Summerset Group Holdings Limited (SUM) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Summerset First Half Results Announcement. [Operator Instructions] I would now hand the conference over to your speaker today, Mr. Julian Cook. Sir, please go ahead.

Good morning, everybody, and welcome to our half year results call today. As usual, this will be presented by myself and our Deputy CEO and CFO, Scott Scoullar. We will talk through the results presentation, which has been released this morning, and then we'll go to questions at the completion of this. So firstly, turning to the summary on Pages 4 and 5. Look, since we last reported to the market in late February, we certainly had an eventful time. We saw the rapid increase of COVID-19, the level lockdown -- level 4 lockdown in New Zealand through April, the easing of restrictions and what seems to be the elimination of COVID within New Zealand. And now as of a week ago, we have seen the return of COVID into New Zealand, albeit we in the country are much better -- in a much better position to control this single-cluster outbreak. As we've stated before, our priority through this has been keeping our residents and staff safe. And to date, we can still confirm that we have had no cases in our villages and key centers. In terms of the most recent outbreak last week, we quickly put all of our Auckland villages onto level 3 restrictions and closed our care centers to all visitors across the country as a precaution. This has been a very challenging period for the business, and I do want to acknowledge the huge effort played by our staff in all parts of the business through this time. In terms of business performance for the half year to June, considering the impact of COVID, we've seen what we think is a solid financial result with underlying profit coming in at $45 million and net operating cash flows of $93 million. Through this period, we also managed to deliver 139 retirement units and 43 care beds. This included the opening of our Casebrook main building, which includes our new market-leading memory care center. Despite the relatively strong trading performance of the business, the outlook for profit, as you will have seen, has come in at $1 million, although this is largely due to changes in the values forecast assumptions as well as us delivering less retirement units in this period. Now if we turn to our COVID response beginning on Slide 11 and moving through to Slide 14. We've outlined here previously in some detail the nature of our response to COVID, and I won't repeat this, but some of the key points I will cover just picking up out of these slides here is, firstly, there has been a huge amount of work to put the processes and policies together and put them into action in our villages through March, April and May of this year. This does put us in a very good position for the current resurgence we're seeing, and we've been able to put restrictions back in place very quickly and very smoothly last week. If we do need to move to tighter restrictions, we are also in a very good position to do this. Through the April-May period, we saw a slight drop-off in care occupancy by around 2% due to slower admissions. But overall, we have maintained occupancy consistently in the high 90% throughout this period. From a sales perspective, following the relaxation of restrictions through May onwards, we have seen -- we did see sales activity rebound to levels higher than what we've seen pre-COVID. These sales levels have continued up until last week when the renewed restrictions came into force. Two big drivers of the sales, we believe, have been the safe haven status which villages have enjoyed through this, with residents and villages universally expressing their relief for being in our villages through the COVID restrictions; and also the efforts of our sales and marketing teams with quickly rigid marketing schedules put back into place in May and our Moving Made Easy promotion for incoming residents. In the construction space, we saw our team's downfall through the level 4 restrictions with a return to work in level 3 with a range of restrictions in place. In this level 3, we saw productivity only slightly lower than normal levels, although if we have had more high-rise construction, this would have impacted us more. In terms of the recent lockdown, we took our construction teams offsite from Wednesday to Friday of last week but back on-site again today under the strict level 3 protocols agreed by the construction industry. From a financial perspective, on Slide 13, we have always taken a risk-adverse position, ensuring that we have large amounts of headroom in our facilities, large headroom on our key financial covenants, a good duration spread on debt maturities, good diversity of funding sources through our banking syndicate and our bond program and a good level of hedging cover. Now there is a cost to some of these things, but they are important from a risk management perspective, and this approach has put us in a very good position through this period. Importantly, as we go into this new set of restrictions, we still maintain a very strong financial position. Off the back of which and considering our robust operating performance in the first half of the year, you will see that we have declared a dividend of $0.06 per share. This is in line with the policy and practice of paying out 30% of underlying profit. Moving very briefly to Slide 14, which is resident and family feedback following the COVID restrictions through April and May. This highlights just some of the feedback we've received across the country, and I can personally tell you, having toured all of our South Island villages recently and the resident morning teas, which I hold in each village overwhelmingly, this is what I've heard face-to-face as well. Now if we move to Slide 17 and 18, we'll cover briefly our new main building, which has been launched in Casebrook. This gives you a quick overview of the new main building design. The first of these opened in Casebrook, which came not long before the level 4 lockdown, actually. This is a new generation of main building for our broad-acre villages and is the product of feedback and research and design development over the last few years. We've seen a great response from residents and very strong sales of memory care and serviced apartments in the Casebrook building. The next one of these opens in Rototuna later this year, and we have a number under construction and planning around the country. We had been planning to do an investor tour to Casebrook earlier this year, but this was obviously canceled. But we will be looking to do -- for an opportunity to run it later this year through our Rototuna building. The next few slides highlight our land bank position and development status. Some of the key points to draw out of this are: the land bank remains in a very good position with the largest land bank in New Zealand operators. Importantly, we have a good diversity of sites across the country. This provides us potential for growth, a lot of optionality around when we bring sites on and also lets us be selective in looking for further land. The other point I will touch on here is just our progress in Australia. As you know, we have 2 sites there. And despite the situation with COVID in Victoria, we have been progressing these broadly on timetable. In particular, we have lodged our plans for Cranbourne and are hoping to receive approval later this year. This should allow us to commence earthworks sometime in calendar 2020, although with the level 4 lockdown in Victoria, there is a possibility of some delays now. I'll touch also on the wider approach to expansion in Victoria and the impact of COVID, particularly with what we're seeing in aged care there. Clearly, there is a significant crisis in aged care in Victoria, with widespread community transmission playing a key role in this. However, the lockdown in place does appear to be having an impact with new case numbers dropping. And ultimately, we know this will pass at some point, and for us, Victoria remains an attractive market. If anything, we believe we are likely to see a pullback from existing operators in the market and an increased focus by residents on quality. Both of these work in our favor. In the [ HTS ] space, the impacts COVID is having will give significant weight to any findings from the Royal Commission on Aged Care, which has been running for some time now. We would expect this to serve increased standards and funding to the sector. We support this, and it will serve over time to favor operators such as us, who are prepared to make an investment in people and systems required for high-quality care. We do continue to look at land opportunities in this market, but clearly, we are watching the current situation very closely. And with that, I will now hand over to Scott Scoullar to go through the remainder of the presentation.

Thanks, Julian. Good morning, everyone. I'll just run through from Slide 23 onwards. So first, Slide 23. Look, you can see there that the development margin for the half year was $17.4 million. There's a couple of drivers there I'll just talk about, the first one being that, obviously, overall, it's contracted back about $10 million in terms of overall revenue. But there's 2 things that's sort of really driving that. The first one is development margin coming back from 28% to 22%. That's obviously something that we signaled in the full year results back in February. So we, at that point in time, gave a guidance range of 20% to 25%, so the 22% is right in the middle there. What's sort of being the primary driver there is essentially like our sell-down of our serviced apartments in Casebrook. So I've previously sort of talked to the market before about the fact that serviced apartments do come with a lower upfront development margin. And whilst -- when you sort of look at sales volumes comparing this year to the first half of '19 on the face of that serviced apartment sales, seeing the same volumes, essentially, what happened in the first half of '19 was we were selling down serviced apartments in Auckland, whereas [ the system is ] selling down serviced apartments in Christchurch. In Auckland, you do get a better sort of sales price so that drives a more positive sales margin out of the back of that. So in essence, so a lot of that's sort of driver on that contraction of the op margin and sort of that product mix. The second thing is, as you can see, sales price per unit have come down to sort of just on about $100,000 per unit. And again, that was something we sort of flagged back in February in the full year results announcements around that, the expectation to be selling less from Auckland given we're not developing a lot of product in Auckland at the moment. So in line with that, you can see that we had 31% of our settlements in Auckland versus 60% the year prior. So those sort of 2 things were really the predominant drivers for that. Then the other comment I'd make is sort of overall for margins-wise. We're getting about 24% in our Auckland villages and about 20% across -- sorry, 24% in our regional villages and about 20% in our Auckland villages. Slide 24, new sales. So we settled about 128 units relative to 139 for the first half last year. Again, like just sort of context that very, very marginally lower. But if you think about it in terms of COVID restrictions throughout that first half period, COVID restrictions were in place for about 35% of that period, so we feel like it's a pretty good sales outcome. In terms of like villages that we sold across, we sold across 11 villages. We're also opening 3 new villages in the second half of the year, being our New Plymouth village and our Napier village in Q4 and our Papamoa village in Q3. And we're obviously coming to the conclusion of 4 villages that we've been selling down in recent years. That's our Karaka village, Warkworth, Hamilton and Wigram village. So in terms of just sort of to give you a bit of context around that sort of that Casebrook main building. So Julian has talked about that before in terms of the new-generation sort of main building on there. That main building was completed somewhere around at the end of March and obviously, went straight into those COVID restrictions. By the end of June, we'd sold down or contracted 45% of that -- those units in Casebrook. So out of those 76 units that we bought there, 45% are either contracted or sold. And as at right now, we're at about 70%. So very, very pleased with the outcome of that. In terms of just other takes on new sales, settlements took 77 days on average to settle in the first half, about 100 days in Auckland and close to sort of 60 days in the rest of the country. And in terms of entry ages, they were up just marginally on what we saw at the latter half -- the second half of last year. So they're up about 1 year on average. Slide 25, new sales stock. So much similar sort of story there, pretty marginal increase from 344 to 355. And if you look at the product mix there, it's all just driven from most shifts to memory care apartment deliveries in Casebrook. So really, really comfortable, as I said, with the sell-down rates in that main building, and the stock there just reflects the fact that there was a little bit into March. And we'll see those stock levels in serviced apartments fall in the second half of the year. In terms of the split between contracted and uncontracted, 2 of the trends there, you can see contracted units up 20; and uncontracted, down 11. In terms of Slide 26, resales. So resales, similar trend to last year in terms of total volume of resales. Obviously, the margins stayed very, very stable, which is a really good sign. And the gross proceeds per unit were actually up $27,000 from the first half of '19. So nothing really drastic in terms of changing there. Really, like when you look at the mix of the units that were sold and where they were sold from across the country, very, very stable again. So 20% of it was sold in Auckland and 80% across the rest of the country. And that's just simply reflecting where the portfolio sort of lies at the moment. Slide 27, resales stock. So you can see an increase in here from the 132 we reported back at the end of the year to 204 units. I'll just importantly say that 80% of that stock that's in stock now is less than 3 months old. And so what that reflects is that couple of months worth of COVID restrictions we had in place, where people had terminated ORAs and at that point in time, were sort of unable to move their belongings out of their homes. So obviously, sort of we had that delay in terms of people moving their stuff out. And then obviously, after that, you've got to refurbish those units. So we're really comfortable that resale volumes are at a normal level and stock levels were up. But it's all brand-new sort of stock and affecting just those sort of -- that COVID impact. In terms of Slide 29, IFRS profit. Just a couple of things I'd say here. The first one is if you back out the fair value adjustment and you just sort of ignore fair value for a minute, if you sort of just look at the core profit outside of the fair value, it's actually up about $10 million. And then the second thing I'd just say is in relation to sort of the $1 million worth of IFRS profit this half versus $93 million previously. There's sort of 2 real things going on there. If you back out the assumption changes that CBRE has made through the period, we would have had a profit of about $50 million. And then if you take into account the fact that in that second part of the first half we were obviously not considering increasing unit prices, that had about another further $20 million impact. So sort of COVID directly probably had somewhere around about $70 million worth of impact between assumption changes and not changing pricing of units. Slide 31, underlying profit. Look, the only thing I'll touch on here is people often ask for a bit of color around the $4 million of extra costs. About $2.5 million of it was attached to staffing -- or extra staffing or allowances for our frontline staff through that period of COVID restrictions previously. And then the second part was another $1.5 million worth of protection equipment, sort of pandemic kits, stuff that we were purchasing through that period. Slide 32, cash flow statement. Look, net operating business cash flows were $16.5 million, up from the $4 million in the first half of '19. I'll just touch on a couple of points that you probably need to normalize. The first one was in 2019, the cash flow was artificially low because we hit a $6 million change in accounting policy, which we spoke about in the first half '19's results. And then the second thing is in 2020, if you stripped out some of the impacts of COVID, which is sort of $5 million, what you're sort of ending up with the year is an $11 million positive net operating business cash flow for '20 million versus '19 -- versus, sorry, $9 million for 2019. So it's still up if you take full normalizations into account. Slide 33, balance sheet. I won't comment here really other than say, often, analysts ask for the sort of the funding models, what are our expectations around details for the end of the year. Look, we expect it to be somewhere around about $700 million. But as I've said previously, it's very, very hard to absolutely comment on that because it depends on whether we buy land in the second half of the year and what the [indiscernible] attached to that. Slide 34, gearing ratios. So that's up 2.5%. Look, a couple of things really there that's driven that. The first one is land settlement. The second one is -- which is probably the most important one and most intensive one, is we've got a combination of 4 new main buildings being built at the moment, which is quite high in proportion normally to what you normally do. So normally, you'd have 1 or 2 on the go. We've got 4 on the go. And then the second thing is we've got apartment blocks being built in both the Ellerslie and 2 apartment blocks in Kenepuru being built as well. So quite a lot of capital sort of going into the year. And then at the same time, I mentioned before, we're opening 3 new villages in the second half of the year. You've got a bunch of civils, earthworks and stuff going on in there. So hopefully, that gives a bit of a sense of sort of the driver behind the 2.5% increase. And then the last slide, 36, interim dividends. So as Julian mentioned, $0.06 payout, sort of 30% of underlying profit, 2% DRP and paid on the 2nd of September. I'll hand it back to Julian.

Thank you, Scott. And so that concludes our run-through of the presentation, and we will now hand over to the operator for questions.

[Operator Instructions] Your first question comes from the line of Andrew Steele.

Yes. Can you hear me?

Yes.

Can you hear me?

Yes. We can.

Just the first one for me is on your current trading momentum. Could you give a sense for sort of, I guess, the degree of bounce back that you've seen so far in the second half to date and maybe in the year-to-date, how you're tracking with prior year for new sales and resales?

Andrew, what I'd say is, look, if you compare like post the first -- lot of COVID restrictions through the sort of current state, kind of what is the sales rates like relative to the same period in 2019. Sales rates are up about 50% overall. So that probably gives you a good sense of sort of momentum relative to sort of normal trading conditions a year ago.

Okay. And sort of the same for both new sale and resale stock.

Sorry. So for new sales, it's about 50%. For resales, it's about 30%. But similar sort of trends, up quite markedly.

Okay. That's great. And I guess, given the increase in your resale inventory and I guess, the increases you've currently seen in the resale momentum or the bounce back there, do you have a sense for sort of the time period that you may expect to see resales -- or that inventory level normalize? And I guess, related to that, given the higher level of inventory that you're carrying, has that impacted your thinking on managing debt and CapEx at all?

Sure. I would say, first of all, probably like, look, the increase in resales isn't particularly material from sort of gear and debt sort of perspective at this point. Obviously, like if -- that's sort of where we stand right here right now. But look, it's sort of hard to predict. We are actually seeing quite high degrees of ORA terminations in the sort of 6 months relative to what we would normally see. That's not actually anything to do with anything outside of normal course of business. So it's not people leaving to return sort of to independent living or anything like that. It's just normal drivers for people leaving, but we're seeing elevated levels of ORA terminations. So that's obviously a good thing for the business, but it should give us more stock as well. So there's sort of that going on as well. So there's sort of 2 things playing out there, it's obviously that, that last period of having a bit of a buildup of stock, we have said people couldn't move out their belongings and then refurbishing units. And we've already seen it start to come back down again even with those 2 factors in play, but I think it'll probably take a lot through to the -- into the second half, and it's obviously pretty hard to determine what's sort of in front of the country in terms of COVID but -- and how that impacts resales volumes going forward. But I'd sort of say you'll go see a gradual return to a more normal level over the next 6 months depending on what happens.

That's great. And just one last one from me. Obviously, your workflow for this year in terms of construction activity was impacted by lockdown restrictions, and that's been reflected in your build rate guidance for this year. Obviously, there'll be some flow-on impact into activity development delivery into next year as well. I mean, at this stage, do you have a sense for what might be sort of a reasonable range of delivery? I think you'd previously talked to something like 500 to 550 pre-COVID.

Sorry, Andrew, are you talking about delivery for this year?

For next year, for FY '21.

Yes. So Andrew, we haven't given guidance beyond this year and [indiscernible] at this point in time. So we're still sort of sticking with that 300 to 350 guidance for this year. But you're probably more likely to expect an announcement around future sort of build rates at full year results, I would expect.

Your next question comes from the line of Stephen Ridgewell.

First of all, well done to the team for the health response swiftly on behalf of your residents and then also for the solid financial result under the circumstances. First question for me, how -- and you did kind of touch on this, but how do we succinctly bridge the 6% decline in underlying NPAT year-over-year with a plus 9% you seem to be saying would have been the case without COVID? Or what would be the main buckets of improvement presumably on? You're talking to new sales and resales. But interested as well, is there -- was there kind of a margin impact in there as well?

Yes, Stephen. So there's a couple of things going on there. Obviously, like we had sort of signaled at full year results guidance back in February that at best, the result would be the same as sort of what it was in 2019. So -- and we've signaled that there was obviously going to be some cost investment that went into the business at that point in time anyway, which was attached to sort of caregiver nurse wages. So there's sort of a couple of aspects going there. It's that cost investment we've made is, obviously, if you normalize that for COVID impacts and then the sales rate impacts, which the sales rate impacts are the ones that are really hard to give a sense of, and I think my best analogy around that is sales were down sort of 5%, 6%. But a lot of that COVID restriction was sort of, what, 35%. So how you kind of wash all that up is probably a good question there. But like I think we feel like the result overall was pretty strong considering the conditions.

Yes. Okay. That's fine. And then just specifically on OpEx in the first half. You did sort of call out some unusuals, including the wage subsidy and additional costs. I mean what would be a normalized rate for OpEx in the first half? So it was down sequentially on the second half last year that you reported. So -- and then so how should we be thinking of OpEx going into the second half? And specifically, should we be allowing for more wage subsidy claims in the second half?

Look, I can't comment about wage subsidy claims going forward. But obviously, if you just take out $5 million, you kind of essentially strip out the impacts of the COVID restrictions so far today.

Okay. And then just in terms of the Moving Made Easy scheme that looks to have been a great success, have you -- can you comment on kind of collection times that you're seeing? Are they kind of broadly in line with what you would have seen for collection times for sales pre-COVID? Or are they still pushing out? And then also, can you just update us, is that scheme being extended? Or do you intend to extend it into next scheme? Or does that finish on schedule at the end of July?

Sure. That did finish at 31st of July. So don't intend, at this point, to extend that. Second question, I think, was just around collection times, and they were pretty good. Look, I mean I think -- when I flagged before, settlement time frames of 77 days have actually sort of come down to a degree. And so feel like those are actually pretty strong, especially given the period where people actually couldn't actually do legal settlements in that first half of the year. So not seeing any sort of, I suppose, mass sign-off -- or certain aspects of it being taken up. So obviously, in that offer, we had allowed our people an extended period of time to settle. Not really seeing that being used at this point, but maybe that's just a reflection of people still going through the process. If you think about some people who would have signed up contracts in June, July, they may not be at that stage yet where they've sold their house [indiscernible] how that sale is going to proceed yet, Stephen. So I think at this point in time, I'd say, as you may see, the time frames have been really, really good for the business. Haven't seen any sort of need to have extended time frames.

Makes sense. And just one follow-up there. Since that scheme came to an end, Moving Made Easy scheme came to an end, have you seen any notable change in sales run rate? I mean the chart you've put out suggests it's going to continue to improve, but I just wondered if you could call that out.

Simple answer is I haven't seen any changes in sales, right?

Okay. Great. Yes, makes sense. And just one last one from me. On the build rates, so most -- you actually confirmed guidance for 300 to 350 units this year. Just interested to see if there could be kind of any impact on where you land within that range, depending how the kind of the wave we're seeing at the moment plays out. Is that something you're sort of watching pretty carefully as far as some, perhaps, some new commitments go for Q4 and particularly into 2021?

Look, we account all with current guidance.

Your next question comes from the line of Aaron Ibbotson.

It's Aaron Ibbotson. Just a couple of quick questions from my side. And the first and second, related, is if you could talk a little bit around CapEx for the second half, if you have any current expectations. And maybe also because there's a couple of moving parts, judging by your comment, it sounds like you think your gearing ratio might decline in the second half towards the end of the year if we assume no valuation changes. Have I understood that correctly? Or could you answer that roughly?

Look, a couple of things there. One is, obviously, you're asking about sort of CapEx generally. I think there's a couple of things I signaled in there. One was obviously sort of if you're talking sort of more broadly around investment cash flows, which is obviously the biggest chunk of it, obviously, [indiscernible] is sort of one thing that's obviously a bit unpredictable [indiscernible] where we're buying in the second half. But in terms of construction sort of side of things, we obviously will see a little bit of a benefit attached to those new villages that we're opening -- actually opening and starting to recycle sort of cash back out of. But -- so you kind of finish that civil and earthworks periods for those new villages. And then secondly, for the main buildings and apartment blocks, essentially, Kenepuru will -- sort of the apartment blocks will be sort of -- one of them will be finished at the end of this year and one early next year. So sort of you'll still see sort of quite a degree of sort of investment cash flow going into those buildings. It's much the same for Ellerslie, like that will be sort of early to next year those apartment blocks delivered. So again, you'll still sort of see a degree of investment cash flow going through for those 2 -- for that apartment block as well. So for -- essentially, what I'm sort of saying is for apartment blocks, you'll see that right through to the end of this year, certainly next year and then it will take profit as we deliver those apartment blocks for main buildings. Obviously, we get the benefit of Rototuna having completed sort of later this year and Casebrook having just completed. So by the time we get to the end of the year, you might get into a little bit more of a sort of a normal cycle for main buildings as well for a period.

Okay. I'll take that. Secondly, and slightly long term, I wondered, given the sort of changing environment in Victoria, if you could update us roughly on how -- what do you see the time frame from sort of earthworks to first sell-down in Victoria. If there's any sort of views already now forming around how long we should wait for recycling of cash there, if you have any thoughts on that.

Well, Aaron, Julian here. Look, in terms of the Cranbourne site, obviously, the first site we have, we had been expecting and continue to expect development approval this year. The council that we've been working there with have been very proactive and very quick in coming back to us on things. So that's certainly very encouraging on that basis. We had thought we would be into earthworks late this year, which would set us up for delivery of our first billows towards the back end of 2021 and then, most likely, the main building being delivered towards the back end of 2022. So we would really be looking in terms of capital recycling out of that, potentially some settlements at the back end of next year. But really, it would be the 2022 year where you'd really start to see the cash come in.

Perfect. And finally, just a clarification, and this is probably just a misunderstanding from my side. But I was under the impression that your dividend policy was sort of 30% plus or 30% to 40% or 30% to 50% of underlying earnings. I think you mentioned on the call, Scott, that it was 30%. So is that the current policy, 30% on the dot, which is indeed what you delivered this half? Or do you have a bit of leeway going up there?

We do have leeway. So the official policy position, and it hasn't changed since listing, has been 30% to 50%. I think, listing, we may have paid 40%. But consistently, since then, we've been paying 30% each year on the basis that we want to pay at the lower end of the range given the growth prospects we've got ahead of us.

So what would make you -- it's just growth prospects rather than any in-year or otherwise cash metrics that you're monitoring for that to move up towards the mid or upper range? What are the key things to look for there?

Look, I think the key thing that has kept us at that 30% is simply the rate of growth ahead of us, and we don't see that changing for some time yet. So we feel that it's a better use of shareholders' funds to be reinvesting into the business. So if that were to change, and as I say, we don't expect that to change for some time, then that could give cause to revise that position.

Your next question comes from the line of Nick Mar.

Sorry, first, just to clarify, the comment around the net impact of COVID being 15% on underlying profit. Given that you were kind of plus $5 million from the wage subsidy versus OpEx, so that's saying that the result would have been 15% lower. Otherwise, not. If it wasn't for COVID, it would have been over 15%. I wonder, is that correct?

Sorry. Repeat the question, Nick.

Just the comment around the net impact of COVID being 15% of underlying profit because, obviously, you hold out the plus $5 million. So just clarifying that it would have been -- the result would have been 15% lower. Is that what you're saying in that comment?

Yes. Yes. Okay. Yes, that's right.

Yes. Okay. No, that's cool. And then just kind of broader question. What's your kind of thinking on pricing strategy at the moment? Obviously, house price inflation has been running really, really strong in a lot of your regions. What are you thinking about pricing in terms of -- can you take it up? Or are you going to just grow the buffer in case prices do start to unwind a little bit?

The latter, Nick. Here -- look, we've been pretty conservative, too honest even right through that last period of 12 months around taking in resell and new sale prices again. And you can kind of see that, as I mentioned before, in that if you look at net fair value kind of the lower kind of unit pricing numbers that we had previously, do feel like that positions us well to ensure the product is still highly affordable. And obviously, like in the last 3 months, as I said, people or economists predicting some pretty different changes in patterns but that hasn't seem to eventuate. So I think like the last 12 months have been pretty conservative. We'll just keep watching over the next sort of 3 to 6 months. But it's fair to say that the buffer that we've got between the median house price and what the average price of our units has actually improved over the last 12 months, which puts us in a pretty strong position.

Yes. And you did see what the economists were predicting, which is somewhere kind of between 5% to 10% decline from here. Just do you feel comfortable you'll be able to kind of hold price at these levels and utilizing that buffer?

Yes. I feel pretty comfortable that for most, if not all, of our regions that we're in, people would be able to afford to come to the village at a median house price. And obviously, we got some of those other sales levers there that we've introduced before in the package, which Julian was talking about before as well, which are sort of things that are available for us as levers as well.

Yes. That's great. And then just how that kind of flows through to the valuations. It's interesting that the valuer kind of put through the same assumptions at kind of June as they did end of March. And obviously, things have changed and arguably got better, people a bit less pessimistic. What were your discussions like with the valuer around it and whether or not the assumptions feel kind of justified given how strong the market has been?

Look, I'd probably leave that one for you to form your own view on, but like I think we've obviously hit those sort of same types of robust discussions there, and they have obviously taken a sort of more of aesthetic view of saying they'd sort of treat June the same as March. I mean that's sort of open for debate and interpretation. But definitely, it feels to us like trading conditions were better than probably what they were expecting in March. But yes, I'll leave that one to you.

Your next question comes from the line of Jeremy Kincaid.

Just a follow-on from Nick's question. Around your sales, are you having to use any of those levers such as changing DMF terms or getting younger residents or anything like that?

Well, Jeremy, Scott here. Just in terms of that, I think like a couple of things I'd say is one is the average age of entry for people entering our villages in the first half, as I mentioned before, actually sort of went up 1 year on average relative to second half of last year. So -- and that would sort of imply overall there's no sort of big changing trends in terms of allowing people on incredibly younger. The second one would be, as I mentioned before, the sort of the MME package that was in play, which had sort of a variety of mechanisms available for people if they needed to use them or now selling their house, too, so that they can move in early or potentially if they couldn't sell the house over a period to sort of have conversations with us about potentially, if they were short on $20,000 or $30,000, being able to pay us $23,000 less but pay potentially a little bit more to the management fee. As I said, like, in the vast majority of those cases, the staff hasn't been trained at this point. But to be fair, it's probably equally quite early on in that process for people in the last month or 2, who are still sort of probably selling their houses to see there, but have seen no real sort of, as I said, changes fundamentally in those dynamics at this point.

Okay. Sure. And then just 2 questions on construction and costs. Firstly, can you just provide us with a view as to where you think construction costs will go over the next 6 to 12 months? And then secondly, is there a greater cost to build the new-generation buildings relative to the older-generation buildings?

Yes. Julian here. Look, in terms of construction costs going forward, it is a bit of an unknown. We're certainly seeing price reductions in the tenders we are running at the moment. So bearing in mind, we're not tendering all of our work all the time and we are tempering different trades at different points in time. But we've seen price reductions from anywhere between 3% to sort of 12% on some of the tenders on what we were expecting. We have also seen a much greater number of tenders come into the tenders that we're running, particularly in the civil and the earthworks space as a lot of the work that those contracts that have been doing has dried up. So certainly much greater contract availability. And talking to some of the other people around the market who are in the space who are tendering works for construction, we're hearing sort of similar numbers. So could be some reasonable kind of price decreases over the coming 12 months or so. In terms of the actual main building construction costs, on a per square meter basis, it would cost us probably very similar to what we have previously built, but bear in mind that the building is a much bigger building. So that is -- it's a memory care center. And it has a number of serviced apartments built into it, and it does also add a bit of additional recreational sort of facilities, which, previously, we didn't quite have all we had but we have laid them out in a much better fashion now. So per square meter, not much of an increase, but the absolute dollars do go up just because the building is bigger.

Right. And the sales of the memory care, obviously, under the older model, so does that mean the cash coming out of the fully developed business -- village is better now?

Well, the memory care is all sold under ORA. Now remember, we have one other memory care center, which is Levin, which was built a few years ago, which is half-half ORA and rental -- or effective rental. So certainly, look, we'll get a little bit of cash up plus out of having memory care all sold under ORA. But remember also, it's only 20 units out of the village, which might be 250 or so.

Your next question comes from the line of [ Ali Chain ].

Is that me?

Yes, it is.

This is [ Eric James ] from [indiscernible]. I have 2 questions. The first one, more straightforward, on Page 26 of the presentation, the -- I noticed that under the resales of occupation rights, the DMF realization was a decline year-on-year, but the average selling price was up. Can you give me more color? I thought DMF was kind of a straightforward percentage of the retail price. If the retail price is up, why is the DMF realization down? First question.

Probably just related to tenor that have come through associated with stuff that -- and that can vary around a little bit.

[indiscernible] Hopefully, assumption changes had a negative $42.7 million impact on the fair value movement. That only amounts to about 1.3% of the carrying value. Can you give me a bit more color? What was the actual shape of number of the CBRE accounting changes on the long-term housing price index?

Sorry. You cut out on that question so can you just repeat that?

Page 40 -- sorry, Page 30 of the presentation, under the growth rate assumption waterfall chart, there's a $42.7 million negative impact from the CBRE assumption change. I want to understand, what was the assumption change by CBRE on the housing price that gave rise to this $42.7 million decline in the fair value movement?

The bulk of that change is the $42.7 million [indiscernible], if that's the question you've got.

Yes. I think...

Yes. [indiscernible] $42 million, you'll see the growth rate assumptions in there, and you'll be able to compare that to our prior year assumptions in the previous pack. So primarily, you'll see that growth rate in year 1 is negative 2% for most villages. That's the valuer's assumption.

Got it. So just thinking year 1 to minus 2% and then the rest basically are fairly unchanged to give rise or a minus 1.3% to that net change. Is that fair?

Yes. I think that would be broadly right. But if you look at Page 42, it will give you all the details.

Your next question comes from the line of Shane Solly.

Great result. Well done to the team. A couple of questions. You touched on industry change in Australia. How does Summerset take advantage of this over the medium term? And then similarly, do you see a similar change in the New Zealand industry?

Sorry, just repeat the first part of the question again, Shane.

Yes. Sorry. Julian, you talked about this rapid industry change that's evolving in Australia. Obviously, a bit of a very challenging time there. How do you take advantage of that? And if you look in the next 2 to 3 years, what's the opportunity, see it -- how do you take advantage of it? And then secondly, do you see something similar occurring in New Zealand? Or is it less of a strain?

Well, look, if I'll touch on Australia first. Look, we all see the crisis with COVID getting into facilities potentially in Victoria. There is a huge amount of pressure on operators in Victoria, not just from the fact that they have to deal with COVID and the issues that come with that. And so keeping residents and staff safe, obviously, are their #1 concern, but they are finding it very difficult. What's also happening in Victoria but also is happening across the sector is there are red outflows out of a number of these facilities. And even where people are coming into -- so new residents coming into the facilities, they are more often than not, at the moment, we are hearing picking a debt and not picking a red. So there is considerable capital strain on a number of the aged care operators, and we've seen recently some of the smaller private operators, I think, recently, as of last week, it was Presbyterian Care, looking to exit the sector, just finding it too difficult. Having said all that, we know COVID will pass at some point, and we know that there will be a continued need for aged care. So I think this is certainly going to throw up a lot of opportunities in the retirement village side. We've been tracking inquiry rates, which are available nationally on some of the key retirement village websites across Australia, just like New Zealand, where we saw a very strong rebound and inquiry after the initial lockdowns came off. Exactly the same thing has happened in Australia. So they saw a big rebound in inquiry levels and people coming into villages. So we know that on the village side, that certainly despite what's happening in Victoria, a lot of people -- this crisis has forced a lot of people to accelerate their thinking in terms of coming into a village and has highlighted the advantages that villages have. So that's happened in Australia as well. So look, I think the opportunity set for us is around aged care. We believe there'll be more and more resident and family focus on wanting a quality operator. We believe that there will be changes to the sector that will come in regulation and that will also come in funding across Australia. There has been a Royal Commission underway for over a year now which you well know. This Royal Commission was due to deliver a report and -- on the back of probably 15 to 16 separate inquiries in aged care over the last 20 to 30 years, many of which have been ignored. What COVID does is it gives the Royal Commission's report -- COVID will give it significant weight. And there's been significant focus all the way up to Scott Morrison on commitment to reform in the sector. So that suits us well again. We're a quality operator. And certainly, we do believe that funding will come in behind it from government to support that will put pressure on smaller operators, and we'll see other operators leave the market. And then on the -- I guess, on the development side of the business, what we also expect is just less activity from top retirement village operators, more need availability, pressure on developers, all of which, we think, we're ripe for opportunity there. Does that mean we're going to have industry changes in New Zealand similar to that? Look, I don't think so. We do have quite a different industry setup here. We have a lot of very integrated retirement village and aged care players, whereas, as you know, the market over there is quite separate. And we haven't had COVID come into the country, thank goodness, and hopefully, we can keep it out. So I think quite a different sort of position here, although I think our sort of view on this thing, the key themes for aged care in New Zealand are similar to Australia in that, over time, we do expect increasing regulation with a focus on increasing quality in care, which we are quite open to. So I hope that answers your question.

Yes. That's great. And just picking up on that. In terms of your ongoing investment and looking at your residents, is it fair to say that from what you've seen this morning, you're presuming there's some degree of ongoing costs associated with protecting residents from COVID and doing the right thing that you're allowing for? I appreciate there's no guidance, but is it fair to say that you're allowing for some degree of ongoing costs there?

Look, there will be -- if it continues -- if the lockdown levels continue where they are and then roll backwards, we wouldn't anticipate that the costs would be significant. A lot of the costs we bore, such as PPE, is already sitting in the business ready to be deployed as appropriate. If we saw level 3 across the country or level 4 in Auckland or elsewhere, there would be some more costs. But at the moment, that wouldn't be a significant cost, but we're certainly ready to spend what we need to spend.

Okay. And just the last one for me on that basis in terms of the range of 300 to 350 starts. You've talked about -- sorry, completions. So that's -- the 300 allows for a degree of level 3, level 4. Is it a fair call? What would lead you to reduce construction?

If we went back into level 4, we would be having a hard look obviously at that guidance. At level 4, you can't operate or you can't be on the sites building. At level 3, we found through the last period, we were operating initially at around 70% to 80% productivity but pretty quickly got that up to around 90%. So productivity levels versus no restrictions are actually quite high. And the bulk of the building that we are doing across the country is these lower-rise main buildings or villas, where you're able to enforce these trade bubbles, which is a key component of the restrictions much more easily than if you're doing multi-story, high-rise buildings. So if we continued at level 3 for a slightly longer period than what's sort of in place, that would probably be fine. But if level 4 came in, then we would need to relook.

Your next question comes from the line of [ Jason Hamilton ].

Just 4 from me. The first one, can you just talk to, I guess, where you're seeing selling prices or reselling -- resale prices today relative to the CBRE valuation assumptions? Is it generally across the portfolio?

Scott here. Basically, they're in line with CBRE valuation prices at the moment.

Okay. Second one, just on St Johns, can you just give a bit of a time frame on what your thoughts are around when you might start to see some units out? And I guess secondly, with that, has that been impacted at all by what's been going on with COVID?

Are you essentially after the first delivery dates for '24, St Johns? Is that sort of what you're talking about?

Yes. Yes. Yes. And just how you thought [indiscernible] has been given what's been going on and gearing within the business and potentially increased risk given slowdown may or may not happen.

Sure. So at the moment, like, we have time to do a little bit of earthworks and sort of prepared to work on St Johns. So we'll sort of keep doing that. It's not heavily capital-intensive at the moment so that's a prudent thing for us to do. I mean, ultimately, we're sort of looking at who's the [indiscernible], which should be more probably, I don't know, 3, 3.5 years, 4 years away, that sort of time frame. So you're probably talking relatively the time ratio on site, actually, constructing selling down. It's more likely to be 2023, '24, [ Jason ]. So at the moment, like any time period, it is just initial civil sort of site preparatory work.

Okay. The other one, just talking about land. I guess have you looked at much land lately? And I guess what trends are you seeing in land lease or availability?

Yes. It's Julian. Look, I think, look, as we always say, we always look at land, and we're always open. Our land bank, as you see, is in a pretty good position so we can be a bit picky. What are the trends we are seeing, look, certainly seeing a few more things pop up and probably a little bit more realism out there. We'd always like a bit more of that, but there is a difference since things are changing a bit.

Okay. And then the final one, with revenue up 11% in the first half, why do you think you're eligible for the wage subsidy?

Look, different tests, I think like, so obviously, when we went into COVID in that period entering into that, I mean, obviously, the talk at that point in time was going to be we're -- sales is going to be heavily restricted. And for what time period, what's it going to be? And so there was a very large scale of uncertainty that's out there at that point in time. And obviously, through that level 4, level 3 lockdown period, there was obviously a period there we -- and legally, we couldn't even sell units. We're allowing the people who have been given advice at that point in time over 75 years old to sort of stay at home. So -- and when we claimed that subsidy, that was obviously under a test on a basis of a 30% 1-month fall in underlying profit. And so we're comfortable that we made that test. Obviously, like what's the payout subsequent to that as you've seen the results have come out today. But at that point in time -- and we're still maintaining we're eligible for that wage subsidy test.

There are no further questions on queue. Presenters, please continue.

All right. Well, look, that, I think, concludes it. So thank you very much for your time, everybody. And as always, please feel free to get a hold of either myself or Scott if you have any further questions. Thank you.

Thank you, presenters. Ladies and gentlemen, this concludes our conference for today. Thank you all for participating. Stay safe, everyone. You may now disconnect.