Cedar Woods Properties Limited (CWP) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Cedar Woods Properties Limited Full Year Results Presentation. [Operator Instructions] I would now like to hand the conference over to Mr. Nathan Blackburne, Managing Director. Please go ahead.

Good morning, and welcome to the presentation of the FY '25 financial results for Cedar Woods. My name is Nathan Blackburne, and with me is our CFO, Leon Hanrahan. In this presentation, we will provide an overview of the company and its activities, our financial results, current market conditions, our portfolio, and then we will finish with the outlook for our business. Cedar Woods is a long-established property company with a 35-year track record of acquiring and delivering projects and growing earnings to shareholders. In our portfolio, we have over 9,400 lots of dwellings in the pipeline, which is made up of 35 projects across Victoria, South Australia, WA and Queensland. We are delivering over 1,200 dwellings and residential lots per year now, and we have a good pipeline of projects to support future earnings. We have made a number of strategic acquisitions in the past 12 months to augment the pipeline and continue to be acquisitions focused. Diversification is key to our strategy, and our products include a mix of apartments, townhouses, master-planned communities and commercial. We are known for the quality and sustainability of our developments with many industry awards for these things. Conditions are very favorable for our business, and this is expected to be the case for some time yet, noting the shortfall of housing and the strong policy support our sector is getting. And finally, our strategy is well proven, and we have a long track record in the disciplined execution of it. Now for a summary of our financial results. We are really pleased with the outcomes for the year. In FY '25, we delivered a net profit after tax of $48.1 million. This is ahead of guidance and represents 19% growth in earnings. This profit was generated from revenue of $466 million, which is up 21% on last year and came from 1,125 property settlements. This resulted in a return on equity of 10% and earnings per share of $0.584, up 19% on last year. The Board has declared a final dividend of $0.19, fully franked, taking full year dividends to $0.29. This reflects a payout ratio of 50% of NPAT and a favorable fully franked dividend yield of near 4%. Over the year, we contracted sales of 1,264 lots. And at 30 June, we held presales contracts with a value of $660 million. This is up on the $559 million in presales for this time last year and represents a strong outcome, especially when considered in the context of total revenue for the year. We expect about 60% of these presales will deliver revenue in FY '26 and the balance falling into FY '27. More detail on the financial position of the company will be covered shortly. And now a bit about our company. The strategy for Cedar Woods is a differentiator for our business. Our strategy is to grow and develop our national project portfolio diversified by geography, product type and price point so that it continues to hold broad customer appeal and performs well in a range of market conditions. This broad customer base is a point of difference for us and effectively translates to a smoother earnings profile for investors. The strategy is proving successful with the strong returns that we've been able to deliver over the years. We have multiple product types in 4 states and different price points appealing to varying buyer profiles. In terms of our business model, we create value in 3 key ways. Firstly, in acquisitions, we are tactical and research-based and have a 35-year track record of identifying and converting high-quality sites. The quality of our portfolio is testament to this component of value creation, and I think it is unparalleled in our sector. In the development phase, we engage designers and create products that we think will meet a demand sweet spot. We then engage builders and oversee construction. And the third value-add area is marketing and sales, where we create quality brands and presell projects before starting construction. As part of our strategy, we are supplementing our portfolio with projects that are undertaken in partnership. Our partnering strategy is a strategic pivot that will see an increasing proportion of future earnings coming from partnering arrangements. Partnering allows us to further leverage our existing development skill base, access larger scale and a greater number of development sites, generate regular fee income and thereby smooth our earnings profile and grow our earnings in a less capital-intensive way. Further diversification and greater scale allow the company to perform more consistently through the cycles. We are now working in partnerships with QIC and Tokyo Gas, which provide exciting opportunities for Cedar Woods to participate in projects of scale without committing to the entire capital requirements. QIC and Tokyo Gas are both substantial and experienced partners. The QIC partnership offers us access to well-located sites in major town centers for developing apartments and townhouses at a time when those housing forms are in very short supply. We have had 4 projects with Tokyo Gas being an apartment development in Subiaco and 3 apartment developments at Glenside in South Australia, helping fulfill their plans to deploy $600 million into property globally, but particularly Australia. The intention with both partnerships is to expand them with more projects, and we are continuing to evaluate opportunities. We continue delivering the ESG strategy with significant investment in climate responsive development. Both in design and material selection, we are ensuring sustainability of our core activities. There are many great examples across our portfolio where we are leading the way in sustainable development, including the award-winning energy-efficient apartments at Glenside and the microgrid at Eglinton Village in WA. Over the last 3 years, we've mapped our corporate carbon footprint, and we are well on the way to preparing for mandatory climate reporting, which is expected from FY '27. Cedar Woods continues its national partnership with The Smith Family, Australia's leading children's education charity. Our flagship community grants program is another initiative that we're very proud of and which sees a portion of our profits from projects given back to small community groups in the various regions that we operate. During FY '25, we supported over 35 clubs and organizations. Our latest staff survey recorded strong staff satisfaction score of 82%, indicating that our staff value the rewarding workplace that we've created. Our FY '25 ESG and climate reports are available on the sustainability page on our website where you can get more information. I will now hand over to Leon.

Thanks, Nathan, and good morning, everyone. We'll now take a look at the full year results in a bit more detail. The significantly higher revenue in the current period with improved gross margin has resulted in a significantly higher profit result for financial year '25. Revenue was up 21% in the year due to higher value settlements from changed product mix and improved pricing. Gross margin improved to 28% in '25 from 25% in the prior year. Project operating costs were lower following the sale of an investment property in financial year '24 as well as lower marketing spend and landholding costs. Higher staffing costs transpired through to administration with headcount and incentives increased to accommodate growth objectives. Financial year '24 other income also included a $19.9 million gain on sale of investment property. There were lower interest costs from lower average debt in financial year '25, although interest expense in the P&L is higher as a result of lower capitalization of interest due to the stage of various developments. Overall, this resulted in 19% growth in net profit after tax. Now taking a look at the balance sheet. Total assets at 30 June of $858 million was up 15% on last year's balance of $744 million as we have acquired new land and progress developments at our projects. Net assets and equity were up reflecting the full year earnings less significant cash dividends paid during the period. Modest net bank debt of $126 million was marginally up from 30 June '24 and gearing measured by net bank debt to total tangible assets less cash at 15% and net bank debt to equity at 26% reflects strong second half settlement and hence, cash flows significantly reducing debt from where we were at the end of the first half. The company extended the tenure of its 3- and 5-year corporate finance facilities shortly after the end of the first half, ensuring continued secure long-term funding availability with an average debt maturity of approximately 3 years. We've maintained a solid liquidity position with sufficient facility headroom available at the end of the year and interest cover of 6.3x, well above the prior year and comfortably above facility covenant of 2x. I'll now hand back to Nathan to talk us through market conditions.

Thanks, Leon. I now wanted to touch on the market conditions we are experiencing and talk more about our business. There are considerable tailwinds for our business and which we expect to persist for some time. The chronic shortfall of housing remains a pressing issue with significant supply gaps projected. Supply of new housing is near the lowest level in a decade. Housing completions are expected to fall short of the government's target by 393-odd thousand for combined capitals by 2029. Our view is that it will take at least 5 years for meaningful levels of supply to be provided and for some balance to come back into the market. This fact will further support sales volumes and pricing going forward, and Cedar Woods has 35 projects and 9,400-plus dwellings to supply into these conditions. There is unprecedented policy support for the new housing sector. Approvals are faster in most places. Some state governments are providing infrastructure support, and there's a national effort to get more supply completed. There is also support on the demand side with various grants in play for particularly first home buyers, an important buyer cohort for our business. On house prices, the outlook is good with the undersupply and interest rate outlook expected to support further house price growth. This should, in turn, support the margins we are generating. Oxford Economics expects the combined capital city house price is set to grow strongly in 2026 at 6.9%, with further growth into 2027 and 2028. Melbourne is expected to lead the market in this respect as it recovers. 3.25% interest rate reductions this cycle have served to further strengthen property markets around the country. Prior rate cutting cycles have historically seen surges in sales volumes and pricing improvements. First homebuyers in particular, benefit from rate cuts, and this is a dominant buyer cohort for our business. On employment, job security is a key factor in determining house sales volumes as it is closely tied to confidence. The tight skills market across the state for skilled workers means that buyers are feeling secure in their employment and many are experiencing wage growth. On population growth, and this is mainly down to immigration, which is materially supporting the new housing sector. The growth rate is sitting at around 10-year averages of 1.7%. And the outlook is that it continues at these levels in supporting the need for skilled migration nationally. So with all of these factors, we have a favorable set of conditions that bode well for our business for the medium term. I now wanted to provide some insights into our portfolio. We have a portfolio of 35 quality projects and a total pipeline of over 9,400 lots, townhouses and apartments to support future earnings. There is a good mix of product, price points and location, giving us a diverse customer base. These charts demonstrate the diversification in our portfolio. In the first chart on the left, you can see the breakdown of our portfolio by state, and you can see a good spread of locations there. The second chart shows our product is weighted towards the owner-occupier with 1/3 of our product taken up by investors. The third chart shows the varying buyer profiles across our portfolio with a mix of downsizes, upgraders, investors and first home buyers and with the first home buyers being the biggest buyer category for us. The fourth chart breaks down the product we settled in FY '25 with the proportion of townhouses in gray, apartments in orange and residential lots in blue. In WA, we have 10 projects and over 3,300 dwellings in the pipeline. Our WA portfolio is comprised of residential lots, townhouses and apartments, and we are in a good spread of locations north and south of the CBD. Across the portfolio, sales prices stabilized after a period of high growth, resulting in good margins for our projects. Sales volumes were steady throughout most of FY '25, though picked up in the last quarter, and this has picked up further again in FY '26 so far. We recently acquired a new site in Subiaco, adjacent to an existing project. We have over 300 apartments to deliver in Perth over 4 separate buildings. The first of these Incontro is now under construction and about 50% in presales have been secured. Now to look at a project example. The Millars Landing project is a major master planned community with over 1,500 residential lots, of which we have completed 300 and have 1,200 yet to go. In this location, there has been high demand for the affordable product and good sales have been experienced for the past 12 months, accompanied also by solid price growth of 10% over that period. This estate has appealed particularly to first home buyers, but also has buyers from the upgrader and interstate investor categories. In Victoria, we currently have 12 projects, which offer a wide range of products, including land lots, townhouses, apartments and offices. Our suburban office projects continue to do well with Hudson Hub experiencing continued steady demand for strata offices in Melbourne's West. We have over 13 hectares of high-value mixed-use land at Williams Landing that remains undeveloped and is expected to accommodate a further 1,000-plus dwellings and strata offices. We recently added to our property pipeline in Melbourne with the acquisition of a 300 apartment site in Fairfield. This project will tap into the expected shortfall in apartments in Melbourne. Sales conditions are weak overall in Melbourne, although we did see an improvement in Q4 of FY '25 and sales are expected to improve notably in 2026. Mason Quarter in Victoria is a good example of one of the company's residential estates. It comprises 800 dwellings, 2 schools, community facilities and open space. The estate is positioned as a premium estate in Melbourne's North, attracting first and second homebuyers. Sales at this estate were relatively slow over FY '25, but with improvement evident in the final quarter of the year. Now to Queensland. We have 6 projects in Queensland and a total of 1,690 lots and dwellings to deliver. There's a mix of land estates, townhouses and apartments in this portfolio. Our projects in Queensland are performing well, and we continue to regularly increase prices, improving margins further. There was 37% price growth in FY '25 at the Flourish estate in South Maclean. Given strong inbound migration and economic conditions, we expect this market to perform well over the medium term. The construction sector there, though, does continue to experience some capacity constraints. Our Greville project in Queensland is a major infill development consisting of 84 townhouses and over 200 apartments in the established suburb of Wooloowin. We have an application underway for increased density for the 2 remaining apartment towers, which are in close proximity to the Wooloowin train station. Two stages of townhouses have already been completed and settled, and we have recently launched the 6-story Vera Apartments project, which is now under construction and has achieved over 60% presales. Pricing of this development reflects its [ interim ] location and the homes that appeal to upgraders and downsizes. In Adelaide, we have 7 projects, including 4 within the Glenside estate. In total, we have over 1,700 townhouses, apartments and residential lots yet to deliver, a pipeline which will keep us busy for a further 7-plus years. Our South Australian projects are well established with strong reputations for quality and sustainability. And this state will continue to make meaningful contributions in coming years. We completed the first 2 JV projects with Tokyo Gas at the Glenside project in FY '25 and have one more JV project under construction there. We've recently added to this portfolio with an acquisition in Mount Barker. Our projects are seeing good sales volumes and prices continue to grow. We think the outlook for the performance of these projects will continue to be positive for the medium term. Two of our South Australian projects won industry awards in August 2025. The Monarch Apartments at Glenside won the UDIA Award for the Best Mid-rise Apartment project and the Fletcher's Slip townhouses won the UDIA Award for Best Boutique Development. On acquisitions, we have more resources allocated to locking in acquisition opportunities to support and grow future earnings. Land was acquired in 4 states in FY '25, including 2 major acquisitions on deferred settlement terms. Further sites are being assessed around the country, and we have a solid balance sheet to support these acquisitions. We are focusing on WA, Queensland and Victoria from this point and see the supply shortfall thematic being widespread. And now to the outlook for our business. Looking ahead, Cedar Woods is well placed for further growth in earnings. Conditions for the housing sector are favorable in the states that we operate in. While Victoria's property market was soft in FY '25, we saw some improvement late in the year. Easing interest rates and the supportive policy environment are assisting our sector, and this is on top of the housing shortage, low unemployment and low vacancy rates. We have strong presales levels with $660 million in presales already secured as at 30 June. We have a solid balance sheet with liquidity of over $144 million with the capacity to fund existing projects and an accelerated acquisition strategy. Our partnerships with QIC and Tokyo Gas are progressing and some future acquisitions will also be partnered. We are guiding full year NPAT growth of approximately 10% for FY '26. And in the medium term, the company is well placed with a pipeline of more than 9,400 undeveloped dwellings, lots and offices across 4 states. So thank you for listening to our presentation. And as we go to questions, I will leave you with an investment summary on the following slide. Thank you.

[Operator Instructions] Our first question comes from Connor Eldridge with Bell Potter Securities.

Just a couple for me, if that's okay. First one, just around the cost side of things, particularly with regards to how we should be thinking about margins moving into FY '26.

Yes, we had good growth in margin for '25, up to 28%. There were a couple of high-value settlements from the Williams Landing shopping center surrounding land and Eglinton commercial site, which probably dragged up that margin a bit. So you might say that overall portfolio was maybe 27%, but expecting to do at least that number, if not grow that again so that we're around 28% again for financial year '26.