Ryman Healthcare Limited (RYHTY) Q3 2022 Earnings Call Transcript

Ryman Healthcare Limited (OTCPK:RYHTY) Q3 2022 Earnings Conference Call November 16, 2022 4:00 PM ET

Company Participants

Richard Umbers – Group CEO

David Bennett – Group CFO

Conference Call Participants

Aaron Ibbotson – Forsyth Barr

Nick Mar – Macquarie Group

Alex Prineas – Morningstar

Shane Solly – Harbour Asset Management

Richard Umbers

Good morning, everyone. I’m Richard Umbers, the Group CEO of Ryman Healthcare, and I’d like to thank you for joining us this morning for the presentation of our results for the Six Month to 30 September and for your continued interest in and support of Ryman Healthcare.

Joining me here in Christchurch is David Bennett, our Group CFO, and I’m sorry to say that our Chairman, Greg Campbell is unable to make the call today because he has COVID in his household and has unfortunately developed symptoms himself. He passes on, of course, his apologies.

Dave and I will be presenting first and then you’ll have the opportunity to ask questions either online or over the phone. Well, COVID is not the dominant subject that it was this time last year or even six months ago. There is no doubt that within the headwinds of the wider global economic context, our industry continues to face some well-publicized challenges.

It is therefore particularly pleasing to be able to tell you that we have had an encouraging start to the current financial year, with our underlying profit up 44.8% on the same period last year. Shareholders will receive an interim dividend of $0.088 per share and this is consistent with the past two years interim dividends and represents 31.6% of our underlying profit. This of course, is also in line with the policy we announced last year of returning between 30% and 50% of underlying profit to shareholders by way of a dividend.

We are currently in a rapidly changing and uncertain macroeconomic environment. We’re mindful of the impact this is having on our business, but also recognize the opportunities that lie ahead of us. Capital management is a primary focus of the board. In line with this, I want to advise that the board has determined this week to introduce a dividend reinvestment plan, which will be available for this interim dividend.

As a leadership team, we’re committed to delivering improved capital deployment and efficiency, without compromising our commitment to care and our strong culture. At our recent Investor Day, I was pleased to present a number of initiatives that are already underway that are improving the performance of the business. We know there is still more that we can do here.

We want great care for our residents and great financial returns for our owners and I believe that the main factor in Ryman’s success continues to be the continued hard work, commitment and professionalism of our people and team. So now on to the results.

As I just mentioned, underlying profit is well up on a year ago at $138.8 million, 44.8% higher than the first half of last year. You’ll note, our reported profit is down at $194 million for the period, largely reflecting lower unrealized gains on investment properties. For this and other reasons, we believe that underlying profit is a better measure of our trading performance and it remains the basis for determining the dividend payout to shareholders.

Our total assets increased to $12.03 billion and our net assets increased to $3.63 billion. Cash receipts from residents were up to $714.7 million. We are pleased with this result, but it’s important to remember that the previous corresponding period was marked by the COVID lockdowns, particularly in Auckland and Victoria and that the coming six months will likely bring fresh challenges.

First and foremost, this result reflects the continuing demand for the Ryman way of living, which manifests itself in strong sales performance. Our resales have been particularly strong. Grocery sales margins are up 7% to 32.1% and just 1.7% of resale units were available for sale at the end of the period. We’ve also increased book sales of occupation rights, which total 772 in the half. New sales margins have also increased compared to the prior period up 3.5 percentage points to 24.1%. Operating revenue, which includes care fees and village fees, was up 10.6% to $274 million.

Now, Dave will go through these numbers in more detail. However, I would like to note the increasing contribution of our Australian business to the group’s result. During the past 12 months, Australia has continued around one quarter of our total sales across the group. This is a significant lift. Ryman is now an established trans-tasman business with a compelling retirement village and aged care proposition in both markets. And speaking of Australia, the past six months saw the completion of our Raelene Boyle and Charles Brownlow Village and we’re very pleased to have now received planning permission to build on our site at Mulgrave.

This approval was received just 17 months from the date of acquisition, with unanimous support from the local councillors. Here in New Zealand, we recently began construction of our Cambridge site in the Waikato and have also applied for resource consents on our proposed visit villages at Karaka South of Auckland and also Rolleston in Canterbury.

In both Australia and New Zealand, we’re continuing to deliver projects that reflect our strategy of placing our villages in higher value locations and we’re continuing to shape our offering to capitalize on the market’s changing needs. With regional leadership teams now established in both countries led by Cameron Holland in Australia and Shane Chalmers in New Zealand, I’m confident in our ability to deliver.

We have also recently completed a review of the pricing structure for both our independent living units and our serviced departments and also reviewed our contract terms and as a result, the deferred management fee on independent units now accrues over a four-year period versus the previous five-year period, but it remains capped at 20%. Market research reaffirmed the value of our 20% DMF as a powerful sales driver for our resident base who typically have a cash lump sum, a higher sale price with a lower DMF remains a very attractive proposition. That said, we continue to look for new ways to expand the range of services we provide.

We have commenced our expansion into home care with packages now being delivered to more than one 100 residents in Australia and we are actively pursuing home care now in New Zealand. Our aged care discussion paper explored options for meeting the increasing demand for aged care services in Australia through a continuum of care model. Our continuum of care offering, often known as the Ryman model of course, gives us a strong competitive advantage in the Australian market, while providing some of the highest standards of care available.

We have also recently launched our sustainability strategy. It’s an important investment in our future and something our stakeholders from shareholders to residents, to our financial partners and our team, they increasingly expect this from us. We are a leader in the sector. The full sustainability strategy can be found on our website, but I would just like to mention our three key ESG priorities.

Climate change, is of course not a new issue. We have been measuring our emissions for more than five years, but we now intend to adopt a science-based target that will set out how much and how quickly we need to further cut our emissions. Quality care is also a strong focus for us, but we have decided to make dementia care a particular priority building on the amazing and award-winning work we already have underway. And finally, there’s a critical need for us to improve our engagement with indigenous communities on both sides of the Tasman.

All this work is happening within the context of an unstoppable global trend, the wealthiest generation in history, the baby boomers are now approaching retirement and our market is set to grow dramatically over the next 30 years. Aged care beds are closing in New Zealand faster than they are being built with one 1100 lost this year so far. Operators are under pressure due to increase — due to reduced government funding in real terms. We’re at the confluence of two key events; the baby boomers are arriving just at the point where care shortages caused by underinvestment are emerging. So Ryman is in the right place at the right time, able to charge a premium for an increasingly scarce and sought after quality care offering.

Before I hand to Dave, I’d like to take just one moment to comment on our unique proposition. At the start of this presentation, we played our new television commercial, which states our belief that this — that the measure of a full life is one that gets richer with age. Our communities challenge the expectations of aging and bring joy and meaning to every moment. We know that continuing to grow and develop the range of services we provide will enhance both the experience for our residents and the returns that we can generate.

None of that is possible without the extraordinary commitment that our team members bring to their work and the strong bonds that they form with our residents. That’s something that struck me when i joined Ryman just about a year ago and it remains true today. Our team and our residents are our strongest advocates. It’s a privilege to be a part of that team and I thank all of those who make up the Ryman community.

Our Group CFO, Dave Bennett, will now take you through more details around the results and also talk about the DLP [ph].

David Bennett

Thank you, Richard, and good morning, everyone. Before we dive into the result, I’d like to share with you some additional disclosure in relation to the number of units in aged care bids, which are including our valuation and portfolio data. This slide clearly sits out which units are included in our investment property valuation and which units contribute to our total portfolio of RV units in age care bids.

As you can see, our total portfolio is now 12,966 units in beads, which is lifted by 189.5. This includes 36 units at [indiscernible] and Melbourne, which we recently acquired. Today’s announcement represents a solid result in what was another interesting six months for all of us on so many fronts, a result which a whole team should be very proud of. Richard has already noted the effect, the reduction in unrealized fair value movements head on reported profit, which was down 31.1% on last year’s first half number. The unrealized fair value movement of $89.3 million in the first half reflects the price increases we’ve achieved in the past six months despite the softening housing market.

Underlying profit of $138.8 was up 44.8% on last year. The main driver of this growth and underlying profit was the lift in our resale earnings during the half. This was a function of the increased pricing and resulted in our resale margin lifting to 32.1%. This is the first time we’ve ever achieved a resell margin above 30% and as I stated last year, the timing of our pricing increases over the last 18 months means we are only just starting to see the full benefit of these price increases captured in our margin.

Our embedded value, which consists of the resale bank and accrued deferred management fees, has grown to $2.57 billion. Included in this, is our resale bank of $1.95 billion, which was the — is the resale earnings that we would expect to realize over the coming years, even without any further price increases. We also expect resale earnings to lift further in future years as the number of resales grows on the back of our maturing portfolio.

Despite rising construction costs, we’ve also managed to lift our new sales margin to 24.1%. This reflects our ability to keep a tight rein on costs and we’re also carefully monitoring the demand as we release each stage for construction and pre-sale. Demand for our existing villages are strong, with only 144 units or 1.7% of our retirement village portfolio, available for resell at the end of the half.

Our new sales price has increased $870,000 and within that, the average new sell price for our independent living units is now over $1 million. This can be at least partly attributed to our strategy of developing villages in high value locations and this strategy will over time also lift our resell average pricing, which is now 710,000. The quality and scale of our developments continues to increase. We are creating assets that we believe will be very sort-after for many years to come.

Another benefit of our decision to focus on high value locations is a relatively stable demand for our portfolios. This means residents, particularly those who want to downsize without leaving the local community are still able to free up significant amounts of capital when they move into a Ryman village. So environment unit remains very affordable.

Total estates from residents was $714.7 million and while this is up 5% on the same period last year. our receipts from residents have been impacted by construction supply chain challenges in longer settlement times due to the wider housing market slowdown. This was a key driver of the lower operating cash flows, which fell 19.1% on the same period last year to $243.7 million.

While demand for our villages remain strong, it is clear that the wider trends on the housing market, especially more related to data sell is having an impact on the time it takes for our residence to move in. We are still facing a number of headwinds in the construction space as well, including supply chain and subcontractor challenges. As a result, the value of our contracts, not settled has increased by around $100 million to $500 million at September.

Our debt continues to afflict the investment we’ve been making over the last few years, including $540.2 million in the first half of this year, of which $115.3 million related to land payments. This has resulted in our debt lifting to $3 billion. Obviously, we are mindful that this continues to trek up as our investment in new villages as I hear of our cash receipts.

Our gearing ratio is 45.2% and our total assays and now over $12 up from just under $11 billion only six months ago. Our debt to total assets is now 24.9% and with respect to interest rate management, we have increased our fixed interest cover to $1.67 billion with a weighted average interest rate of 4.5%.

As Richard mentioned, we have continued to review our capital management framework. Last year, we adjusted our dividend payout from 50% of underlying profit to a range of 30% to 50%. In line with our continued focus on capital management, today we are announcing a dividend reinvestment plan from this interim dividend. Shareholders will receive information about the DFP in coming days. This will preserve cash in the business to strengthen our balance sheet and to fund our future growth opportunities or giving shareholders choice on how they receive their dividend. In light of the many conversations I’ve had with a number of you over the years, I know this well received.

So thank you all and back to you, Richard.

Richard Umbers

Thanks Dave. 2022 has been marked by increasing uncertainty, but today’s result is an encouraging one. Despite the significant number of headwinds, including the cost inflationary environment and a challenging real estate market, we have the strategy and the team to deliver as we meet those challenges. Again, I’d like to thank our team for what they have achieved for the company and for our shareholders.

I would also like to take this opportunity to advise you that George Savvides will be retiring at the next — at the next Annual Meeting of Shareholders in July 2023 after 10 years on the Ryman board. On behalf of our Chairman, Greg Campbell and the board of Ryman, I want to thank George for his contribution to Ryman since he joined the board in 2013, as our first Australian-based director, his input has been invaluable in supporting our growth in the Australian market.

We have around 20 minutes for questions and with that, I will ask — can we have the first caller, please?

Question-and-Answer Session

Operator

[Operator instructions] Your first question comes from Bianca [ph] from UBS. Please go ahead.

Unidentified Analyst

Good morning. Thanks, Richard and David. So I guess first question just around your ERP, so with a discount of 2.5%, what sort of update do you expect at that discount level?

Richard Umbers

Predict that, Dave.

David Bennettf

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

Unidentified Analyst

Okay. Thank you and the payout ratio, obviously at the lower end of that 30% to 50% targets, is that something we can expect for the second half and sort of in the near to medium term to think about that 50% payout ratio?

David Bennettf

Obviously the dividends are a matter for the board. So I wouldn’t want to comment on that.

Unidentified Analyst

Okay, thank you. And then yeah just talking on your net debt. So you obviously touched on it David, but, yeah, there’s a pretty significant increase, $0.5 billion and it’s obviously positive that you’re introducing the DFP [ph] and looks like the pay-out lower dividends and I guess you do mentioned some of the other initiatives on Slide five, but it does appear those are all more sort of medium term and in fact on the balance sheet potentially. So I guess near term, what do you like — are you considering anything near term to try and improve your balance sheet or when do you expect your net debt may start to stop increasing at these kind of levels?

David Bennettf

Obviously, we’re very mindful of that cash picture and what’s happening to the debt right now. What you can see of course, is that in the current macroeconomic environment, it’s having some impact on our resident’s ability to, for example, sell around home and move into us. So we have seen some push out in the time it’s taking for those residents to move in after having signed contracts. So there are some macro things going on.

However, because we’re so confident in the long term, we have considered continued to invest in the business as you’ve also seen, which is also lifted that total debt number. So at the moment, we’re taking still a very long term positive view, albeit that we know we’re facing into some short term challenges. Having said that, the team, I guess the focus is shifting from both management and board to make sure that we are focusing a lot more on cash and some of the operational changes that we need to make in the business to deliver a better outcome if you like or a better efficiency of that debt that we’re using in the shorter term.

Richard Umbers

And I think you can see that you can — in the nature of some of the new sites that we are we’re building across now the capital intensity of those will be less than what we’ve seen in some of the sites over the last three or four years. So, the teams are very mindful on their cash generation and the speed of that and the need to shift the door.

Unidentified Analyst

Okay. Great. And then just last question, if that’s right, so build rate for the half of $189, are you still targeting a $1,000 for the full year?

David Bennettf

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

Richard Umbers

And also other sort of market factors, like any COVID impacts continue supply chains. All of those things we are monitoring, but the team is still focused on that number in time.

Unidentified Analyst

Okay. Great. Thank you. Appreciate it.

Operator

Your next question comes from [indiscernible] from Jarden. Please go ahead.

Unidentified Analyst

Morning, just quick three questions for me and one, just outside of more brownfields development in the mix, could you just expand a little bit more on that commenter around initiatives underway to address long-term capital efficiency?

Richard Umbers

Yeah, I think the key one you see is there is a bit of a rebalancing of our land bank and we touched on the size of our case in at the recent Investor Day and the announcements with that, but also just the nature of the developments as well. So when you look at we were starting Cambridge as a townhouse style development with at least capital intense of main build. Mulgrave has just received consent as a similar Northwood and Christchurch, as one of the more recent construction sites as well.

So you are seeing a bigger waiting of those townhouse style development starting to come back into our portfolio than what we’ve seen in the last few years.

David Bennettf

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

Richard Umbers

Yeah the beat associated with each site at least.

Unidentified Analyst

Yes. So that’s the key and I should have underwhelmed on.

David Bennettf

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

Richard Umbers

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

Unidentified Analyst

Correct. Thanks. Yeah, just on interest costs, cash interest costs, capitalize we’re at 69% on the pay. Can you just talk about where you’re at on interest covenants, and how that I guess given what has been a pretty rapid increase and cash interest costs against a backdrop, I guess where, settlements have been slower and that sort of thing.

Richard Umbers

Yeah, so, we our covenants and of course forecasting to remain, but obviously interest rates have lifted significantly. It’s one of the reasons why we are very focused on cash generation, because that’s the easiest way to get obviously your interests cost down, but it’s also why we have increased our amount of fixed interest cover and had great support from the our banking partners and doing that.

So, look at something we’re mindful of and continuing to assist, well, as you would expect something that we are very focused on in monitoring.

David Bennettf

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

Unidentified Analyst

Yeah, David, I think you mentioned a number on the — it was at one point just have $1.2 billion.

David Bennettf

I know it’s $1.67 billion.

Unidentified Analyst

Yes, sir, I’ve got that yeah, so that’s the other 50%, I guess we don’t have visibility on what’s happening with your various swabs and as a sense of fighting and they sort of thing. What’s the level of hedging in two years’ time on current deals?

David Bennettf

I’ll need to cheek that one. Sorry, I don’t have that to hand exactly because I guess I’m focused on the next two years and my view is, well, the initiatives we’re doing will address a lot of their interest demand on us as we lift our earnings as well because bearing in mind, we’re going to see the resale earnings continue to lift and all of those sorts of things that will take — we’ll see our earnings continue to grow.

Richard Umbers

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

Unidentified Analyst

Sure and then just one quick final one for me, I recognize, the comments you’ve sort of around optimizing price and some of the benefits that obviously has including on you ultimately realize, but, given that the biggest impact of that is still on money, then you ultimately return to the residents, just wonder whether we could sort of talk a little bit more about DMS [ph]. I guess I understand also 20% is a real selling benefit on first sell-down, but if you sort of consider potentially increasing say the 25% turnovers, we are not looking to sell so many units in such a quick space of time?

Richard Umbers

Yeah, during the presentation, I just alluded to some quite an extensive package of research that we did on this particular topic. Of course, the DMF is quite closely related to the ticket price as well and for the particular nation of residents that we are targeting who typically are more cashed up and have higher asset values, they are less sensitive to paying a lump sum up front and then they are to ongoing charges.

So in actual fact, it actually for our cohort, we believe that in our analysis, this is actually a more powerful formula and it in some ways has been enabled us to push forward our — push forward our combined margins and so you’re seeing the ability here that’s generated by the demand that we can create with a strong marketing package around our target audience has enabled us through the demand that we’re generating through that in fact to be able to push the margins up and I guess you take a view on which side of that equation it generates the most value, our view is that the ticket prices are more powerful lever in the ultimate result that we’re generating. That’s our considered view. Next question.

Operator

Thank you. Your next question comes from Aaron Ibbotson from Forsyth Barr. Please go ahead.

Aaron Ibbotson

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

Richard Umbers

Nothing, no one major significant asset that I can think of Aaron. So I’ll come back to you on that one if that’s okay.

Aaron Ibbotson

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

Richard Umbers

Bottom of page 18 and in the financial statements, $702.4 million is the number.

Aaron Ibbotson

Fantastic and then finally, you alluded to another $100 million of uncollected, is it fair to assume that you’re sort of new sales receivable has gone up by also $100 million roughly?

Richard Umbers

Yeah, that’s right.

Aaron Ibbotson

So that assumed $300 million though. I think that was actually all with …

Richard Umbers

And I think the other bit just on the two, it’s with noting that with the Australian debt. There is ethics movement that’s also lead to some of that increase think about $70 million odd relates to the ethics move when you retranslate the Aussie dollar.

Aaron Ibbotson

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

Richard Umbers

I think this is — what’s relevant here is your view on what is happening to some of the macroeconomic conditions right now. and I think we’ve seen a period where actually the demand for what we offer has actually been extraordinarily high and that’s manifested itself in us being able to charge and contract for sales. So the margins gone up and we’ve been able to secure quite a reasonable level of contracts.

The problem is that the macro environment and in particular the rising interest rates in the stagnating housing market is meaning that people aren’t selling their own property able to release the cash and then able to move in. So what we’ve seen is I guess a key theme of this result is as we’ve gone on investing the business, the one thing that we haven’t had is that cash coming in from those residents and you take a view. We’ve got them under contract. We believe it still comes and obviously quite a lot of operational effort is going into in the second half. We intend and hope that people will then settle on their own properties, which will release them to then come and come to us, but it is an observation I would make that the interest rate environment and the comments from the Reserve Bank about where interest rates could go, how is that going to play in terms of the housing market and people’s ability to sell down their existing property, particularly in the Auckland market, which is particularly important to us.

And I think that’s a key theme that massively shapes your view on what happens to the debt profile is your view on the housing market. And I would also say that this is what is a management team we’re acutely focused on because there is a point at which obviously we wouldn’t go on building units if we’re not able to sell them in that way and probably the key driver of our strategic assessment of the overall outlook for the business and the operational decisions that we’re taking is the ability of residents to sell their property settle on their homes and then subsequently move into us and that’s what’s really shaping our outlook.

And I think it’s everybody is just talking about the uncertainty of that at the moment. It’s a judgment call in my view therefore, and I just give that context to what is happening to our debt number.

Operator

Thank you. Your next question comes from Nick Mar from Macquarie. Please go ahead.

Nick Mar

Morning, guys. In terms of the price relativities that you’ve got in terms of your six months rolling basis, how does it look if your current prices in the context of some of the pricing reviews and your understanding of where the relativities need to be, what do you think be an appropriate number for that to get down to?

Richard Umbers

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

Nick Mar

I guess in a different way, what would actually you guys cap prices from these levels.

David Bennettf

I guess what it would take would be a reduction in the demand and we’re still seeing really good demand and people being able to sign up to move into one of our villages, but look, if the market goes back another 10%, 15%, then you have to start to assist that, but, it’s not every unit that you need to address as well. Next I would be doing that on a case by case basis across our portfolio of units within a village but also across our portfolio of villages because one of the benefits we do have is, we are in a lot of regions in New Zealand and we actually in two countries as well with Melbourne. So we do have a wider liberal resilience to that.

Richard Umbers

And remember these are residents who want to give us their money. They want to move in. It’s the physical constraints of their own property in the current market that is stopping them. So to some extent, the measure of whether our pricing is too high is whether or not we can contract for sale and the irony of this is we can contract for sale. People want to come and join us. They’re dying to move in, in fact in in the sense that they were being encouraged to by their families and are very keen to move in with us and yet unfortunately the local circumstances in the current economic environment are actually stopping them doing that.

So I think it’s more a question of you might ask the question in a different way, is there a way of us getting people to be able to move in. is really where the issue is rather than the pricing, which we wouldn’t want to move because it doesn’t change the reality if you sold the unit at a lower price, but they still can’t move in. All it means is that you’ve secured a lower sum for some point in the future. That’s the risk with that line of logic, I believe.

Nick Mar

If you’re not — are you doing anything in the way of the centre to give people twice a little quicker and are you letting people move, which is what’s in the other price is doing to start the DMF and village for you?

David Bennettf

So operationally, of course, moving into a village is very much a handhold from our teams on the ground and we certainly can offer operational help. We’ve always done so. It’s all part of the service, but things like for example, helping people downsize, helping with the mechanics of being able to move. Quite often, these are residents who haven’t moved in a very long period of time and it’s in a very unsettling period and we do also give some local, encouragement, if it means that, people have a particular difficulty that stopping them. We look at each individual case and see if we can help.

But I have to say, that even though it’s being devilled on a case-by-case basis, that the macro trend, unfortunately in this particular place is that the time to settle has pushed out as indeed it has across the whole real estate market nationally in fact, and certainly in Auckland and we just reflect that trend. So yeah, locally we’re doing stuff, but it isn’t necessarily achieving what I think is behind your question of materially altering that trajectory.

Richard Umbers

Yeah and just on that, we aren’t — people aren’t moving in a heat of a sediment with us. We are still the Seattle on but the odd village there is a bit of a reduction of weekly fees, particularly where the village centres are still being constructed. So there are local initiatives that we do, but is which it on a case by case basis.

Nick Mar

Right and then just lastly, you can look any land purchases this half, what’s the sort of status theory, that is the land bank and the ability to live in the next few years from what you got currently confined to?

Richard Umbers

Yeah, we’re very happy actually. And I think Mulgrave is a prime example of as we look to rebalance our portfolio, some of those or ten hostile developments. They are often a little bit easier to conceit. So my view is that you can get away with a slightly smaller lane bank with those units as well because they go through the design and consenting phase quicker.

So, look we’re comfortable with the current levers of that and yeah, we’re really focused on selling down and developing out what we’ve got.

David Bennettf

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

Operator

Thank you. Your next question comes from Jason Hamilton [ph] from ACC. Please go ahead.

Unidentified Analyst

Good morning, guys. Thanks for taking my questions. My method was to have a call, but put the first time I can recall that Keyrock [ph] capacity has fallen in the business. I assume it won’t be staff related, but perhaps you can make some comments around that.

Richard Umbers

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

David Bennettf

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

Unidentified Analyst

Okay. And then so perhaps save me some time. If you talk to the market or disclose what the furniture implications or cash flow implications are from the change of from five to four years? I guess I’m just looking in the context of seven years being like the anticipated tenure or every senior?

Richard Umbers

Yeah. So obviously that’ll take a while to flow through and dim if cash and also into the — and it won’t directly impact accounting. So they may for a period of time, but about 25% of our units vacate shorter than five years. So that does mean that you will be recurring more on those units faster. So that will certainly come through in time.

Unidentified Analyst

I was going to say the value was reduced the discount rate, can just talk to I was a little bit surprised at that given where base rate have moved in the last six months. Can you talk to why they thought that it was appropriate?

David Bennettf

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

Unidentified Analyst

Yeah, they make sense and then just the final one for me. I just seem to understand what investing cash flow outlook for the second half, just in the context of the seeing what’s increased? You still go into a 1,000 units and deals, just do you speak to be someone who is unable to afford in the first tire for higher or lower?

Richard Umbers

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

But I would say that that is under — that is a hot topic of discussion and up for review all the time I would say.

David Bennettf

Yeah, I wouldn’t expect it to be much more just than I think it would be say more or less.

Operator

Thank you. Your next question comes from Alex Prineas from Morningstar. Please go ahead.

Alex Prineas

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

Richard Umbers

There’s quite a few drivers of actually. Obviously new sales as a significant contributor in Australia because it’s still a very young portfolio for us over the year, but we are starting to see resale earnings left as well at a weary Dunlop village and also at nearly Melbourne. So villages that have been open for a few years now. So it’s a combination of the both of the two, but the bigger driver will still be on the development space.

Alex Prineas

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

Richard Umbers

Yeah, pretty strong. So occupancy if I sort of go round, but Dunlop is, obviously the most mature village, the key occupancy is really strong. There would be typically around 97%. 98%, 99% in terms of key occupancy. I think the villagers in terms of autonomous units, so we’re getting back up to this 96%, 97%. What we typically see though is we are still selling the majority of our independent living units, the new villages off plane.

So, I’d say 85%. 90% to 95% of them are sold before the construction is finished on site. The service departments, they typically take 12 months to two years to sell down because there are more needs based offering depending on how many service departments we are selling there. So very similar to a historically it was in New Zealand, to be honest.

David Bennettf

Yeah. I’d also add I think our brand is building very strongly in Australia. We are highly differentiated from the market with our continuum of care model and that’s driving very high levels of demand and as our name or as the Ryman brand gets out there, where we are able therefore, I guess to be able to stimulate very high levels of interest, which is also helping the overall model.

I’d also say that in terms of a business feel and the I guess the phase that Australia is at in the recovery after COVID cycle, I would say that there is I guess a stronger consumer or resident optimism out there, which i think is perhaps helping that market along in Australia as well in a way which we are yet to see in New Zealand.

Alex Prineas

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

Richard Umbers

Yeah. I think that — that’s a good observation actually. That margin diagram, of course, masks the fact that we have actually been incurring significant supply chain and delay and other costs associated with the construction and development program that we have.

Yeah, you’re right. We’ve been able to improve the prices above and beyond the rate of increase in the construction costs and so on. I would say that it’s still a very significant factor, both shortages and price material increases in the market, although I think there is a lot of talk that some of the issues have now stabilized. We all knew of the difficulties perhaps around not so long ago.

In fact, there are still shortages less so, but bricks more so, and I think it’s really that is ongoing disruption to the overall pattern of supply chain, which has knock on effects both in terms of cost and time to deliver units.

David Bennettf

Yeah and I think in terms of the pricing piece, specifically, so attached on the presentation, average new sale price is now $870,000. I think there was $810,000 at March from memory. So there’s $60,000 left. Obviously there’s mix that plays out on that depending on the waiting of service departments in the location of our villages, but we also touched on that for the first time we are now averaging over a $1 million per new sale related to independent living units.

So we are seeing good strong pricing up roughly as a function of the wider market, but also more specifically, we are building those villages.

Richard Umbers

Great. Any final question, perhaps.

Operator

Thank you. We have a question from Shane Solly from Harbour Asset, Please go ahead.

Shane Solly

Good morning, guys. I really appreciate the presentations this morning. Two quick wins for me, just this construction time I just picked up on the last point Richard, in two years so this half is next half that pace of construction timing, can you talk about that? Obviously some pretty challenging weather events.

Richard Umbers

Yeah, well, unfortunately the weather as it happens has not actually brought any of our construction projects to a halt. What I would say is when we talked about the time to settle, I should just point out that some of that time to settle is not just because of residents. It’s actually due to the slowdown or the delays that we’ve had in construction sort of both forces acting on us, which I guess sort of also sits behind the question.

I would also say though that I think that we have been quite encouraged that as some of those pressures have eased, I would say that the confidence in our build program has actually increased in recent months, I would say, and, we’re as a result, as I confirmed earlier, we’re still certainly targeting a 1,000 units for the end of the financial year.

Shane Solly

Thank you. Just a second one. Just pick up on Australian resell margins versus New Zealand resell margins, I guess we’re starting to touch on series of Australian portfolio, started to get some material unit. Can you talk a little bit more granular on Australian resellers versus New Zealand?

Richard Umbers

Yeah, I think one of the interesting things as well is that our structure is slightly different from some of the other players as well. I’d also say that of course, there’s been changes to the funding model over in Australia and some political impetus behind investments being made in the sector also from the new government over in Australia. And again, some of those play to strengths that sit within our model. The recent shift to the new Anak funding model also has some implications, which for a business like ours, which offers quite a wide range of services that has some advantages and arguably further differentiates us from the market.

So obviously that only came in, in the 01 October. So we yet to see the full impact of those changes, but on a macro level, we see the current thinking in Australia is broadly we’re pretty optimistic about how that’s unfolding.

David Bennettf

Yeah and if I, sort of take it to slightly more detailed, they were where Dunlop, which is our most mature village in in Australia, the resale margin we’re getting on an independent living units and on the service departments there is completely consistent with the wider group now. So that villages are seven years, eight years old now. So it’s what I would deem to be one of them mature villages at that stage and pleasantly we are achieving the same margins there as we are across the wider good.

Shane Solly

Great. Thank you guys. Pretty good time.

Richard Umbers

I think with that, we should probably switch to just ask if there’s any online questions.

David Bennettf

We have one question online from Tama Willis [ph]. Given the uncertainty in the macro environment and interest rate backdrop, what would the current, what would the maximum level of debt you can manage to stay within the covenant speed?

Richard Umbers

Obviously, we haven’t published our covenants. So that would be a difficult question for us to answer. Suffice to say, we have headroom at the moment and…

David Bennettf

And obviously that’s dependent on the profitability as well. So there’s a lot of different parts in that. So, but yeah, obviously it’s something we are focused on and looking to make sure we continue to monitor and yeah in pretty good shape with able to fix cover we have in place at the moment.

David Bennettf

There are no other questions online.

Richard Umbers

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

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