Ryman Healthcare Limited (RYM) Earnings Call Transcript & Summary

[Foreign Language] Good morning, everyone. I'm Richard Umbers, the Group CEO of Ryman Healthcare. And I'd like to thank you for joining us this morning for the presentation of our results for the 6 months to 30 September and for your continued interest in and support of Ryman Healthcare. Joining me here in Christchurch is David Bennett, our Group CFO. And I'm sorry to say that our Chairman, Greg Campbell, is unable to make the call today because he has COVID in his household and has unfortunately developed symptoms himself. He passes on, of course, his apologies. Dave and I will be presenting first, and then you'll have the opportunity to ask questions either online or over the phone. While COVID is not the dominant subject that it was this time last year or even 6 months ago, there is no doubt that within the headwinds of the wider global economic context, our industry continues to face some well-publicized challenges. It is, therefore, particularly pleasing to be able to tell you that we have had an encouraging start to the current financial year, with our underlying profit up 44.8% on the same period last year. Shareholders will receive an interim dividend of $0.088 per share, and this is consistent with the past 2 years interim dividends and represents 31.7% of our underlying profit. This, of course, is also in line with the policy we announced last year of returning between 30% and 50% of underlying profit to shareholders by way of a dividend. We are currently in a rapidly changing and uncertain macroeconomic environment. We're mindful of the impact this is having on our business, but also recognize the opportunities that lie ahead of us. Capital management is a primary focus of the Board. In line with this, I want to advise that the Board has determined this week to introduce a dividend reinvestment plan, which will be available for this interim dividend. As a leadership team, we're committed to delivering improved capital deployment and efficiency without compromising our commitment to care and our strong culture. At our recent Investor Day, I was pleased to present a number of initiatives that are already underway that are improving the performance of the business. We know there is still more that we can do here. We want great care for our residents and great financial returns for our owners, and I believe that the main factor in Ryman's success continues to be the continued hard work, commitment and professionalism of our people and team. So now on to the results. As I just mentioned, underlying profit is well up on a year ago at $138.8 million, 44.8% higher than the first half of last year. You'll note our reported profit is down at $194 million for the period, largely reflecting lower unrealized gains on investment properties. For this and other reasons, we believe that underlying profit is a better measure of our trading performance, and it remains the basis for determining the dividend payout to shareholders. Our total assets increased to $12.03 billion, and our net assets increased to $3.63 billion. Cash receipts from residents were up to $ 714.7 million. We are pleased with this result, but it's important to remember that the previous corresponding period was marked by the COVID lockdowns, particularly in Auckland and Victoria. And that the coming 6 months will likely bring fresh challenges. First and foremost, this result reflects the continuing demand for the Ryman way living, which manifests itself in strong sales performance. Our resales have been particularly strong. Grocery sales margins are up 7% to 32.1% and just 1.7% of resale units were available for sale at the end of the period. We've also increased book sales of occupation rights, which totaled 772 in the half. New sales margins have also increased compared to the prior period, up 3.5 percentage points to 24.1%. And Operating revenue, which includes care fees and village fees, was up 10.6% to $274 million. Now Dave will go through these numbers in more detail. However, I would like to note the increasing contribution of our Australian business to the group's result. During the past 12 months, Australia has continued around 1/4 of our total sales across the group. This is a significant lift. Ryman is now an established trans-tazman business with a compelling retirement village and aged care proposition in both markets. And speaking of Australia, the past 6 months saw the completion of our Raelene Boyle and Charles Brownlow villages. And we're very pleased to have now received planning permission to build on our site at Mulgrave. This approval was received just 17 months from the date of acquisition with unanimous support from the local counselors. Here in New Zealand, we recently began construction of our Cambridge site in the Waikato and have also applied for resource consents on our proposed visit villages at Karaka, South of Auckland and also Rolleston in Canterbury. In both Australia and New Zealand, we're continuing to deliver projects that reflect our strategy of placing our villages in higher-value locations, and we're continuing to shape our offering to capitalize on the market's changing needs. With regional leadership teams now established in both countries, led by Cameron Holland in Australia and Shane Charmers in New Zealand, I'm confident in our ability to deliver. We have also recently completed a review of the pricing structure for both our independent living units and our service departments and also reviewed our contract terms. And as a result, the deferred management fee on independent units now accrues over a 4-year period versus the previous 5-year period, but it remains capped at 20%. Market research reaffirmed the value of our 20% DMF as a powerful sales driver for our resident base who typically have a cash lump sum, a higher sale price with a lower DMF remains a very attractive proposition. That said, we continue to look for new ways to expand the range of services we provide. We have commenced our expansion into home care with packages now being delivered to more than 100 residents in Australia, and we are actively pursuing Homecare now in New Zealand. Our aged care discussion paper explored options for meeting the increasing demand for aged care services in Australia through a continuum of care model. Our continuum of care offering, often known as the Ryman model, of course, gives us a strong competitive advantage in the Australian market, while providing some of the highest standards of care available. We have also recently launched our sustainability strategy. It's an important investment in our future and something our stakeholders from shareholders to residents to our financial partners and our team, they increasingly expect this from us. We are a leader in the sector. The full sustainability strategy can be found on our website, but I would just like to mention our 3 key ESG priorities. Climate change is, of course, not a new issue. We have been measuring our emissions for more than 5 years, but we now intend to adopt a science-based target that will set out how much and how quickly we need to further cut our emissions. Quality Care is also a strong focus for us, but we have decided to make dementia care a particular priority, building on the amazing and award-winning work we already have underway. And finally, there's a critical need for us to improve our engagement with indigenous communities on both sides of Tazman. All this work is happening within the context of an unstoppable global trend, the wealthiest generation in history, the baby boomers are now approaching retirement, and our market is set to grow dramatically over the next 30 years. Aged care beds are closing in New Zealand faster than they're being built with 1,100 lost this year so far. Operators are under pressure due to increase -- due to reduced government funding in real terms. We're at the confluence of 2 key events. The baby boomers are arriving just at the point where care shortages caused by underinvestment are emerging. So Ryman is in the right place at the right time, able to charge a premium for an increasingly scarce and sought after quality care offering. Before I hand to Dave, I'd like to take just one moment to comment on our unique proposition. At the start of this presentation, we played our new television commercial, which states our belief that this -- the measure of a full life is one that gets richer with age. Our communities challenge the expectations of aging and bring joy and meaning to every moment. We know that continuing to grow and develop the range of services we provide will enhance both the experience for our residents and the returns that we can generate. None of that is possible without the extraordinary commitment that our team members bring to their work and the strong bonds that they form with our residents. That's something that struck me when I joined Ryman just about a year ago, and it remains true today. Our team and our residents are our strongest advocates. It's a privilege to be a part of that team, and I thank all of those who make up the Ryman community. Our Group CFO, Dave Bennett, will now take you through more details around the results and also talk about the DRP.

Thank you, Richard, and Good morning, everyone. Before we dive into the results, I'd like to share with you some additional disclosure in relation to the number of units and aged care beds, which are included in our valuation and portfolio data. This slide clearly sits out Wet units are included in our investment property valuation and which units contribute to our total portfolio of RV units and aged care beds. As you can see, our total portfolio is now 12,966 units in beds, which is lifted by 189 in the half. This includes 30 x units at Essendon Tires, Melbourne, which we recently acquired. Today's announcement represents a solid result in what was another interesting 6 months for all of us on so many fronts, a result which our whole team should be very proud of. Richard has already noted the effect of the reduction in unrealized fair value movements had on reported profit, which was down 31.1% on last year's first half number. The unrealized fair value movement of $89.3 million in the first half reflects the price increases we have achieved in the past 6 months despite the softening housing market. Our underlying profit of $138.8 million was up 44.8% on last year. The main driver of this growth and underlying profit was the lift in our resale earnings during the half. This was a function of the increased pricing and resulted in our resale margin lifting to 32.1%. This is the first time we've ever achieved a resale margin above 30%. And as I stated last year, the timing of our pricing increases over the last 18 months means we are only just starting to see the full benefit of these price increases captured in our margin. Our embedded value, which consists of the resale bank and accrued deferred management fees, has grown to $2.57 billion. Included in this is our resale bank of $1.95 billion, which is the resale earnings that we would expect to realize over the coming years, even without any further price increases. We also expect resale earnings to lift further in future years as the number of resales grows on the back of our maturing portfolio. Despite rising construction costs, we've also managed to lift our new sales margin to 24.1%. This reflects our ability to keep a tight rein on costs, and we're also carefully monitoring the demand as we release each stage for construction and presale. Demand for our existing villages is strong with only 144 units or 1.7% of our retirement village portfolio available for resale at the end of the half. Our new sales price has increased to $870,000. And within that, the average new sale price for our independent living units is now over $1 million. This can be at least partly attributed to our strategy of developing villages in high-value locations. And this strategy will, over time, also lift our so average pricing, which is now $710,000. The quality and scale of our developments continues to increase. We are creating assets that we believe will be very sought after for many years to come. Another benefit of our decision to focus on high-value locations is a relatively stable demand for our portfolios. This means residents, particularly those who want to downsize without leaving their local community are still able to free up significant amounts of capital when they move into a Ryman Village. So a Ryman unit remains very affordable. Total receipts from residents was $74.7 million. And while this is up 5% on the same period last year, our receipts from residents have been impacted by construction supply chain challenges and longer site times due to the wider housing market slowdown. This was a key driver of the lower operating cash flows, which fell 19.1% on the same period last year to $243.7 million. While demand for our villages remains strong, it is clear that the wider trends in the housing market, specifically more related to Dasso is having an impact on the time it takes for our residents to move in. We're still facing a number of headwinds in the construction space as well, including supply chain and subcontractor challenges. As a result, the value of our contracts not settled has increased by around $100 million to $500 million at September. Our debt continues to affect the investment we've been making over the last few years and including $540.2 million in the first half of this year, of which $115.3 million related to land payments. This has resulted in our debt lifting to $3 billion. Obviously, we're mindful that this continues to track up as our investment in new villages as a head of our cash receipts. Our gearing ratio is 45.2%, and our total assets are now over $12 billion, up from just under $11 billion only 6 months ago. Our debt to total assets is now 24.9%. And with respect to interest rate management, we have increased our fixed interest cover to $1.67 billion with a weighted average interest rate of 4.5%. As Richard mentioned, we have continued to review our capital management framework. Last year, we adjusted our dividend payout from 50% of underlying profit to a range of 30% to 50%. In line with our continued focus on capital management, today, we are announcing a dividend reinvestment plan from this interim dividend. Shareholders will receive information about the DRP in coming days. This will preserve cash in the business to strengthen our balance sheet and to fund our future growth opportunities or giving shareholders choice on how they receive their dividend. In light of the many conversations I've had with a number of you over the years, I know this will be well received. So thank you all, and back to you, Richard.

Thanks, Dave. 2022 has been marked by increasing uncertainty, but today's result is an encouraging one. Despite the significant number of headwinds, including the cost inflationary environment and a challenging real estate market, we have the strategy and the team to deliver as we meet those challenges. Again, I'd like to thank our team for what they have achieved for the company and for our shareholders. I would also like to take this opportunity to advise you that George Savvides will be retiring at the next Annual Meeting of shareholders in July 2023 after 10 years on the Ryman Board. On behalf of our Chairman, Greg Campbell and the Board of Ryman, I want to thank George for his contribution to Ryman since he joined the Board in 2013. As our first Australian based Director, his input has been invaluable in supporting our growth in the Australian market. We have around 20 minutes for questions. And with that, I will ask can we have the first caller, please?

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

So I guess first question just around your DRP. So with a discount of 2.5%, what sort of update do you expect at that discount level?

Predict that, Dave.

I think the first one, I think we are looking at around that sort of 40% sort of uptake would be what we'd expect on it. But yes, obviously, first one, we'll be looking to see what our investors are, but based on discussions I've had with a number of investors over the years, I think the uptake will be strong.

Okay. And the payout ratio, obviously, at the lower end of that 30% to 50% target, is that something we can expect for the second half and in the medium term to be about that 50% ratio.

I mean, obviously, the dividends are a matter for the Board. So I wouldn't want to comment on that.

Okay. And then yes, just on your net debt, so you obviously touched on it, David. But yes, there's a pretty significant increase, $0.5 million, and it's obviously a positive that you're introducing the DRP and it looks like you paid out lower dividends. And I guess you do mention mentioned some of the other initiatives on Slide 5. But it does appear those are all more sort of medium-term impacts on the balance sheet potentially. So I guess sort of near term, what do you -- like are you considering anything near term to try and improve your balance sheet? Or where do you expect your net debt may start to stop increasing at these kind of levels?

Obviously, we're very mindful of that cash picture and what's happening to the debt right now. What you can see, of course, is that in the current macroeconomic environment, it's having some impact on our residents' ability to, for example, seller and home and move into us. So we have seen some push out in the time it's taking for those residents to move in after having signed contracts. So there are some macro things going on. However, because we're so confident in the long term, we have red continued to invest in the business. As you've also seen, which has also lifted that total debt number. So at the moment, we're taking still a very long-term positive view, albeit that we know we're facing into some short-term challenges. Having said that, the team -- I guess the focus is shifting from both management and Board to make sure that we're focusing a lot more on cash and some of the operational changes that we need to make in the business to deliver a better outcome, if you like, or a better efficiency of that debt that we're using in the shorter term.

And I think you can see that in the nature of some of the new sites that we're building across now, the capital intensity of those will be leased than what we've seen in some of the sites over the last 3 or 4 years. So the teams have been mindful of the cash generation and the speed of that and the need to shift the dial.

And then just last question, if that's right. So build rate for the half of 189, -- are you still targeting 1,000 for the full year?

Certainly, that's our target. We are, of course, monitoring the external environment here. There's no point in us building stuff that we can't sell. But certainly, within our operational plans, we're still targeting 1,000 units, yes, but mindful of the way the housing market is going, and obviously, our ability to sell.

And also other sort of market factors, COVID and continued supply chains, all of those things we are monitoring, but the team is still focused on that number.

Next comes from Arie Dekker from Jarden.

Just quick 3 questions from me here on Dave. I mean just outside of more brownfield development in the mix, could you just expand a little bit more on that comment around initiatives underway to address long-term capital efficiency?

Yes. I think the key one you're seeing though is there's a bit of a rebalancing of our land bank. And we touched on the size of our care centers at the recent Investor Day and the announcement with that, but also just the nature of the development as well. So when you look at where we're starting Cambridge as a townhouse style development with at least capital-intensive main build. Mulgrave just received consent is similar. Northwood and Christchurch is one of the more recent construction sites as well. So you are seeing a bigger weighting of those townhouse style development starting to come back into our portfolio than what we've seen in the last few years.

Which effectively generates a return quicker and obviously, in a rising interest rate environment, we have to shape our development portfolio to respond to the external factors acting on it.

Yes, the peak beat associated with each site is leased.

Yes. So that's the key initiative underway on our capital efficiency side.

It is. It's the key one because obviously, that's the biggest part of our cash flows. But obviously, we have introduced [indiscernible] in the last couple of years in New Zealand as well as another sort of cash generation. And we talked about the care suites which is slightly more medium-term play for us by the time they come through, but there's a lot of initiatives underway.

And even rebalancing the mix of care to independent living and so on also has a material impact on that number as well. So I would say it more as a suite of initiatives that reflects an increased management focus on looking at how we utilize that debt to develop the business.

Yes. Just on interest costs, cash interest cost expense and capitalized were up 59% on the PCP. Can you just talk about where you're at on interest covenants and how that, I guess, sits given what has been a pretty rapid increase in cash interest costs against the backdrop, I guess, where settlements have been slower and that sort of thing.

Yes. So we're compliant with our covenants and of course, forecasting to remain. But obviously, interest rates have lifted significantly. It's one of the reasons why we are very focused on cash generation because that's the easiest way to get obviously, your interest cost down. But it's also why we have increased our amount of fixed interest cover and had great support from our banking partners and doing this. So that gets something we're mindful of and continuing to -- well, as you would expect, something that we are very focused on in monitoring.

And of course, the interest rate also had an impact on us and that number as well through the course of the half.

Yes, David, I think you mentioned a number on the effect. Was that -- just under $1.2 billion was it?

And that's $1.6 billion.

Yes, yes, sorry, that. So that's the other 50%. I mean, I guess, we don't have visibility on what's happening with your various swaps and asset citing and that sort of thing. What's the level of hedging in 2 years' time on current debt?

I'll need to check that one. So I don't have that to hand exactly because I guess I'm focused on the next 2 years. And my view is the initiatives we're doing will address a lot of the interest demand on us as we lift our earnings as well because bearing in mind, we're going to see the real earnings continue to lift and all those sorts of things that will take -- we'll see our earnings continue to grow.

I think we're more sophisticated than a few years ago in the sense that we have a sort of rolling review and replace tranches of that cover over a period of time to shape the profile obviously in accordance with the established policy that we've put in place with the Board. So it's sort of a rolling program. But certainly, we're well covered right now as a result of these recent changes.

Sure. And then just one quick final one for me. I recognize the comments you've sort of made around sort of optimizing price and some of the benefits that obviously has, including on the DMF, you ultimately realize. But I mean given that biggest impact of that is still on money that you ultimately return to the residents. Just wonder whether we can sort of talk a little bit more about BMS. I guess I understand also 20% is a real selling benefit on first sell-down. But if you sort of consider potentially increasing it, say, to 25% of turnovers, we you're not looking to sell so many units in such a quick space at time?

Yes. I mean during the presentation, I just alluded to some quite an extensive package of research that we did on this particular topic. Of course, the DMF is quite closely related to the ticket price as well. And for the particular niche of residents that we are targeting who typically are more cashed up and have higher asset values, they are less sensitive to paying a lump sum upfront than they are to ongoing charges. So actually for our cohort, we believe that on our analysis, this is actually a more powerful formula. And in some ways, has been enabled us to push forward or push forward our combined margins. And so you're seeing the ability here that's generated by the demand that we can create with a strong marketing package around our target audience has enabled us through the demand that we're generating through that, in fact, to be able to push the margins up. And I guess you take a view on which side of that equation it generates the most value. Our view is that the ticket price is a more powerful lever in the ultimate result that we're generating. That's our considered view.

Our next question. Your next question comes from Aaron Johannes Ibbotson from Forsyth Barr.

Good morning, and thank you for some additional information. I had unsurprisingly also a couple of quick questions around the debt, if that's okay. First, maybe just a detailed question, if that's okay. On Page 32, you normally in the slide pack, you normally lay out sort of use of debt. And I noticed that sort of systems and other assets balanced by $70 million, which was sort of more than usual and more than I had in mind. So I just wondered if there's any particular investment you've done that we should have been aware of like a big IT upgrade or some other assets -- that's my first question.

Nothing -- no one major significant asset that I can think of. And so I'll come back to you on that one, if that's okay.

Absolutely. No problem. And secondly, David, sorry, this is my 2 key numbers that I'm very keen to get, if I could get investment property work in progress, it was $493 million at the full year. I couldn't find the number anywhere maybe this hidden somewhere would be lovely if I could get it in particular in light of the quite significant increase in CapEx and sort of lower new sales receivables or new sales?

Bottom of Page 18, Aaron, in the financial statements, $102.4 million is the number.

Okay. Fantastic. And then finally, you alluded to another $100 million of uncollected. Is it fair to assume that your sort of new sales receivables has gone up by also $100 million roughly?

Yes, that's right.

Okay. So that sort of assume the $300 million of those 2. I think that was actually all.

Yes. And I think the other bit is on the Debt 2 and it's worth noting that with the Australian debt there is FX movement. That's also led to some of that increase. Think about it relates to the FX move when you retranslate the Aussie dollar.

Maybe sorry just a final one. Just in case if you guide, do you think net debt is going to be higher or lower at year-end? I think, as you noticed on the call, quite a few people had net debt going up a lot less in this half -- and so we've been waiting for this period of collection, I guess, fair to say cash collection -- and I certainly thought that this period potentially would be one of those periods. But do you think next 6 months? I think it's a period of cash collection?

I think this is -- what's relevant here is your view on what is happening to some of the macroeconomic conditions right now. And I think we've seen a period where actually the demand for what we offer has actually been extraordinarily high, and that's manifested itself in us being able to charge and contract for sale. So the margin has gone up, and we've been able to secure quite a reasonable level of contracts. The problem is that the macro environment and in particular, the rising interest rates in the stagnating housing market is meaning that people aren't selling their own property, able to release the cash and then able to move in. So what we've seen is, I guess, a key theme of this result is as we've gone on investing the business, the one thing that we haven't had is that cash coming in from those residents. And you take a view, we've got them under contract. We believe it still comes. And obviously, quite a lot of operational effort is going into -- in the second half. We intend and hope that people will then settle on their own properties, which will release them to then come and come to us. But it is an observation I would make that the interest rate environment and the comments from the Reserve Bank about where interest rates could go, how is that going to play in terms of the housing market and people's ability to sell down their existing property, particularly in the Auckland market, which is particularly important to us. I think that's a key theme that massively shapes your view on what happens to the debt profile is your view on the housing market. And I would also say that this is what is a management team we're acutely focused on because there is a point at which, obviously, we wouldn't go on building units if we're not able to sell them in that way. And probably the key driver of our strategic assessment of the overall outlook for the business and the operational decisions that we're taking is the ability of residents to sell their property, settle on their homes and then subsequently move into us, and that's what's really shaping our outlook. And I think it's -- everybody is just talking about the uncertainty of that at the moment. It's a judgment call in my view, therefore, and I'll just give that context to what is happening to our debt number.

Your next question comes from Nick Ma from Macquarie.

In terms of the price relativities that you've got, that's obviously a 6-month rolling basis. How does it look if you use sort of current prices? And in the context of some of the pricing reviews and your understanding of where the relativities need to be, what do you think is an appropriate number for that to get down to?

Yes. In the market generally, I mean, we're seeing in the sector as a whole, quite a lot of discounting actually going on in terms of people securing or trying to secure residents for their villages. So at the moment, we've been lifting prices in both new and resales and getting some very good gains from that. I guess it's just in the context of the overall market again and whether or not we can sustain those price increases in the market if it gets tighter and tighter -- but it's -- we now take quite a scientific approach to pricing, monitoring elasticity of the units and so on and whether or not we can secure additional price is something that we measure pretty much for every site, every location, every week, we're looking at the market dynamic and making live decisions on what we can achieve.

I guess in a different way, what would impact for you guys to cut prices from these levels?

I guess what it would take would be a reduction in the demand. And we're still seeing really good demand and people have been able to sign up to move into one of our villages. But look, if the market goes back another 10%, 15% in start to assess that. And -- but it's not every unit that you need to address as well, Nick. So we'll be doing that on a case-by-case basis across our portfolio of units within the village, but also across our portfolio of villages because one of the benefits we do have is in a lot of regions in New Zealand, and we're actually in 2 countries as well with Melbourne. So we do have a wide level of resilience to that.

And remember, these are residents who want to give us their money. They want to move in. It's the physical constraints of their own property and the current market that is stopping them. So to some extent, the measure of whether our pricing is too high is whether or not we can contract for sale. And the irony of this is we can contract for sale. People want to come and join us. They're dying to move in, in fact, in the sense that they're being encouraged to by their families and are very keen to move in with us. And yet, unfortunately, the local circumstances in the current economic environment and are actually stopping and doing that. So I think it's more a question of -- you might ask the question in a different way. Is there a way of us getting people to be able to move in is really where the issue is rather than the pricing, which we wouldn't want to move because it doesn't change the reality. If you sell the unit at a lower price, but they still can't move in. All it means is that you've secured a lower sum for some point in the future. That's the risk with that line of logic, I believe.

Yes. Fair enough. And are you doing anything in the way of incentives to get people to price it quicker. And are you letting people move then they get a middlemen, which is what some of the other operators are doing to start with DMF and village feet?

So we -- operationally, of course, moving into a village is very much a handhold from our teams on the ground. And we certainly can offer operational help. We've always done so. It's all part of the service. But things like, for example, helping people downsize, helping with the mechanics of being able to move quite often, these are residents who haven't moved in a very long period of time, and it's in a very unsettling period. And we do also give some local encouragement if it means that people have a particular difficulty that's stopping them. We look at each individual case and see if we can help. But I have to say, that all -- even though it's being deviled on a case-by-case basis, the macro trend, unfortunately, in this particular place is that the time to settle has pushed out as indeed it has across the whole real estate market nationally in fact, and certainly in Auckland, and we just reflect that trend. So yes, locally, we're doing stuff, but it isn't necessarily achieving what I think is behind your question of materially altering that trajectory.

Yes. And just on that, we aren't -- people aren't moving in ahead of settlement with us. We are still in the set on moving. And -- but the village there is a bit of a reduction in weekly fees, particularly where the village centers are still being constructed. So there's a local initiatives that we do, do, but it's - we see it on a case-by-case basis.

Great. And then just lastly, you don't like any land purchase this half. What's the sort of status there happy with the site land bank and their ability to deliver in the next few years from what you've got currently extended.

Yes, happy. And I think Mulgrave is a prime example of, as we look to rebalance our portfolio, some of those or townhouse style developments, they are often a little bit easier to consent. So my view is that you can get away with a slightly smaller land bank with those units as well because they go through the design and consenting phase quicker. So look, we're comfortable with the current levels of that. And we're really focused on selling down and developing out what we've got.

That's right. The pipeline is good, strong, good locations. I'm pretty optimistic about that. And in fact, you've seen in the half, actually, one of the reasons behind the debt has been the investment in land as we've been paying for investments that we previously made.

Your next question comes from Jesse Familton from ACC.

I might have missed at the start of call, but for the first time I can recall that care occupancy has fallen from the business. I assume it might be staff-related, but perhaps you can make some comments around that.

Jason. Look, the key occupancy is actually more to do with the sort of hangover of COVID to be honest. There's been a significant amount of sort of movement within our villages. And you've seen that across the whole sector, I think you'll see occupancy levels across the sector are lower. Our staffing levels are still really strong. We are able to staff all of our bids. So it's not a staffing related issue for us, but it is just achieve sort of volume of admissions that you're looking to make.

I think it would be fair to say that if you look sort of month-by-month on that number, and obviously, we haven't published that data, but what you'd see is a sort of U-shaped curve through the course of the half, which is highly aligned to the wave of COVID that flowed through the country at that time. And it became very difficult both to admit people. And as you know, there was -- unfortunately, COVID had a real impact on people as well. So the net effect of that was that we went through a period as did the whole industry of reduced occupancy.

And then perhaps see me some time. I think have you talked to the market or disclose what the financial implications or cash flow implications are from the change of -- from 5 to 4 years? I guess I'm just looking in the context of 7 years being not anticipated tenure or average tenure.

Yes. So obviously, that will take a while to flow through and DMF cash and also into the -- and it won't directly impact accounting sort of DMF for a period of time. But about 25% of our units vacate shorter than 5 years. So that does mean that you will be accruing more DMF on those units faster. So that will start to come through in time.

Okay. I was going to say, if the value was reduced the discount rate. Can you just talk to -- I was a little bit surprised at that, given where base rates have moved over the last 6 months. Can you talk to why they thought that was appropriate.

The main driver for that is the maturing of our villages. So when we first build a village, they often have the discount rate at the higher end of that. And as they sort of sell down that first time and start to become a more mature village and starting to get resales and showing that sort of ongoing demand, they reduced the discount rate associated with those villages. So that's just a function of our wider portfolio maturing.

Okay. Yes, that makes sense. And then just a final one for me. just interested to understand why investing cash flow outlook for the second half. I mean just in the context of, obviously, [indiscernible] increase, you still go into 1,000 units and beds. Just do you expect it to be similar level to 540 in the first half or higher or lower or…

I think what we're -- back to what I was saying earlier, we are very finally acutely focused on what's happening to the housing market generally and our ability to be able to sell down. Clearly, it makes no sense for us to be either buying pipeline or constructing if there isn't the market there. And that would just be stupid for us to pursue. But while the demand is there and while we can see that future coming through, we were and have been through this half, certainly committed to investing in new sites and new land and so on. But I would say that, that is under -- that is a hot topic of discussion and up for review all the time, I would say.

Yes. I wouldn't expect it to be much more adjusted. I think it will be same or at least.

Your next question comes from Alex Prineas from Morningstar.

Thank you, and thanks for the presentation. Just a question on the Australian business, quite good growth in underlying profit there, which is good to see. I don't think you publish specific occupancy levels for splitting out New Zealand versus Australia. So I was interested, was that increased profit? Is it more a function of just new developments completing? Was that the sort of main constraint that was unlocked? Or was it stock that you had already completed that you managed to sell?

There's quite a few drivers.

Yes. Obviously, new sales is a significant contributor in Australia because it's still a very young portfolio for us over the year. But we are starting to see resale earnings lift as well at Weary Dunlop and also at Nellie Melba, so villages that have been open for a few years now. So it's a combination of the both of the 2, but the bigger driver will still be on the development space.

So are you able to comment sort of on how long it takes from a unit to be completed to be sold or perhaps just any comments on occupancy levels in Australia?

Yes, pretty strong.

Occupancy, if I sort of go around list where Weary Dunlop is, obviously, our most mature villages. The key occupancy is very strong. The beds were typically around that 97%, 98%, 99% in terms of key occupancy. I think the villages in terms of too units is still getting back up to that sort of 67%. What we typically see, though, is we are still selling the majority of our independent living units for new villages off plan. So I'd say 85%, 90% to 95% of them are sold before the construction is finished on site. Service departments, they typically take sort of 12 months to 2 years to sell down because they are a more needs-based offering, depending on how many service departments we are selling there. So -- very similar to historically was in New Zealand, to be honest.

Yes. I'd also add, I think our brand is building very strongly in Australia. We are highly differentiated from the market with our continuum of care model, and that's driving very high levels of demand. And as our name as the Ryman brand gets out there, we are able, therefore, I guess, to be able to stimulate very high levels of interest, which is also helping the overall model. I'd also say that in terms of business feel and the, I guess, the phase that Australia is at in the recovery after COVID-cycle, I would say that there is, I guess, a stronger consumer or resident optimism out there, which I think is perhaps helping that market along in Australia as well in a way which we're yet to see in New Zealand.

Okay. And just one more on the new sale margin, which improved, again, just in terms of the breakdown there between development costs versus sale prices, presumably, the development costs are up, but the sale price is more than I said. So I'm wondering if you can number one, quantify that and also give us a trajectory on where the costs -- are they -- do they look to be topping out or still going up?

Yes, I think that -- I mean that's a good observation, actually. That margin diagram, of course, masks the fact that we have actually been incurring significant supply chain and delay and other costs associated with the construction and development program that we have. Yes, you're right, we've been able to improve the prices above and beyond the rate of increase in the construction costs and so on. I would say that it's still a very significant factor, both shortages and material increases in the market, although I think there is a lot of talk that some of the issues have now stabilized. We all knew of the difficulties perhaps around bed not so long ago. In fact, there are still shortages, [indiscernible] so, but bricks more so. And I think it's really that there is ongoing disruption to the overall pattern of supply chain, which has knock-on effects both in terms of cost and time to deliver units.

Yes. And I think in terms of the pricing piece, specifically, sort of touched on in the presentation, our average new sale price is now $870,000. I think it was $810,000 at March on memory. So there's a $60,000 lift. Obviously, there's mix that plays out on that, depending on the weighting of serious departments in the location of our villages. But we also touched on that for the first time, we are now averaging over $1 million per new sales related to independent living units. So we are seeing good strong pricing uplift there as a function of the wider market, but also more specifically where we're building those villages.

We have a question from Shane Solly from Harbor Asset.

Appreciate the presentation this morning. 2 quick ones, if I may. Just construction timing, just thinking one last point, Richard. In terms of weeks this half versus next half that pace of construction timing. Can you talk about that? Obviously, some pretty challenging weather events -- what happens.

Yes. Well, unfortunately, the weather as it happens, has not actually brought any of our construction projects to a hold. What I would say is when we talked about the time to settle, I should just point out that some of that time to settle is not just because of residents, it's actually due to the slowdown or the delays that we've had in construction, sort of both forces acting on us, which I guess sort of also sits behind the question. I would also say, though, that I think that we have been quite encouraged that as some of those pressures have eased I would say that the confidence in our build program has actually increased in recent months, I would say. And we're -- as a result, as I confirmed earlier, we're still certainly targeting 1,000 units for the end of the financial year.

Just a second one, just picking up on Australian retail margins versus New Zealand retail margins, I guess we're starting to touch on this earlier, the Australian portfolio is starting to get some maturity in -- can you talk a little bit more granular on Australian resellers versus New Zealand?

Yes. I think one of the interesting things as well is that our structure is slightly different from some of the other players as well. I'd also say that, of course, there's been changes to the funding model over in Australia and some political impetus behind investments being made in the sector also from the new government over in Australia. And again, some of those play to strengths that sit within our model. the recent shift to the new ANAC funding model also has some implications, which for a business like ours, which offers quite a wide range of services that has some advantages and arguably further differentiates us from the market. So we -- obviously, that only came in, in the 1 October. So we're yet to see the full impact of those changes. But on a macro level, we see the current thinking in Australia is broadly, we're pretty optimistic about how that's unfolding.

Yes. And if I sort of take it to a slightly more detailed level were done a lot, which is our most mature village in Australia. The resale margin we're getting on our independent living units and on the service departments there is completely consistent with the wider group now. So that village is sort of 7 years, 8 years old now. So it's what I would deem to be one of our mature villages that's at that stage. And pleasingly, we are achieving the same margins there as we are across the wider Ryman group.

We should probably switch to just ask if there's any online questions?

We have one question online from Thomas Willis. Given the uncertainty in the macro environment and interest rate backdrop, what would the current -- what would the maximum level of debt you can manage to stay within the covenants be?

Obviously, we haven't published our covenants, so that would be a difficult question for us to answer. So suffice to say, we have headroom at the moment. And obviously, that's dependent on the profitability as well. So there's a lot of different parts than that. So -- but yes, obviously, something we are focused on and looking to make sure we continue to monitor and yes, in pretty good shape with the sort of a fixed cover we have in place at the moment.

There are no other questions online.

So thank you for all your time today and for your ongoing support for Ryman. Good.