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

Good day, and thank you for standing by. Welcome to the Summerset Group First Half 2021 Results Announcement Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mr. Scott Scoullar. Thank you. Please go ahead.

Welcome, everyone, to our 2021 half year results call. My name is Scott Scoullar. For those of you who don't know me, I'm Summerset's CEO. Today, you'll be hearing from me; Will Wright, our new CFO; and Tania Smith, our Head of Finance. Will started with us on the 7th of July. Will was previously the CFO for the Building Products division of Fletchers. He was also spending time as CFO in their Residential Housing division as well. So Will obviously brings a lot of good, relevant development and construction knowledge and [indiscernible] of Fletchers, was an associate director of Bancorp. Tania, you all know pretty well, she's been acting CFO for the last 6 months, and then her day job she is a head finance as well. But before we talk about our half year results, I'd just like to talk about the current COVID situation. And you all see this is the very first slide that we've got in the presentation. And really, it's the fact that we're keeping -- our key focus is really on keeping the [everyone] safe, so [indiscernible] right to the start. In terms of where we're at, Summerset was pretty well placed when we entered the lockdown late last week or early last week, I should say. Our care facility staff for were already wearing face masks across New Zealand for the 2 weeks prior to that. We've got over [ 80% ] of our staff in our [care zone] are fully vaccinated. We have over another 5% of [indiscernible] as well. And looks almost that's probably a little bit out of date as they're moving daily. Our non-vaccinated staff are wearing full PPE. All of our Auckland village staff are wearing the higher-grade N95 masks. And in terms of PPE stocks just in general, really well placed, got over 100,000 [ordinary] masks, over 60,000 N95 masks and have 250,000 plus in stock. We've had no cases in any of our care facilities, and we haven't been taking any care admissions since government-mandated lockdown. A lot of other industry players still take their admissions, but our focus at the moment is on existing residents and not introducing new people into those sort of environments. We've got a range of normal protocols in place as well, so things like hand cleaning protocols, staff screening at shift changes, staff change, protocols around their clothing, agency staff restricted. I need to work for one provider as well, and we're doing roaming sort of random COVID testing programs. It's also important at the same time just to touch on some of the core things we've been doing and some of the things I hear about things like [indiscernible], virtual concerts, [indiscernible] sharing, palm readings, live line testings and [indiscernible] speakers. So those things are the things that we have done or we've got underway. Our sales team are also taking the time to ring up and check on elderly people in that community. And look, the last thing I'd sort of touch on in relation to COVID would be financial position for the company, we feel, is really very strong. You'll obviously see an extension to our debt facilities, which give us circa $850 million unutilized capacity related to just under $700 million worth of drawn debt. So I expect this to be the strongest position in the sector. Just move on to Slide 5, the first half summary. So for over the last 6 months, we've taken a real step-up in terms of performance. A number of key highlights for me are things like underlying profit. For that 6-month period, you'll see $75 million, up 67%, and we know that's volume related and relates to people purchasing new homes and [resell] homes as well. In terms of net profit after tax, $264 million, obviously significantly up on the first half of last year but also ahead of our full year 2022 results. So key contributor of that was the continued house price buoyancy, and we've lifted prices in our villages over the last 12 months by just over 8% relative to 29% across New Zealand for residential medium house prices. Operating cash flows at $230 million that's more than double that achieved in the first half of 2020, and pleasingly, our core operating business cash flows, which exclude new sales, are higher than for the whole of last year, again, reflecting really the continued strength of the corporations of the business. Gearing ratio is reduced to 28.5% from 35.8% a year ago, and the first half of the year saw record people purchasing and moving into a Summerset home or settlements of 545 homes. And at the same time, we delivered 347 homes, which is pretty close to what we achieved for the whole of 2020. In terms of Slide 7, looking back for the first half, I just wanted to touch on a couple of personal highlights for me. It was great to see Ellerslie as a village being completed. I went there at just over probably 6 weeks ago now. And you see the beautiful [bowling green] in the middle of the lake. Really, what more can you ask for in a sense of our construction activity site anymore? And this is sort of reflected really in the fact that we've sold close to 60 homes this year there. I got to experience my first main building acting as CEO in Richmond, and it's amazing to see what that means to residents. I think we would have had probably a completely full village turnout there and had really sort of demonstrated how those facilities are key drivers to why people come into our village. We're underway with our Lower Hutt village. And so here's a [indiscernible] I get asked a lot when we're getting started on that. And so we're underway with building in that, and we've got over 500 people on the database, which is twice the amount of people that, that village [indiscernible] house. And just moving to Slide 10, bringing the best of life. I just want to take a moment here to acknowledge a few more successes we've had this year. Our people and culture team won the talent acquisition awarded at HR New Zealand Awards. Last year, at its peak, the team took a 6-week campaign to hire an additional 161 staff, and I think that went through something like 1,100 applicants. And our internal design team also won gold at New Zealand Commercial Projects Award for our Duke House renovation at our Hobsonville site, and that's a colonial cottage we did up. And the amount of passion and pride that our construction team put into that was pretty incredible. We've also done a lot of work recognizing and promoting diversity inclusion across the business. So we formally see that interviewed staff about their views just recently. We're currently doing a lot of great work around medication optimization. The stocks at the huge volume of medication at [indiscernible] and [indiscernible]. Often they've built it up over a long period of time at 10 years plus and make sure these medications remain fit for purpose. And we've now got around 650 staff who've become owners of [indiscernible] some 6 years following the 3-year vesting period that we have. Staff who joined in 2016 who owned those shares now have about $5,700 in value, a nice little [indiscernible]. For our residents, one thing COVID has taught us is the importance of technology of bringing people together and [indiscernible] trialing a new resident portal on tablets in their villas. This idea is really just improved communication between staff residents, between residents and their families and residents and their friends, enables real-time communication provides sort of basically a whole lot of information at their fingertips, including any announcements within the village, any activities or events [indiscernible] book. Actually just last week, just last week, late last week, during COVID, I was watching the trial site, and we had a virtual piano player singing and doing a show [indiscernible]. So that was pretty cool to see [indiscernible] watching [indiscernible]. That Slide 10 looks -- Slide 11. Continue to take really good steps to improve sustainability. Summerset still is New Zealand's first and only carbon-zero-certified retirement village operator or at least that I'm aware of. We've seen our carbon emissions reduced by around 31% from our base year in 2017. So we're sort of essentially halfway towards that 62% reduction target that we've got for [ 2032 ]. In terms of sort of practical things that we've been doing to sort of improve sustainability, incorporating the pellet boiler to our new St Johns village to replace the gas systems that we're originally going to put in there, we've stopped any future implementations of gas boilers into our villages. All our future villages, we're looking at centralized electric vehicle charging stations. We're also just in the process of doing some work to retrofit some of our existing sites with vehicle charging stations. We've set waste division targets for our construction teams. Yes, those are some of the highlights we've done. In terms of Slide 12, development in Australia. Look, despite the extensive lockdowns in Victoria, we feel like [we actually] made some pretty good progress there. Issued just last night, and it's too late to put in this presentation, but we received our confirmation from the Casey Council that approved our Cranbourne North site planning permit or as those people in New Zealand know, a resource consent for that site. So we'll be straight to earthworks now. We'll welcome our first residents essentially in 2022. Today, you'll see we announced our fourth site in [indiscernible] and Melbourne suburb of Craigieburn. That's, look, a really well-positions site and actually state-government approved growth corridors. So there's about 7,000 people in that catchment lifts to about 10,000 by 2026. Got one other operator within 5,000 radius for us, and median house price is over $600,000. And looking at like some of the other growth corridors and suburbs nearby, that median house price is lifting up quite drastically. One of the neighboring suburbs went from $600,000 to about [ $800,000 ] median house price in the last 12 to 18 months. So look, I feel like we're delivering on their intention to build our Australian land bank quite well. In Slide 14 to 19, the New Zealand development team consenting stuff. Look, a couple of things. We obviously talked about that record program of first half deliveries of 347 homes, and the completion of the main building at Richmond was a great achievement. The final apartment block in Ellerslie was completed. The first 2 of -- sorry, the first of the 2 apartment blocks we're doing in Canterbury was completed, and then we're doing sort of homes at [10] other villages or [indiscernible] that are villages in different regions. So there's a real good diversification across the country there. We also gained resource consent for our Prebbleton Village, which we've actually already got underway. As I mentioned earlier, we started a Lower Hutt. And just last week, we got resource consent [indiscernible] village as well. So it's another green light for another village. And look, for -- in terms of how well we place for the future, in terms of consents, we think we're really well placed. We've got 100% of our resource consents in place for '21, 100% in place for '22 and 90% for '23. So essentially, we've sort of secured all 3 years' worth of consents. And the only 2 sites in 2023 that remain are Blenheim and Waikanae, and Blenheim [indiscernible] remediation recently. We're quite confident that, that will go well for us, and we're positive outcome pretty quickly. Waikanae is going through the fast track process the Minister of Environments that [ Parker ] referred that to Environment Protection Agency and has judged that, that project does meet the requirements of the fast track process. So I think that feels in a pretty positive light as well. And you'll note that we also have announced today that we've purchased another site in Palmerston North. So that's at the northern part of the city where all the new housing development is going. The median house price for Palmerston North now is actually at $670,000, and that part of the town is actually up at $750,000. Our existing viallge in Palmerston has always got a big, big waitlist. So we think that will go really well for us. In terms of Slide 20, the residential market summary. Look, just 2 points I'd make there, really. I just reinforce that, that 8% uplift in pricing over 12 months versus the market uplift to 29% places us in a really good position in case of economic downturns. And obviously, we'll benefit from having a lot of regional New Zealand locations. So in the event of a future regionalized lockdown [indiscernible] continuing to come from the vast majority of our sites and obviously having a small working in our portfolio, selling down currently in Auckland is really just the remaining apartments in Ellerslie, and we will later this year, release some of the first of the sort of the last units to be built in Hobsonville. Slide 21, retirement unit delivery. So just touch on opened our first site in [Whangarei], and that site has gone stunningly well. We've got 75% of the initial 50 units already presold. So look, that's my update. I will now look to hand over to Will Wright.

Thank you, Scott, and good morning, everyone. Turning to Slide 22. Development margin for the first half of '21 was 22%, up from the 18% achieved across the second half of '20 and within our target range of approximately 20% to 25%. The gross realized development margin for the half was $40.7 million, which was up from $17.4 million in our first half '20, a great result in which we achieved a total of 302 new sales, a record number of new sales in the 6-month period. The margins were influenced by similar factors as in the second half of FY '20. Strong early sales meant that almost 60% of units scheduled in first half '21 were sold in [ FY '20 ]. Therefore, they only capture a portion of the residential market uplift seen in the last 12 months. And the mix of units of our delivery program has ramped up, and the number of main buildings we are now delivering were 2 delivered in FY '20 and another one in Richmond delivered in the first half of '21. This brings with it the settlement of a higher number of serviced apartments, memory care apartments and care suites, up 81% on first half '20. These generally attract lower upfront margins but strong hold of life returns for the business. The locations of settlements was only 15% of all settlements in our Auckland villages compared to 31% in first half '20. And finally, continued strong biller margins where we had continued to have good margins across all the stages across all sites achieving above 25%. Turning to Slide 23, our new sales of occupation rights. We settled 302 units in first half '21, which is a 6-month record and a substantial increase on previous years, up 136% from first half '20 and 122% from first half '19. We also reached a milestone in the period with the 12 months to 30 June being the first time we have sold over 1,000 homes in the calendar year. 7 regions secured more than 20 settlements each, and almost 60% of the settlements came from villages outside of Auckland and Christchurch, reinforcing the strategy to diversify across the regions. This also highlights the benefit of having a broad number of sites. Therefore, we only require a relatively small number of sales per site. Across first half '21, our top-selling villages were Casebrook, Rototuna, Ellerslie and Te Awa. The [age of] stock continues to improve with 90% of uncontracted stock available for less than 12 months. Just quickly want to touch on presales. We are seeing strong presales across our developing villages and have a good pipeline for new sales looking ahead to second half '21. Total presale contracts are in line with FY '20 and still around 2.5x higher than previous periods. As an example, we have only 30 presale billers available for the rest of the year across 14 sites. This is less than 3 per village. Our wait list numbers continue to climb, up almost 43% on first half '20. Our wait lists now average over 40 contracts per village. And lastly, whilst it is early in the period, we have seen similar trading conditions in July and August to the last quarter and have maintained the level of contracted stock that we saw at FY '20 with around 220 new units available to settle in FY '21 either contracted or presold. We have another 30 units due for delivery early next year, which are also presold. I now turn to Slide 24, new sales stock. New sales stock as at 30 June totaled 315 units with 222 units uncontracted. This is up from total stock of 296 in December '20 but down from 355 at June '20. Overall, the 222 uncontracted stock, 73 we delivered as part of Richmond's main building that opened in May. With these units excluded from our uncontracted stock, uncontracted stock as a percentage of total portfolio would be at the lowest level in 4 years at 3.1% of total stock. We are pleased with the rates that our service apartment stock is selling down. Casebrook, the first of our new main buildings opened during the nationwide COVID-19 lockdown last year, sold down within 12 months. Both Richmond and Rototuna are demonstrating similar sell-down rates, Richmond slightly faster, having sold 35% of its serviced departments in 2 months. We continue to see very high demand for our villas, with only 24 delivered units uncontracted across all villages as at 30 June. Turning now to Slide 25, new sales performance. A couple of things to point out on this slide. The 2 charts on the right, maintain the step-up in sales momentum that we saw in the second half of 2020. Bottom-right chart highlights contracts on stock available to settle in financial year '21, slightly less than overall contracts at 30 June, reflecting a higher weighting of stock being serviced and memory care apartments and care suites. Overall, we remain well positioned as we move into the second half of the year. Moving to Slide 26, resale on occupation rights. Resale volumes were 243, up 79% on first half '20 and 71% on first half '19. For context, this is the same amount of total settlements we achieved across FY '15 and '16 combined. We see this sort of volume is more of a new normal for us with the number of residents vacating units in first half '21 the same as we saw in both halves of 2020. The business achieved record gross proceeds for the 6 months of $127 million and 10% up on the previous high of $115 million in second half '20. Settlements in first half '21 were also in line with the second half of 2020, which had 245 resales, the record for the most resale [indiscernible] in a 6-month period. Realized resale gain of $29.4 million or 23% realized margin. This compares to 25% in first half '20 and 26% achieved across FY '20. The slight drop results from a couple of key drivers, the mix of villages with a higher proportion of resales and developing villages; and overall shorter tenures on resales, particularly for villas and serviced apartments. In absolute terms, while realized margin percent decreased slightly, realized margin per unit increased from $115,000 in first half '20 to $121,000 in first half '21. On Slide 27, embedded value. The embedded value within the portfolio now exceeds $1.1 billion, having increased $765 million in -- from June '20. This is a 49% uplift that will positively impact realized gain in recurring earnings into second half '21 and beyond. Embedded value per unit is now $240,000. This includes $164,000 of unrealized resale gain, which is almost $45,000 above the resale settlements in the first half of this year. Moving to Slide 28, resale stock. Resale stock of 149 units compared to 178 at December '20. This equates to less than 4 months' stock at our current settlement rate. Uncontracted stock has decreased from 73 units at December '20 to 62 at June '21. This is the lowest level of uncontracted stock in 2 years, and there was only 20 vacant resale villas and apartments across all Summerset villages as at 30 June. As a proportion of our total portfolio, available resale stock is 1.3%, which is at the low end of what has consistently been over the last 5 years. Slide 29, resale performance. I won't talk too much about this slide. The trends are consistent with the new sales trends on the previous earlier slides. And moving to Slide 31, IFRS profit. We've reported a net profit after tax of $263.8 million for the first half '21, up from $1 million in first half '20 or a loss of $7.6 million when normalized to the government wage subsidy. The key driver of the movement in revenue between first half '20 and first half '21 was care and village service fees and DMF related to the opening of 3 new villages in the second half 2020 in Napier, New Plymouth and Papamoa Beach, along with the continued sell-down of our developing sites. If you back out the repayment of the government wage subsidy and the additional COVID spend from second half '20, and expenses have remained broadly flat over the past 6 months. Turning to Slide 32, fair value movement. Fair value moved $260.2 million for the half, which is a record at all prior half and full year reporting periods. Importantly, this is a result of the growth in our portfolio rather than any reversal in values assumptions. Here, we've benefited from delivering new units, strong sales rates and positive house price inflation. The 4 main drivers of this were unit pricing of $168 million. Our valuers have lifted our nominal ORA prices by around 8% across the portfolio in the last 12 months. And this compares to national median residential house prices that were up by 28.7% year-on-year and 25% when you exclude Auckland. The value of new retirement units built increased roughly $69 million. The uplift in value in first half '21 is driven by deliveries across 10 sites. The reversal of unsold stock discount accounts to $20.6 million as this is a reversal of previous discounts applied to stock delivered in previous periods that settled in first half '21. The level of discounting applied was around 18% to 23% in previous years, meaning this reversal resulted in quite a large fair value movement for the period. And finally, discount rate assumptions of 6.9. This just represents a softening of the discount rate within the discounted cash flows of our villages. Two parts to this, a general improvement in market conditions across the country and main building deliveries, notably in Richmond. The value is normally adjusted discount rates when a main building is delivered to the site to reflect the increased amenity and service offered at the site. Turning to Slide 33, underlying profits. Our first half 2021 underlying profit was $75.5 million, a 6-month record and up 68% on first half '20. Reoccurring earnings from our core business functions continue to be a standout and highlights the sustained interest and growth in our business. Reoccurring income increased by $26.6 million to $124.3 million in the first half. Reoccurring earnings are underpinned by double-digit growth across care fees and village services, up 12%; deferred management fees, up 23%; and realized gain on resales, up 87%. If you can please turn now to Slide 34, cash flows. Net operating business cash flows have increased to $16.5 million in first half '20 -- sorry, it increased from $16.5 million in first half '20 to $42.5 million in first half '21. This is also a jump from FY '20 of $29.8 million, but remembering this included COVID-19 costs, so normalized would have been closer to $40 million. Investing cash flow of 192.4 were up both on first half '20 and first half '19 but in line with construction progress on a number of key projects, namely civil expenditure on our new sites, including Whangarei, St Johns and Lower Hutt. Main building spend in Avonhead, Kenepuru, Richmond and Te Awa, both Richmond and Avonhead delivery across FY '21 and various villa stages across 10 sites. Refurb costs for first half '21 are in line with the increase in terminations. Net financing cash flows increased 252% from first half '20, largely due to the net repayment of bank borrowings, in line with increased new sales. Moving on to the balance sheet. Our balance sheet continues to grow with total assets now $4.4 billion as at 30 June. Since listing in 2011, our balance sheet has grown more than 7x. We've added $3.8 billion to assets over 10 years. Retained earnings are now $1.3 billion, up 56% from first half '20. The retained earnings continues to help strengthen our balance sheet and maintain gearing ratios. It is encouraging that they have -- there has been a continued strengthening of the property market beyond what CBRE and JLL have factored in at this point, and another strong year of fair value gains will continue to benefit our gearing ratios. Slide 36, net tangible assets. Our NTA per share is now $7.07 compared to listing in 2011 when it was $1.09. NTA growth from first half '20 was [ 44% ]. If we move to Slide 37, gearing ratio. Net debt has decreased from $56.8 million in December to $643.3 million as at 30 June with the primary driver for this being the increased level of new sales and settlements. At June 30, we had $455 million of funding available to [ be drawn ]. Post the refinance announced today, headroom has increased to $850 million. Moving to Slide 38, funding. Post the half year, we have successfully increased our bank facility to approximately $1.2 billion to complement our existing $375 million of retail bonds. The refinance was approximately $700 million. $315 million is a rollover of debt due to mature in March '22. In addition, we've added NZD 50 million and additional $315 million in new lending in Australia. The facility has a mix of 4- and 5-year tenure with an average tenure of 4.2 years. This provides us with sufficient headroom to fund growth in Australia in line of our previously signaled plans to build a strong land bank over there. We continue to target the buying of additional sites in Australia this year, having already announced the purchase of Chirnside Park in March and Craigieburn today. As part of our new facility, we are also proud to be New Zealand's first retirement village operator to link sustainability to its funding arrangements. This commits us to set sustainability targets over the tenure of our refinance banking facility. These targets are construction waste diversion from landfill, the rollout of memory care suite and the continuation of dementia-friendly accreditation and an emissions-reduction target that will align with and encompass other initiatives across the business, including the update of our [ '22 ] target in 2022 and our wider science alliance targeting process. These targets are externally audited and linked to our underlying sustainability objectives. And finally, moving to Slide 40, interim dividend. We will be paying an interim dividend of $0.099 per share unimputed. This compares to an interim dividend of $0.06 per share in 2020. This represents a first half payout of approximately $22.7 million. The dividend policy remains 30% to 50% of underlying profit for the full year period. As previously indicated, given the growth opportunities in front of the business at this time, dividend payments are likely to remain at the bottom end of this range. The DRP scheme will be available for shareholders with a 2% discount to be applied. The interim dividend will be paid on Monday, the 20th of September. Moving to questions.

Thanks, Will. Operator, we're happy to take questions now.

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

The first one for me is just on your OpEx profile and lockdown. Could you give us a steer as to what you think the level of incremental cost will be on a weekly basis while we remain in current Level 4 restrictions?

Yes. Look, I could pass a couple of comments, Andrew, and then I'll maybe pass to Will if he wants to add anything. Look, essentially, I don't think you'll see a great difference in terms of OpEx cost. I mean, essentially, what you're seeing at the moment is mainly use of PPE stock, which we already have in stock. So there's a little bit of replenishment cost attached to that, but I wouldn't sort of say it's materially going to impact anything from an operational sort of cost at a macro level.

Yes. Thanks, Scott. Thanks, Andrew. Look, I'd agree with that. I think there may be a small impact from some additional staffing levels. But remember, we were already in sort of a semi state of lockdown due to the RSV virus. So some of those were already in place.

Great. Just the next one for me is on your new development build rate guidance. Can you just highlight the project, which is pulling forward into this year? And I guess as well, given the, I guess, uncertainty related to the length of potential lockdowns and the disruption that might have on developments, are there any projects which is sort of in the later part of the financial year, which could slip out into the FY '22 year that are worth highlighting?

Yes. Sure, Andrew. Look, a couple of things there. The first one is in terms of sort of main infrastructure projects that we're going to deliver this year, we've sort of already got the second main building that we intend to deliver, which is Avonhead. That's actually sort of complete now and actually ready to be handed over into staff to start filling occupant. So no risk around that. And then the remainder of the villages in terms of build rate profile are really predominantly filled with delivery. We do have a second block of Kenepuru, which is pretty well advanced. So I don't think you carry any risk that, that wouldn't deliver this year, obviously, extreme circumstances sort of aside. And so in terms of like what that lift-up in build rate was to go from that 500 to 550 build rate to the 550 to 600, it's not one particular project that we're pulling forward. Essentially, what we're doing is lifting our build rate across all of those sites. So obviously, regional broad-acre villages, quite short lead times to be able to sort of lift that villa delivery program sort of right across all those villages. So again, not a lot of risk attached to that because, ultimately, you're delivering a small number of extra volume across a large number of sites, if that makes sense.

Yes. That's very clear. And just related to that, I just noticed the comment on expectations for development margin. You've removed the comment that you expected to be at the lower end of the range. Could you elaborate on that or where you think development margin might land on a full year basis?

Yes. Look, I don't think any changed expectation from the initial sort of guidance given, obviously, that first half of the year, you've seen quite a stable development margin for us. So no reason to expect that to deteriorate in the second half of the year. Obviously, I'm sort of talking about any sort of down impact attached to COVID aside. But that's sort of our view. Will, I don't know if you had anything else you would like to add to that.

No. Look, I think obviously, there'll be some change in mix as we move into the second half, Andrew. So that will obviously flow into development margin with the higher mix of apartments and assets apartment, apartment delivery.

Yes. Essentially, Andrew, you see a little bit of a lower product profitability from that product, but we're pretty confident and equally in what we're seeing coming through in those second half villas. We're essentially -- they're benefiting from the preselling of those, obviously, being later than what we had in the first half of the year. So you're actually capturing a bit more of that gain that we've actually put in play in the last sort of 6 months. So most of those price increases we've done in the last 6 months, which really don't benefit you until we actually start delivering the product and selling it down in the second half of the year.

Great. Just one on earnings seasonality. You typically have more of a second half weighting to earnings. Looking at your mix of stock and development plans for the second half of the year, is it reasonable to expect that, actually, this first half period will have a modestly greater weighting to earnings than the second half?

Yes, exactly. And really reflective of the fact that traditionally, we have actually delivered quite high volumes of deliveries sort of late in the year. And so therefore, you've kind of seen that sort of second half skewed this year at sort of almost completely opposite.

That's great. And just one last one from me. Could you just give an update on the pricing increases that you put through on units on a like-for-like basis in this financial year? And any more of that planned at this stage for the remainder of the year?

Yes. Look, I'll just make a comment on that, and then I'll hand over to Will or Tania to sort of comment on that. I think, look, just obviously second half of the year really sort of watch environment, we'll be pretty responsive to just the situation we're in at the moment. So I think we're pretty disciplined determined the outcome in terms of we will price in the second half year at this point in time.

And I think from the -- in the first half of the year, Andrew -- sorry. I was just going to add, Andrew, I think from the first half of the year, we've been pretty conservative on our price increases. So by no means have we increased as much as the market. So I think I spoke to sort of circa about 8% half-on-half versus the market of closer to 25%.

Your next question comes from Stephen Ridgewell.

Great. I just want to follow up on Andrew's question around kind of price increases and 21% gap that [indiscernible] in the last 12 months. And keeping that obviously some challenges in the second half for obvious reasons, I guess, over time, should we be expecting that you're able to close that gap [indiscernible] view, broadly, over what kind of time period will be reasonable for that to close to a couple of years to be a reasonable starting point to close that gap?

Yes. Stephen, look, fair question, I think. Look, my take on it is you probably won't see us look to close that gap in the immediate future, but there'd be sort of a progressive sort of view to that over a couple of years where we'd sort of watch that. I mean, obviously, it's -- that gap is good in that it maintains an ability for our people to be able to afford to continue to come into a village. And at the moment, like an environment we've lived in, in the last 12 or 18 months, we have obviously taken a bias towards making sure that we've got good and appropriate stock levels and don't have aged stock. So look, you won't see us sort of pushing up radical price movements, and that's reflective of, I guess, that net analogy we gave or [ about 8% ] versus the [ 29% ] for the market. I think the other thing I'd just sort of call out a little bit is there is always that lag between, which I sort of mentioned before in the conversation with Andrew, is with that lag between when we presell products. And so probably people might have had a higher expectation of margins in the first half because -- but remembering that often the product we sold in the first half of the year was actually purchased by someone potentially back in late last year. And so you sort of see that lag dynamic. But in terms of pricing, we'll be pretty consistent and probably continue to be sort of in the short to medium term upon low stock levels as opposed to pushing prices up towards the median.

Makes sense. And just a follow-up on the topic of price rises. Just on development margin, I mean there's been plenty of news to rising raw material prices and labor costs. It sounds like you're pretty confident that you can recoup those costs through price increases. [indiscernible] just kind of elaborate on what you see in the business in managing those pressures?

Yes. Yes, that's right. Look, and what we're seeing at the moment is a lot of the literature, I think such as announcement last week and talking through 5% [ ROB ] who's one of the sort of the market commentators, they talked most and provide the most guidance around that sort of talking 5%. We are sort of seeing probably more close to that 5%. We're seeing some rapid pricing in things like steel, timber at the moment. But like it bounces all over the place you're seeing on to come in at [indiscernible] [ 10% ], but then you'll see [indiscernible] coming through at 1% or 2%. And so watching that, and that's always a balancing game. So as you sort of rightfully mentioned, we're still looking at the development margin, and we are pretty confident at the moment that we can stay at those levels. The guidance still stands, and we can balance off debt, balance between construction cost increases and residential house pricing that we sort of choose to do to sort of keep that margin at an appropriate level.

That's great. And maybe just one more for me. Just on Melbourne. So we sort of think maybe the indication was that there might be [ 3 sites ] acquired, and it looks like the company is on track. Just interested with the increased debt capacity of today, is there potential to see an acceleration on the rate of land acquisition now or perhaps a more appetite to all those sites that's been more inner city perhaps than with a little bit more CapEx associated with them, it's been more of a broad [indiscernible] so far, but just [indiscernible].

Yes. Yes. Look, it does [indiscernible] I guess, to buy the [indiscernible] side if we wanted to choose to buy that. We're not saying we'll rush out and buy truckload of [indiscernible] sites. But really, what it does is sort of secure that kind of growth path into Australia for quite some period of time, which gives us a lot of confidence, obviously, also gives us strong financial position now to manage any sort of untoward impact attached to the current outbreak. But look, one step at a time for us really like we sort of said back sort of 6 months ago. Let's start with building out that land bank and getting a real strength to the land bank and then getting consented. So we're sort of not looking ahead of that at this point in time, Stephen, but it does give us a really great platform to be able to continue to grow in Australia.

Your next question comes from Aaron.

Was that Aaron?

Let's assume it was me. And congratulations on being the first [ HC ] company for a long time to report a reduced net debt, very impressive and encouraging. I've got a few questions, if I may. So first of all, just, I guess, of general interest, but you mentioned 80% fully vaccinated staff and residents. So I'm actually quite curious to know why that isn't higher. Is that because of vaccine hesitancy, lack of access? Or is it just your rollout plan was targeting this sort of level by now? Secondly, just on your sort of delivery outlook. I noticed that you had 50 care beds, or 52 to be precise, that wasn't on ORA. That mix was slightly higher than I had in my mind. So I just wanted to know sort of going forward over the next few years, is that a level you expect to continue to have with sort of 50-or-plus care beds that are not going under ORA? And then I had a couple of more, but maybe I'll start with that.

Look, the first question around vaccination rates. Look, the 80%, it's not like we have 20% of our staff who are not prepared to be vaccinated. I think the actual opt-out rates at the moment only range around about 4% to 5% across our sites. What are you sort of seeing in New Zealand is that sort of like that recent fast ramp-up in the last couple of months of vaccinations happened, and that's happened across our villages at various sort of like time frames dependent upon when availability to be listed for and when [ DHBs ] has sort of allowed us to have people on site to kind of vaccinate. And so what you're seeing is the sort of first wave of people come through the vaccination process. But you've equally got a proportion of people who are probably on the side curious about seeing what the impact is for the people who have been vaccinated or still questioning the virus -- vaccination effectiveness or you're more often, I think, probably the most likely just think people are a little [indiscernible] and not talking [indiscernible]. I suspect you're probably seeing nationwide at the moment where people are rushing in, and all of a sudden, you're waiting for a 3- to 4-week wait. And so look, I think it is moving quite rapidly, quite quickly up, and we've even seen it in the last couple of weeks in our stats. And so yes, predominantly just reflective of a lot of those access to vaccinations at scale for us has only happened over the last sort of 4 to 6 weeks. And so yes, it's a sort of element of vaccine rollout in New Zealand sort of that's probably principally driven it. I mean just on your question around beds versus sort of ORA and licensing split for those. Look, probably my point would be around that is we're not sort of predetermined on those splits. So we were sort of looking to do the initial sell-downs in our facilities. We've been quite flexible around that speed of sell-down, people's desire to -- which model they want to run underneath. And so we're probably not at a point yet where we're saying, "Hey, we've got a fixed ratio," and I'm not sure that we'll probably move to that in shorter term because I think, actually, it's better to get people living in our facilities and then potentially look to sort of opt [indiscernible] for a period of time, if that makes some sense.

Absolutely. And then secondly or thirdly, just on the sort of medium to longer-term outlook for resale margin. So obviously, on the new sales, we have an offset a little bit between higher construction costs and higher prices realized. But on the resale, presumably the effect shouldn't really come into play. So I appreciate what you said about shorter deals having been closed last year and also shorter tenure slightly. But if I look out into, say, FY '22, FY '23-type situation, and we continue to clock 6%, 7% 8% increases, is there any obvious reason why we shouldn't put in 35% retail margins or something in 2 years' time? What would be the dynamics that would stop that from happening effectively?

Yes. Look, a couple of things there. Obviously, even on the resale side of things, you'll look at kind of stock levels on a site-by-site basis. And depending on how many homes become vacant, that may change our pricing on -- and then you can often get like large fluctuations in that over various periods of time. Probably one of the things to sort of point out is some of our original sort of villages down the Lower North Island, previously, they've always been and sort of might deem to be more sort of something low-socioeconomic lower median house price suburbs, we will have taken a choice there to bring those relative to median house prices back and potentially leave them back permanently as well, and so creating that sort of increased buffer. So Aaron, I don't think you'll sort of see 5% only for us. We will take some choices around backing some of that stuff off in some of those particular suburbs. But you'll also see a little bit of fluctuation sometimes like I think sort of the first half when we were talking about -- and I think you sort of talked a little bit about in the results presentation about that being probably slightly lower than what we'd expect, but it really was just driven by the mix of units that had resold in that first half of the year. So there was nothing sort of systemic in the slightly lower resale margin other than it was just a mix thing at that particular point in time. So I think you're right, like you're definitely seeing more stability on that resale side. You definitely see probably more opportunity to push that up over time. Will it necessarily go up by an effect as you were sort of talking about? No. As I said, we've taken a constructive choice to bring back some of those reinsure median house price relativity. So particularly areas like you [indiscernible], we might have been up priced like 100%, 110% of the median house price, and you're picking that sort of upper quartile of people again sort of coming to your villages, backing that off and impairment leaving that sort of backed off, if that makes sense.

Makes sense. Finally, just on your cash recovery of new CapEx. Do you have anything you can say about CapEx outlook? Obviously, it was a fantastic first half with new sales covering your entire CapEx. How do you see that over the next 6 months or next year? And specifically maybe on sort of land banking, you talk a lot about Australia, but do you feel like your New Zealand land bank is big enough and maybe even willing to shrink it a little bit?

Yes. Yes. A couple of questions in there, actually. So land bank in New Zealand, look, it has been about 18 months since -- I think probably since we bought [land] in New Zealand , I'm just trying to think back. And so look, we're pretty comfortable to buy a couple of bits of land in New Zealand. It's just to sort of maintain that land bank at that level. We'll obviously sort of jump in opportunities around great sites that we see. But look, you'll probably see us continue to buy 2 sites a year. From a CapEx perspective, and Will and Tania might have some other comments to add, look, I don't think you'll see any sort of radical investment cash flows. What you're probably seeing is the finishing of Ellerslie in the last sort of 6 months, the wind-back of Kenepuru apartments in the last sort of 6 months. We've seen a couple of main buildings complete, but we're developing a couple of main buildings going forward. So that's sort of a bit the same-same. So you're seeing a bit of takeaway from Ellerslie, takeaway from Kenepuru apartment blocks, investing into sort of St Johns from a cash flow sort of perspective and then obviously got a bit of civil works underway. So guys, I don't know you got anything sort of further comments or views on that, but I would say construction cash flows would be [horrendously] different, Tania, you might have a comment on that.

No. Scott, I definitely agree with that. [indiscernible], of course, in Australia, but New Zealand status quo.

Your next question comes from Nick.

A lot of my questions have already been asked. Just in terms of resale margins in -- excluding some of those mix impacts, you mentioned the absolute movement in kind of margins. Do you know what, say, the kind of the resale margins did over that period?

Are you talking about a normalized one?

Yes.

[indiscernible] about the variation of that, I couldn't probably [indiscernible] that off hand, it's probably too early. We can have a look at that in the next [indiscernible] next split out, and I can kind of let you know that offline after if that's helpful.

Okay. No, that's great. And then just on the kind of bed capacity. Is there much of a cost for you to hold that kind of capacity because it's just hard to imagine what scenario in the next couple of years should need anywhere near that kind of get drawn?

Yes. Sure. Look, absolutely. I mean you guys can probably do a simple sort of math on that around additional unused capacity and probably get the margin relatively quickly on that. There is definitely an implicit cost in that. But I think the world we're living in at the moment, it's very unusual time, isn't it, in the last 12 or 18 months. And I think have it secured for us, it's a great insurance policy in place for the business. And as I said, that really does for us secure that growth path in Australia. And so look, probably at the moment, happy to live with that insurance cost much like ensuring our [ $3 billion ] worth of assets.

Okay. That's great. And then just on New Zealand, any kind of view on the long-term build rate is still kind of holding that 600-ish number because it will be a bit over this year, but obviously includes depending on how you kind of cut the ORA's versus regular [beds].

Yes. Look, I don't really want to get in front of ourselves too much on that to get to the 600, stabilized at that level for a year or 2, but there's definitely opportunity potentially to build at a faster rate than that. Still not saying we will, Nick, but you definitely can look across the portfolio, and you can look at how many villages we've got and the land banking we've got, and you can see that we could build it a build rate slightly higher than that. And so, yes, look, first get to 600, consolidate and then take a look from there.

Your next question comes from Bianca Fledderus.

Well, first of all, congrats. Great results. And so yes, just the first question for me is just around land acquisitions going forward. I'm just wondering if you've seen any changes recently in the environment. Like, for example, do you find it harder to find high-quality parcels of land to buy with quite a few other development companies looking to buy land as well? Or do you see that you have to pay higher prices for high-quality land?

Yes. Yes. Look, typically, I don't think we see an incredibly different environment. I don't think we see much different across the country. I think definitely see the most compression and contention in Auckland. And so in Auckland, the types of factors you're talking about, you do see that you see crazy prices and you walk away, and you're just going to kind of buy those particular instances. But across the rest of the country, I mean, like, as I said, the great thing about our model is our [indiscernible] is really strong, and in a lot of parts of New Zealand, there's not quite the same contention around land but in Auckland there absolutely is. In terms of Melbourne, we're seeing a good volume of land options being available. And -- but equally, most of those situations go to tender. You're paying sort of a market price. It's not so much that you're building relationships over a number of years and working with some to purchase their land. So I'd say, sort of Australia, good availability in land, but their market price in New Zealand, you're sort seeing that low availability of land in Auckland often higher prices paid rest of the country under normal conditions.

Yes. Okay. Great. And then secondly, what's sort of your outlook on net debt and gearing. So yes, great to see gearing below 30% but with an increase in strong build rates looking forward. Do you believe you can sort of stay below 30%? Or what's your expectation there, please?

Look, we'll look to continue to run a conservative gearing going forward. So I don't expect anything other than sort of what we've looked to maintain historically, which is sort of between 30%, 35%. I think it's probably a reasonable level going forward.

Okay. Great. And then lastly, do you see any other operational cost pressures at the moment? For example, with shortage of hospitality staff, some of your peers, I believe, increased wages for nurses recently with the new COVID outbreak. Sort of do you see any increased operating expenses in the second half?

Yes. Look, in terms of operating costs, so as I mentioned before, COVID related, not really anything terribly material, but like generally, with nursing, that is the biggest challenge the industry faces. Obviously, 70% of the industry is not-for-profit or individual line operator. Obviously, you're seeing DHBs undertaking that pay equity settlement or trying to sort of achieve a pay equity settlement with public nurses and looking increasingly [ $2.78 ] [indiscernible] between funding that sector and not funding our sector, and I think a real call for our sector to -- for government to take a stand and actually fund the sector appropriately from an [ HK ] perspective and fund the nurses. And so a lot of, I think, operators in the sector really struggling outside of the large listed operators who can often cross subsidize some of these costs. So a real challenge for the sector, I think, around registered nurse costs and availability and access to registered nurses from overseas. So just a real challenge in getting paperwork processed from government authorities and getting access and dedicated access to people and to [ MIQ ] facilities would be the real challenge in the sector.

[Operator Instructions] There are no further questions at this time. Please continue, presenters.

Look, I'd just say thanks to everyone for participating. Stay safe, and take care. Thank you. Bye.

This concludes today's conference call. Thank you for participating. You may now disconnect.