Retirement village developer & operator Oceania Healthcare Ltd reported a sharp drop in its gain from fair value of assets in the year to 31 May, but also reported a sharp rise in other comprehensive income, reflecting care suite valuations.
The company’s annual results, out yesterday, presented 4 quite different pictures from 6 return lines (2018 in brackets):
Operating profit: $45 million ($87.7 million), down $42.7 million or 48.7%
Change in fair value: $31.5 million ($69.5 million), down $38 million or 54.7%
Pretax profit: $31.8 million ($75.9 million), down $44.1 million or 58.1%
After-tax profit: $45.4 million ($77 million), down $31.6 million or 41%
Other comprehensive income: $54.4 million ($4.8 million), up $49.6 million or 1033%
Total comprehensive income: $99.8 million ($81.7 million), up $18.1 million or 22.2%
Out of that confusing picture, Oceania presented a series of underlying earnings:
Underlying net profit after tax (NPAT): $50.2 million ($52.1 million), down $1.9 million or 3.7%
Underlying earnings before interest, depreciation & amortisation (ebitda): $63.2 million ($63.7 million), down $500,000 or 0.8%
Underlying ebitda – continuing operations: $62.7 million ($61.7 million), up $1 million or 1.6%
Underlying NPAT – continuing operations: $49.7 million ($50.6 million), down $900,000 or 1.8%
The company is heavily into development. In the last year it completed 3 projects – on time & on budget – to add $131.8 million to total assets. For the May 2020 year, it intends to deliver 265 beds & care units, up slightly on previous guidance.
The company increased its asset base by 22% ($252 million) to $1.4 billion ($1.15 billion) in 2019.
Operating cashflow: up 8.6% ($7.1 million) to $89.3 million ($82.2 million)
Net adjusted value/share: $1.14 ($1.04); this reflects the value of existing sites and the land & work in progress at development sites, but excludes the present value of net development cashflows & future earnings at sites currently under development & consented
Net debt:debt + equity ratio: 28.91% (21.93%)
Dividend payments unchanged, and unimputed: final 2.6c/share, total 4.7c/share.
Gasparich on development
Chief executive Earl Gasparich said: “While Oceania Healthcare’s reported profit includes the increase in fair value generated from the completion of our 2 Auckland investment property developments this year, it excludes the increase in value of property, plant & equipment from the care suites completed at these 2 Auckland sites, as well as at The BayView (Tauranga). Together, these 159 new care suites added $23.8 million to our assets this year.
“Given Oceania Healthcare’s current position in the redevelopment & conversion cycle of its existing facilities, our underlying net profit after tax from continuing operations, which excludes the impact of unrealised movements in the fair value of investment property, was relatively consistent with last year at $49.7 million.
“This reflects the completion of our 2 key development sites (Meadowbank stage 4 & The Sands, Auckland) at the end of our financial year, which only allowed for a small number of residents to move in before the end of May. Sales have been very strong at these 2 sites during June & July to date, and we expect this to continue as they are sold down over the coming year.
“While underlying profit reflected improved development margins in the 2019 financial year, there were also increased interest costs to fund the development activity.”
Mr Gasparich said aged care occupancy increased to 92.8% (90.8% last year), primarily due to the investment made in refurbishing the existing portfolio and, in particular, converting older, standard aged care rooms into its premium care suite product, which is sold under occupation right agreement.
He said the care suite model was popular with residents, who were increasingly demanding rooms & common areas of a significantly higher standard than the traditional rooms funded by Government contributions alone.
Earnings from aged care were $2.7 million (9.8%) below last year due to rooms being unavailable during the redevelopment & refurbishment process, the impact of sector-wide wage cost increases & start-up costs incurred in opening new aged care sites.
“We are now well into the cycle of decommissioning older sites and replacing them with our new, premium offering. This redevelopment process means there is a period at the beginning of the cycle where earnings from our aged care segment are negatively impacted, and we have seen this in the 2019 financial year as we opened The BayView in Tauranga and neared completion of Awatere in Hamilton.”
The company obtained new resource consents at 5 redevelopment sites: “With the projects recently completed, our development pipeline is 1995 retirement village units & aged care beds, with 67.3% of this already having resource consents in place.”
St Heliers village hearing
Oceania’s resource consent application for a new village on Waimarie St & Glover Rd in St Heliers went to a hearing this week. Council planner Mark Ross recommended approval. 13 opponents presented arguments against the proposal, largely on dominance grounds, but didn’t produce any expert evidence to back up their objections. Oceania is seeking approval for 31 residential care suites & 76 independent living units.
20 December 2017: Oceania buys Olliver’s St Heliers land
Attribution: Company release, hearing.