we recover from the COVID-19 emergency and live with the new reality of a pandemic world. Over to you, Gordy.

Thanks, David. Hi, everybody. (foreign language). As David has mentioned, the team has put in a huge amount of work to keep us safe from COVID, and I can't thank them enough. Our team in Victoria has been working in PPE for over 6 months now, and in the care centers that includes wearing face shields on top of N95 masks for a huge amount of the time. The Melbourne team have not been able to work from our office in St. Kilda Road, in the CBD, since March. Finally, we're seeing the [ end of the light of the tunnel ] and thank goodness for that. As David touched on, operationally, the most obvious impact from COVID was an increase in costs and a significant restriction on sales and construction activity in Victoria and New Zealand during the first half. Trading was severely restricted for almost all of the 6-month period in Victoria and allowable levels of construction activity in Metropolitan Melbourne see-sawed as the rules changed. And New Zealand construction sites were shut completely for more than 5 weeks in March and April. Shutting down or reducing the activity levels on large construction sites is not easy. And it took a lot of time to reopen safely under COVID conditions to get the flywheel moving again. Despite this, we still managed to achieve some significant milestones. Following a number of full starts during -- due to COVID-19, Eliza McCartney and Phil Goff joined us to officially open our Murray Halberg Village in October. It was a fantastic night with over 300 residents and staff in attendance. We also opened our village and care center at William Sanders in Devonport, where we still have additional large stages completing in the second half. I've had a couple of great visits to William Sanders with our construction and operations teams, and I can tell you that the village looks incredible, and there's another real step-up in innovation and look and feel, and you can see that from those beautiful pictures there. It's a real credit to the whole team, and the residents and families that I met on-site when I was there a couple of weeks ago just loved it. We also moved our first residents in at James Wattie in Havelock North, and I received a number of really heartwarming messages from new residents who were super impressed with the quality of their new homes. Miriam Corban on Lincoln Road in West Auckland is looking great as well. It is a contemporary design. And again, the first residents that I met were also delighted with the finish and the whole look and feel. At Highton in Victoria, residents moved in in August, only seems like the other day, and are loving the experience. You can see on the slide, in fact some future residents popping a sold sticker on their unit, and it's one of their favorite activities that the team love to capture. Our new Ocean Grove Village on the Bellarine Peninsula in Victoria will open in December. We're still planning to have our John Flynn Village open in Burwood East just before Christmas. And phew, that will be #5. Having 5 villages open in Victoria by 2020 was a stretch target when we set it for our sales back in July 2015. That's just a wee thank you, Simon Challies, for that goal. To achieve this in such a tough year is amazing, and we're nearly there. And to take us forward from this great position, we have decided to recruit a Chief Executive of Ryman Australia as a new member of the senior executive team. This reflects the growth opportunity in Victoria and beyond, and would not have been possible without the significant achievements of our teams over recent years. Across New Zealand and Victoria, we have 12 villages coming onstream and more on the way, which gives us a strong platform for growth. We are expecting conditions to improve in the second half as the housing market picks up in New Zealand and sales start moving again in Victoria, and I'm really reassured that the governments in both countries are very committed to managing the borders and quarantine facilities highly effectively. Our integrated villages in high-quality care continued to be in strong demand in the first half. Care occupancy in established villages dipped a little bit during COVID lockdowns, but recovered to 97%. Only 1.9% of the retirement village portfolio was available for resale at 30 September. The sales team did a great job of supporting residents and adapting to really difficult conditions. The main impact on operational costs from COVID are on additional staff resources and PPE. We have had well over 1,300 people on paid leave as a COVID precaution since February this year, either because of their health or close contacts. And as you can imagine, it's been a huge logistical challenge for our teams at villages to manage their rosters when we have taken such a conservative stance on COVID risk. We consumed a lot of PPE during the higher alert levels, and we need to carry a lot in reserve, and this is an ongoing commitment. Overall, we have spent around $50 million on our COVID response so far, of which roughly $34 million was on PPE alone. But the biggest driver of our working capital increase is a development program, which we have expanded significantly in the last 2 years. This time 2 years ago, we were building on just these 4 sites, see them there. And here we are today, having lifted our development program from these 4 sites to 12 sites today. It's a significant lift. And as we have previously said, it's our biggest ever expansion program. We have deliberately continued our build program even though resident receipts have been restricted by COVID. This is because it is extremely hard to get the construction flywheel going again, if you stop. And residents, of course, still need to move into our villages as soon as possible. We're conscious of our debt levels. The reality is that our working capital debt reflects the significant increase in our development program. It takes a huge amount of work to lift development from 4 to 12 sites, believe me, and in addition to this, the development team are also busy progressing the remaining sites in our land bank through the design and consenting process. So there's still a lot more to come. And in fact, we're in the advanced consenting stages for 5 new villages. And subject to council processing, we're hoping that consents will issue for these in the second half, further adding to our growth options. To show this in a different way, here's how our development pipeline looked 2 years ago: we were building new villages at Nellie Melba, Murray Halberg, William Sanders, and we had just broken ground at Linda Jones. And this is our development pipeline today. You can see the huge amount of progress we've made. The 12 villages currently in progress will generate $2.7 billion in capital proceeds and recurring income of $220 million on completion. Collectively, those sites will recycle capital, which is always our objective. One of the key statistics that we monitor very closely is the amount of new sales under contract. Currently, we have $430 million of unconditional new sale contracts in place, which will be collected in cash over the next 12 to 18 months. So we have a strong forward order book. And in fact, it's the highest it has ever been. In the short term, we are anticipating $275 million of these contracts to be collected in the second half, up from $118 million in the second half of last year. This will be the biggest 6 months of new sale cash collection in the company's history and reflects both strong demand, and that some of our large construction stages have been pushed into the second half. Before I hand over to Dave Bennett, I'd just like to add one more vote of thanks to everyone in the Ryman family. While 2020 has been a bit of a nightmare, I'm conscious it could have been much, much worse, but the extraordinary teamwork from our army of over 6,000 Rymanians and the goodwill of our 12,000 residents and their many thousands of family members have got us through. Our investors, our banks and our thousands of business partners have also been supportive in our battle to keep everyone safe. They've understood that we put people first. They've been flexible and willing to help. And all of this has been a huge support to us and it really means a lot. So thank you. And over to Dave on the finances.

Thanks, Gordy, and good morning. Our first half underlying profit of $88.4 million is a decrease of 14.2% on the same period last year. Our reported IFRS profit, which includes unrealized fair value movements on investment property, was a record $212.4 million, an increase of 12.8% on last year. This included the valuation gains of $124 million, an increase of 33.9% or $31 million on last year. The lift in the valuation affected the addition of 120 new units, the removal of the negative near-term growth rates applied by our valuer at 31 March, an adjustment to our discount rates back to pre-COVID levels, and pricing increases to affect our recent sales activity. During the half, we booked 456 resales. This is in line with the prior year and a strong endorsement of the relevancy of our offering, given our restricted ability to sell due to the lockdown conditions in New Zealand and Victoria. Our cash receipts from residents were $483.1 million for the half, a decrease of 17.1%, and this reflects the delays to our build program, largely due to the COVID-19 restrictions. These delays have pushed the delivery of some large construction stages into the second half of the year, but as Gordy mentioned earlier, we have a strong -- very strong order book. We have invested a record $406 million into our portfolio over the half. Net $406 million of investing cash flows were spent as follows: $326 million was spent building new villages; $37 million on land bank -- land -- supporting our land bank of 6,171 units and beds; $20 million was invested in upgrading existing villages to further enhance the resident experience; and $23 million was invested in a range of projects including the next -- the development of the next stage of system integration and technology to enhance our offering. This record investment during the half, combined with the delay in new sales segments due to COVID restrictions, have seen our working capital debt increase to $2.11 billion. This is because we are now building across 12 sites, up from 4 sites 2 years ago, and this has required an upfront capital investment into each site, but it provides a better spread from a sales perspective. The 23 sites in our land bank will generate $4.4 billion of capital proceeds. So this is why we regard our debt as productive debt. We invest the bulk of it in new villages, where we recycle capital and which establishes a growing tail of recurring cash flows. In addition to the $4.4 billion of capital proceeds, if you assume an 8% return from the deferred management fee and resales, this will generate an additional $350 million of recurring profits each year. We have total assets of $8.3 billion, up 14.9% from September 2019. We continue to have very supportive banking partners, and our syndicate of banks understand our growth plans and strongly support us. The debt to debt plus equity ratio is 46.2%, and the debt to total assets ratio is 25.3%. Our banking facility has lifted to $2.4 billion, and we're also considering a retail bond offer to New Zealand institutional and retail investors to provide diversification of our funding from both a source and tenor perspective. While costs are always front of mind, given the current environment, we have established a task force that I'm chairing to work with our design, construction and procurement teams. The focus of this team is on making sure we are finding efficiencies in our design and tendering, while, of course, always providing the best possible outcome to our residents and team members. We have also recently launched refundable accommodation deposits, or RADs, via our care beds in Auckland. These RADs give us -- our residents the choice of how to pay the accommodation premium, with the amount of the RAD being returned to the resident when they vacate the room. The model is consistent with the model we have adopted in Victoria over the last 5 years. The benefit to our resident of the RAD option is a reduced total cost for their care. So in other words, it gives the resident choice of a capital sum or rental payment for the room premium, but with no deferred management fee. We are continuing to see the benefit of developments being concentrated in high-value centers. Our development margin is 29.4% for the half, 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 $945 million. This is the amount of resales margin we could crystallize today based on current prices. So 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 increase as villages mature. And of course, deferred management fees also reset to the new price levels with each resale. And so this creates a compound effect. Demand remained strong with only 144 units or 1.9% of our portfolio available for resale at the end of September. And so this represents approximately 6 weeks vacancies and is a solid achievement if you consider the significant impact of COVID. Demand for the care we provide remains very high, and we closed the half with occupancy at 97%. The aged care sector, in general, is averaging only 87%. So we continue to significantly outperform the market. What triggers our ability to grow is simple, a model of recycling capital at our villages. Since listing in 1999 and raising $25 million, we have now invested $4.78 billion in our portfolio. We paid out a growing dividend stream to shareholders of more than $965 million, but we've never had to raise any new capital. We are in a strong position to continue to grow and bring Ryman to more communities. And so thank you very much. And over to you again, David.

Look, thank you, Gordy, and David. I hope that these presentations give you a good picture of how we've traveled and what challenges we've had to face. And we'll now open up for questions. Do we have some callers with questions, please?

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

The first one for me is on gearing. With gearing at 46%, which is pretty elevated versus history and given the -- I guess, the ongoing operational uncertainty. In the short term, are you taking any actions or changing plans in order to reduce this? And in the medium term, where would you like it to normalize? Sort of a target range?

I think the main driver, Andrew, for the short-term spike, if you like, to September for the debt level is really due to the fact that there were some fairly large apartment stages, which would have normally completed in the back half of the first half, but have moved into the second part of the year. And that's why we have talked with people today about the significant amount of cash receipts we're going to see in half 2. We're always very conscious of our debt levels. So as Dave said earlier, we're constantly monitoring the wisest way to spend our money and watch it really carefully. However, with 12 sites on the go and the outcome from those 12 sites for residents and also for shareholders, we're just going to continue to really prudently manage our rollout. And we've also got good-sized bank facilities in place and other discussions, obviously, ongoing as well.

Okay. And reading between the lines on that in terms of prudent rollout, does that mean that you will be looking to potentially temper your development expectations or development rollout over the second half and into the first half of next year?

Actually, in the second half of the year, we'll probably see a lift in our build rate from the first half because the first half was quite significantly affected by Melbourne's build rate reducing to 25% for basically 2 months and then only up to 85%. And in New Zealand, having that -- the loss of probably about 1.5 months of normal production levels. So all things being well, we should probably see a stronger second half in terms of build numbers. But when we've got a forward order book of $430 million of unconditional new sale contracts, we're not just boxing on with building for the sake of it. We've got really strong forward orders.

Okay. And just to pick up on the point about the sort of delays in building of -- I'm going over to the last result and the guidance you provided of 900 beds and units. If you were to look at the [ computation ] of the 900, are there any particular projects, which as a result of lockdown restrictions, I guess mainly in Victoria that are now unlikely to fall into this financial year or sort of made tips of the edge of the financial year [ end of ] financial year?

Yes. Look, we'd be really happy with an outcome of around the sort of high 7s for the year. So it hasn't been one particular project in particular. Probably at Aberfeldie, we'd expect a bit less than what we were thinking because it's obviously been running the heart on Metro Melbourne and a couple of other sites, too. So not 1 million miles away from where we were, but it's probably taken about 100 or 130-or-so of where we thought we might have been.

Okay. And flipping on then I guess the 130 units. Is the way to think about it into next year that you just -- we could add 130 on to sort of what would have been the previous expectation? Or does it sort of push out other projects in order to manage the sort of debt -- the debt profile?

Yes. Possibly the latter, but of course, it's really hard to know right now, to be honest. If we're getting a good run on at different sites and things keep on going back to normal, then obviously, we'll be conscious of building in line with demand.

Okay. And just one final one for me. Based on your current sales momentum, could you give sort of an expectation on the seasonality or the split between 1H and 2H for resales and new sales, assuming no further lockdown restrictions?

Yes, we don't -- look, we don't normally give sales -- get down to sort of sales forecast between halves, but if we -- here's maybe something to think about. As we've said that we want to collect about $275 million of new sale cash collections in the second half. Now that will -- on a full year basis, it will be the biggest new sale cash collections we've ever achieved at Ryman, but that will represent 80% of our new sale cash collections for the year will happen in the second half, really with those stages, some of those stages being shunted into H2. So the waiting for new sales definitely will be in the second half. And that's also a function of, obviously, the build program as well as we signaled at the AGM. In terms of resales, it's a little bit harder to say. We did about, what was it, 456 resales in the first half, which is similar to the first half of last year. And of course, it's too soon to tell now. It's early days, that we could see a bit of a lift of that in the second half.

Your next question comes from Jeremy Kincaid with UBS.

Could I start with your gross margins of 29%? They were quite strong, especially given Australia has historically been slightly stronger than New Zealand on that front. And so selling presumably more from New Zealand's suggested number is even stronger. And also in light of the fact that resale margins declined. So could you just talk to that number and explain why it was quite so strong?

Do you want to?

Yes. So the new sales margin, if we start with that one as a function of the sites that we sort of had the developments coming through. So as we sort of touched on the presentation, there's some high-value sort of sites up in Auckland as well that are generating some strong margins and some serviced apartment stock coming on board as well, which typically generate good margins as well. On the resale front, the lower margin is actually a function of the serviced apartment resale weighting being slightly higher than normal. So if you sort of look at the sales stats, there'll be a bigger weighting to serviced apartments, which on a resale perspective are lower margin because they are typically only a 3 or 4 year tenor, the residents there. So there's less house price inflation associated with each resale of the sales -- serviced apartment.

I wouldn't mind giving a bit of a plug to the sales team, seeing as their lead has been made. I think, to achieve the same sort of level of resales as the year before when we've lost such a significant amount of trading time in New Zealand, a 6-month period is a short trading period. And to lose the first month of that and a fair bit of momentum going into the second month and obviously from March as well, it's just really a difficult time for the team. And obviously, in Melbourne as well, trying to do sales on Zoom is very difficult for older people. So I think on the retail front, to match last year's volume is a really terrific effort.

I agree. It's really -- it's impressive that they managed to achieve those resales with lots of our older people feeling quite nervous and anxious about the COVID experience, and so I think that it's a strong commendation to the sales team, and they are to be congratulated. Carry on, Jeremy.

Great. My next question is just around pent-up demand. It's obviously something we've seen in New Zealand. I was just hoping if you could provide some color on how your experience in Melbourne has been in the early weeks coming out of lockdown there?

Sure. Well, the sales activity, again, it's very early days, as you said, but the sales activity is matching where we were at this time last year at this point in time. So that's really good. So they've got back up to those levels straight away. It's a big change for people. I mean, if you think about the fact that people in our office haven't worked in our office since March, and there's been huge restrictions on people, I think it will just take a few weeks for folks to get back into a normal rhythm and that sort of thing. But speaking with our sales team, they're really looking forward to getting back into it. They've done a lot of really good transactions in the last few weeks. I think we'll get a lot of momentum when we're able to say that we have got those 5 villages open by the end of 2020, which is going to be a great highlight. And really importantly, we've had a lot of contracts in Victoria, unconditional for some time, pending move-ins, and we've hardly had any cancellations at all. The sales team have done a wonderful job of keeping people happy, and people are looking forward to moving into our villages. So that -- to me, that's the most important signal of demand when the external situation is changing.

And the way the property market is starting to show some good activity around clearance rates and other and pieces, too, so that will support that as well.

Okay. And then just one final question for me. The new RAD product on the care beds in Auckland -- sorry, are you rolling that across the entire New Zealand village base? Or is this rolling out across just new villages? And also, can you talk to how popular the take-up has been for that?

Well, look, it's really early days just yet. We launched it with our village management team and sales advisers in Auckland a few weeks ago, Dave and I. And look, it was really well-received. And the reason it was well-received is that our people understand when we've got something that we are planning to do, which is a great deal for residents and good for us. And so being able to offer people choice, which is what people often want and to do it in a way with no deferred management fee, I think, is going to hit a really sweet spot. We were keen to do it in Auckland to start with because we always like to trial things, first of all, as you'd understand, and we'll find out and learn feedback from people during that time and then the intention is to do it throughout New Zealand, subject to that feedback.

And that would be across new and existing villages or take it to the whole portfolio.

It's really important maybe to just to observe that it will be a choice that people have. It's -- we don't have any expectation of any particular level of uptake. We're just really keen that the residents have this as a choice, and we will just see how much they embrace it.

Okay. Are you willing to put some numbers around what percentage of people that have purchased or considered this option that have taken it up?

It's such -- look, it's such early days. I don't think -- I think it's something we probably want to update on in a few months' time. Once we've -- once the trial has been going, we've worked through a number of contracts with people, but we've had some really great early feedback. So let's see how we go.

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

Gordon, just to follow-up on Andrew's question earlier. So back in June, I mean there was some indication that [indiscernible] we might be looking at 1,300 units and beds for FY '22. Is that still a reasonable expectation, of course, subject to an all kind of [indiscernible] trip, but is that still something you'd be aspiring to?

Yes. Yes. Yes, absolutely. Yes.

Okay. That was easy. And so next one perhaps for David Kerr. David, just wondering if you could take us through the thinking of why the Board's decided to appoint the Australian CEO now rather than perhaps earlier or later? And whether there are organizational changes that the Board and Gordon sort of want the new CEO to oversee? And is there any hint in that appointment of an Australian CEO rather than just a Victoria CEO that perhaps you're looking to expand into other states in the medium term?

Look -- thank you, Stephen. Look, in essence, we see Victoria as a great growth opportunity. And of course, there is growth potential beyond Victoria. I think what we've learned -- and I think Gordy's term, when we talked about it was, it's very difficult to lead a team from 30,000 feet. And so we have been very aware of the pressure on staff with flying backwards and forwards, and we're really keen that the Australian team have their own leadership, and that they are able to grow and that we don't seem like a New Zealand company that's gone to Australia, that we feel part of Australia. So I think it's just those sorts of things, Stephen, that have driven us to make that decision.

And I want to reassure, it's not because of the Victorian leadership team doing anything wrong. It's actually the Victorian leadership team have got doing everything right. They have created a tremendous opportunity for us. We established that team about 18 months ago now because we were keen that there was just a lot more empowerment and self-determination in that key growth market for us, Stephen. And they've really done a great job.

They have done a wonderful job and we're going from 2 villages to 5 by the end of this calendar year. So -- and then growth further beyond that. So it's good that they have a level of leadership on the ground.

That's helpful. And then maybe just tilting to the kind of land bank. I mean, there's still lease acquisition activity in the half, of course. Just wondering if you could -- given the bits of green shoots you're seeing in the New Zealand business and perhaps really early days in the Victorian business, but -- which may well continue over the coming periods. Do you feel the land bank's kind of rightsized? Or are you sort of actively looking for sites at the moment? I guess, back in June, indication was perhaps it was more of a talk towards focusing on building out the existing sites, given the -- as you alluded to, Gordy, there's a lot of work going on, on 12 sites at the moment, but is there kind of openness to or intent to go and acquire further sites at this point?

There's always an openness and an intent to add really good sites to the land bank, but it is fair to say that with land bank, we currently do have the 12 sites in progress, the 5 that we're hoping to get consented between now and the end of March. And then a number of others after that -- coming shortly after that. We're going to have a really great development pipeline, which will give us options, plenty of irons in the fire; but, of course, it's really important to keep on replenishing it. I just think it hasn't -- we're just -- with the amount of work we've got on the go and with COVID, we just weren't rushing out of the blocks to buy significant parcels of land in the last sort of 6 months, but the team have got good options, which we're actually looking at as we speak, this week in fact. And so just watch the space.

Yes. I mean we would be presented in the -- during our Board meetings this week -- with half a dozen good opportunities. It's really -- we do have to keep very mindful of ensuring that the land bank will flow through because the time between acquisition of some land and actually turning it into a village is a number of years. So we're very mindful of making sure that that land bank doesn't diminish too much. So we are aware of the need, but these are challenging times.

We're probably not that keen on the most difficult sites right now.

No, we'd like some not too expensive, easy sites, wouldn't we?

Yes. Yes. Yes, we've had a couple of -- yes, there's -- you always need a mix, and we are conscious that a few of the sites we've got on the go right now are fairly complex from a consenting point of view. So any new additions would need to be less complex.

Okay. That's good, good color. And then maybe for David Bennett. Just on the COVID-related costs, which I think you called out as being of $50 million, I mean, how much of that sort of flowed through in the first half? And then could you just spell out perhaps how much of it was operating cost? And then maybe just a rough guide to Aussie, New Zealand split, I presume -- is it perhaps a [ basic piece -- a pick ] on the Australian kind of result?

Yes. So there's about sort of $19 million worth of costs that flowed through. Obviously, we did have some sort of additional funding that offset that. So net was about $6 million that went through the P&L. And in terms of the split between the 2, it's probably about 15%, 20% of what I would say would be in Australia because they were in masks and visors for a longer period, and we had the security measures in place for a lot longer.

But what we can tell you, Ridgy, is that $34 million of the $50 million was on PPE. And we also spent $1 million on this thing called a fogging machine.

4 fogging machines.

4 fogging machines where you put hydrogen peroxide capsules and you turn them on like for 30, 60 seconds, and it completely cleans the room of all bugs, including COVID. So we've been using those and have had them sort of spread around the place. And we also -- and of the balance of the $16 million to get to $50 million, we've had, as I said earlier, like 1,300 staff on precautionary leave either through just illness that we weren't happy for people to come in with or close contacts, and it was all fully paid by us. And that was a really key control measure that we had in place, was really trying to make sure working with our people that no one was coming to work sick. And of course, a lot of sort of staff welfare and resident welfare packs, additional security, you name it, [indiscernible] on a bag. It was a very intense and demanding time.

And I think it's -- those of us who wear masks for short periods of time on public transport, you just need to think about what it's like to wear that for an 8-hour shift. And so it was absolutely critical that we kept our rosters full, that we weren't having skinny rosters because that would have been just an added stress. So the combination of making sure people didn't come to work when they had any potential illness or contact and making sure the roster was full was quite a cost.

And just on that topic, well done to the company for keeping COVID out successfully in Melbourne. It's obviously a very difficult situation here for the last 6 months.

Thank you, Stephen.

Thank you.

And so look, just one final one for me. Just on -- just a slightly more typical question. The $275 million guide for cash inflows in the second half. Just very approximately, how much of that is contracts in hand? You talked to the $431 million, Gordy, earlier of unconditional contracts you've got. And how much is assumed? You sounded like it's sales from here, if you…

Yes. 100% of the 275 unconditional new sale contracts. So the point of trigger for us to collect it will be people moving into either completed units or units, which are going to be completed. And to put it into context, the second half of last year, same number was $118 million. And of course, so therefore -- and therefore, that $275 million could be higher depending on if we make sales or people can move-in before Christmas from here -- sorry, before the end of March from here.

Your next question comes from Aaron Ibbotson with Forsyth Barr.

Just 2 quick ones for me. The first one is on CapEx spend or investment cash flow, I guess. Do you have any sort of rough guidance for the next 6 months and maybe also matching the 12- to 18-month period that you discussed relative to collecting sort of uncontracted sales? And then secondly, I just had a quick follow-up or clarification on this $50 million of cost that you touched on before. You said $19 million had flown through, presuming you meant the P&L, yes? So the others, should we expect some of that to flow through the depreciation line, basically, is this CapEx? Or the $30 million or $34 million PPE, presumably will be consumed through the P&L in the next 6 months?

Yes. The balance of the personal protective equipment will be expensed from the balance sheet as it is consumed. And in terms of sort of capital expenditure guidance, we don't really provide that normally. We normally sort of talk about sort of build rates. So we're talking sort of high 7s perhaps for 31 March, '21 and then lifting that again to 31 March, '22. And in terms of CapEx spend in the 6 months, I mean, Dave, do you have any thoughts on that?

Yes. A [ piece of in that early to mid-3s, 300 build ], I think. So it would be down in the first half as we've got going across the 12 sites, but also be a significant investment.

Your next question comes from Raveen Kuhadas with ICE Investors.

I just had a question on Slide 44, where you have your average and new resale price. Can you just give us some color for the difference between the new sales and resales price, it's a lot higher for the new sales. Is it a function of mix or demand or some other factor there?

It's really due to the location of the new villages. A number being in Auckland and a number being in Melbourne. And so the resale price includes also some provincial New Zealand. So that sort of brings it down. So that's the main difference for the price.

Your next question comes from Jason Familton with ACC.

First of all, well done to David, Gordy and your team. Clearly, it's been a challenging 6 months, and you've done a really, really good job of a keeping rhythm. So well done on that.

Thank you.

Can I just -- can you talk to -- I'm just trying to understand these RADs a little bit more. So just there's no premium charging, you reduced the premium charging? Is it a swap out for the premium charge, just to understand how that financial metrics might work?

Yes. It's just a choice. Just a choice between one or the other.

Okay. And why not [indiscernible] because clearly, you're taking a financial hit in the short term, but obviously you don't -- capital release.

We just feel it's the right balance, and we've looked very closely at what works well for us in a different market as well. And we think that, that will be a popular outcome for residents and also good for us either way.

Okay. The second one, I guess, is for David. Just -- can you just talk to the Ryman Board's decision to pay a dividend, given you've taken the wage subsidy in the 6-month period and what consideration was given to not rewarding shareholders for this period?

Yes. Look, that was quite a lengthy discussion, I'd have to say, just as the decision to take a wage subsidy was a lengthy discussion. We felt that the wage subsidy was a great initiative by government that we were, as a result of it, able to continue to employ all our staff and redeploy staff and engage new staff to enable the villages to stay safe. So effectively, we kept and grew jobs. And so when you then look at the other side of it in terms of what we have spent to keep our villages safe and our staff safe, we've probably spent about 3x the wage subsidy. So we felt that the whole thing balanced out that it was appropriate to pay a dividend. It's been our practice over many years to pay 50% of the underlying profit. And so the Board decided that was the right call to make.

Okay. And just a final one for me, and I know this could be a hard question to answer, but you talked to the $4.4 billion of proceeds from development of the land bank. Are you willing to put a number, again, for CapEx that you need to spend from now until that development is complete?

It will be just over 4, I guess.

Or slightly less, because we've spent quite a bit of that, so…

I mean, if they hadn't started, I mean.

Yes, if they hadn't started. Yes. So if you work on the basis that we've got about $400 million of [indiscernible]. Jason, you can sort of do the math of that. We would expect the majority of that $4.4 billion to pay down the remaining debt and the construction cost to complete that.

Your next question comes from Nick Mar with Macquarie.

Lots of questions have been answered, but one on the kind of pricing strategy at the moment, given how strong New Zealand housing prices have been, what are you thinking on kind of unit prices, particularly on resale stock?

We'd like to see a bit more evidence in the market, I think, before we push pricing too hard. And obviously, we've seen a price lift in the latter part of the first half, and we'll just keep on monitoring that closely, Nick.

So we have taken a small portion of that, Nick, and you see that in our resale bank, but there is -- yes, if the market holds, there's more upside to be taken.

Yes. Look, I think the main message from it is that the resale bank number that you see and the development margin number that you see is not us pushing our pricing right to the limit by any stretch. We're well under the sort of increases that you've seen in Auckland, and I guess we'll see what plays out in Melbourne, but it might be something similar. So we will keep a close eye on it. And we might sort of lag -- I guess, we might just lag the market, which is our usual sort of conservative stance by a few months to make sure it is sustained.

Keeping that differential between what the resident gets for their home when they sell it and what they pay to enter a Ryman village is really important to us, that natural buffer is important.

Yes, and that makes sense. And then in terms of the potential bond issue, would the intention be to cancel an equal amount of debt facility? Or is this going to be additional debt capacity for the business?

The intention of it is to repay bank debt in diversified funding lines, but not to cancel bank facilities.

Okay. No, that's great. And then lastly, just on the potential kind of new regions in Australia. What do you think the kind of lead time from deciding you want to go into, say, New South Wales to actually opening a kind of first village could be on a hypothetical basis?

Yes. Look, really interesting one. Obviously, for now, we're really focused on just getting our -- in many ways, just getting 2020 done. In that objective, we've got another 6 great sites over the year in our land bank as well, which we're getting good consenting flow through to. That should put us in a position where we can start looking at a market outside of Victoria, probably sometime in the next 12 months, and it will be, obviously, exploratory thinking. We'll learn lessons that are relevant to Victoria as well. But I guess maybe in, say, 3 years' time, it might be quite a realistic prospect.

Yes. There's so many uncertainties out there, Nick. Are we going to have -- I see South Australia in lockdown again, like all of these things are difficult to predict. Like, I think we'll stick to knitting in Victoria for a bit.

We can see opportunity, right?

Clearly.

Thank you. There are no further questions at this time.

Look, thank you very much for your time and attention today. As I've said, we've had quite a year, haven't we? And we look forward to coming back to you in 6 months' time. So thank you. I hope you all have a good day. Bye.

Thank you very much.

Thank you.