Listed retirement specialist Oceania Healthcare expects to book a massive one-off development margin of $30 million on a new North Shore project once sales are complete, says its chief executive.
In an indication of the listed retirement village sector's profitability, the business with properties valued at $1.4b has in the past few weeks opened The Sands at Browns Bay.
That is an area with a rapidly ageing population, high-priced homes, many with ocean views, and potentially an appetite for retirement village living.
Earl Gasparich, Oceania's chief executive, said the business had spent $60m developing the new five-level project with 64 apartments and 44 care or hospital-level suites at 9 Bayview Rd, across the street from the beach.
Aspec Construction built the project.
"The total cost to build Browns Bay was $60m and sales will be $90m," Gasparich said, adding that Auckland retirement village development margins were in the 30 per cent range, compared to 10-15 per cent elsewhere in New Zealand.
Jeremy Simpson, senior equity analyst at Forsyth Barr, has visited The Sands and regards the apartments and care suites as "at the premium end of the market".
Asked about the development margin, he said: "It's not a one-off because he [Gasparich] is going to get to resell them again when the next residents move in. The sector average is probably 20 to 25 per cent so 30 per cent is good. They've done a good job. It's a new model," he said, referring to the sale of licences to occupy care suites.
Marketing of the finished project only started in May. Potential residents must be aged 70-plus to buy, or 65 and over to get into a hospital-level care suite. No dementia care is offered at the project designed by Peddle Thorp, nor a swimming pool.
Sales and marketing general manager Jill Birch: "It was a choice of a carpark or a pool. Which do you think was more important?"
Gasparich and Birch said they were more than satisfied with selling 26 apartments so far out of 64, and don't expect places to remain unsold for long as the flat housing market was not affecting sales.
One resident asked for two apartments to be combined to create a larger unit, they said.
Residents can only buy a standard licence to occupy so they don't own their properties, just the right to live there.
The Sands buyers lose a third of their capital, with a deferred management fee of 30 per cent. As well, they must pay a weekly fee of $145, fixed for the life of the resident.
Oceania put a $2.8m price tag on one upper-level beach-front apartment with expansive ocean views, but showed the Herald a $2.5m independent living apartment. Suite 19 on level five at the northern end of the H-shaped project has two bedrooms, a study and two bathrooms. A buyer has an option to settle that purchase subject to their own home selling.
Care suites are all on level one, where Gasparich said there were 44 residents and The Sands had 20 staff.
In the event of a fire, Birch said apartment residents could stay for up to 90 minutes, because of the construction methods and use of fire-rated materials. Care suite residents would be carried out by staff, she said.
Care suites are being sold from just under $300,000 to $700,000 and apartments for $795,000-$2.8m.
Gasparich said it was too early to talk about Sands re-sales. But on average, Oceania's apartments are occupied for five years, its villas for seven years and care suites for two and a half years, he said, before ownership changed.
"Resale volumes are low, only 21 units in the May 31, 2019 financial year out of 1200," Gasparich said, referring to the total portfolio.
A figure well below the $90m would be recouped when The Sands re-sales began, he said, because although Oceania kept 30 per cent of people's capital, the remaining 70 per cent was repaid on exit.
However, he did acknowledge that some property appreciation was anticipated, citing a $1m unit which he said could be sold for about $1.1m in future, as one example.
Oceania was building more care suites than other operators, he said: "It will be in future 60 per cent care suites and 40 per cent independent living." Now, Oceania offers 40 per cent care suites to 60 per cent independent living.
The business is developing in St Heliers on its Waimarie St site which it bought from interests associated with Greg Olliver. A further $60m or so would be spent there, Gasparich said, anticipating much the same spectacular development margin as at Browns Bay.
In its full-year result to May 31, Oceania announced underlying net profit after tax from continuing operations of $49.7m. Improved development margins were offset by increased costs to improve care earnings in future years and interest costs to fund development activity, it said.
Total assets increased by 22 per cent to $1.4b, which reflected the big development capital expenditure, greenfields acquisitions and revaluations, the company said.
Gasparich said the company originally had the capacity for 2500 new units in its land bank and built 272 new units in the 2018 financial year.
Oceania has 44 properties including two vacant sites. The St Heliers property had been expanded from Olliver's original approximately 9000sq m to 13,500sq m today, Gasparich said. The business plans to develop around 109 places there.