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

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

Good morning, and welcome to the presentation of the FY '26 full year 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, the outlook for the new housing sector, our portfolio, and then we will finish with the outlook for our business. Cedar Woods has built a strong reputation over many years as a disciplined developer of large-scale residential projects and that has a consistent track record of delivering both earnings growth and sector-leading shareholder returns. Today, we have 36 projects across 4 states and more than 9,600 lots, apartments and commercial opportunities in our pipeline. This scale, combined with our diversified product mix and broad customer base, positions us well to perform across different market conditions. We are delivering approximately 1,100 dwellings and residential lots per year, and we have a good pipeline of projects to support future earnings. Importantly, we maintain a conservatively geared balance sheet and continue to leverage strategic partnerships to expand the business in a capital-efficient manner. These foundations, combined with favorable long-term housing fundamentals, continue to underpin our confidence. Now to a summary of our FY '26 financial results. FY '26 was another strong year for the business. We delivered a record net profit after tax of $65.6 million, up 36% on the prior corresponding period. Revenue increased to more than $502 million. Earnings per share rose 33% and dividends per share increased 34%. Operationally, we achieved 1,326 net sales and 1,068 settlements during the year. Presales at the year-end stood at a record of $830 million, providing excellent earnings visibility for future periods. Over 90% of the settlements we need for FY '27 have already been sold and contracted, and we are making good progress with the sales needed even for FY '28. We also replenished and expanded the portfolio through acquisitions that added more than 1,100 lots to our future pipeline. Leon will cover off on our financials in more detail shortly. Our strategy remains unchanged and has served the company well through a range of market cycles. We focus on building a geographically diversified portfolio, offering a broad range of product types and price points. This diversification reduces risk, broadens our customer base and allows us to respond to changing market conditions across the country and is a key differentiator for our business. The strength of the Cedar Woods model is our integrated approach. Value creation begins with disciplined acquisitions supported by comprehensive research, conservative assumptions, structured risk management. From there, we focus on quality project design and delivery, respectful stakeholder management and a strong sales and marketing platform that maximizes demand and conversion. This approach has consistently delivered attractive returns while maintaining prudent risk settings. Partnerships are becoming an increasingly important part of our growth strategy. They enable us to accelerate growth, improve returns on capital, diversify funding sources and generate recurring fee income. Further diversification and greater scale allow the company to perform even more consistently through the cycles. We have relationships with QIC and Tokyo Gas Real Estate. The 3 projects we have recently completed with Tokyo Gas performed above expectations, and our plan is to expand the partnering component of the business. Now on to ESG highlights. Sustainability and community outcomes remained integrated into the way we develop projects. During the year, we progressed a range of initiatives, including innovative energy solutions, affordable housing projects and our Community Grants programs. Cedar Woods also continues its national partnership with The Smith Family, Australia's leading children's education charity. We also continued preparations for mandatory climate-related reporting and maintained a focus on workplace culture and employee engagement. I will now hand over to Leon.

Thanks, Nathan, and good morning, everyone. Looking at the full year results in more detail, higher revenue and growing margins have resulted in a much improved profit outcome for FY '26. Revenue was up 8% for the year, notwithstanding fewer settlements due to improved pricing and, to a lesser extent, a different product mix that settled. Gross margin improved to 30%, up from 28% in the prior year, and group margin is expected to be stable into FY '27. Project operating costs are lower, largely due to savings in land holding costs also with lower marketing costs incurred than planned. Higher admin costs in FY '26 were associated with increased headcount and incentives as we reward performance and continue to invest in new projects, reflecting our accelerated acquisition strategy. Finance costs expense were lower than the prior period as a result of lower average debt, gains on interest rate hedges and higher capitalization of interest, which reflects the stage of our developments. Now taking a look at key elements of the balance sheet and the capital position of the business. Total assets at 30 June of $884 million were up $26 million on the prior year balance, reflecting the net growth in our property inventory. Net assets and equity were up 11% from 30 June '25, largely reflecting the full year results earnings less dividends paid in the period. While group debt increased modestly to support growth in acquisitions, finishing the year at $157.7 million, gearing remained conservative at 18% on a net bank debt to total tangible assets less cash basis. Gearing is currently at the lower end of our target range and is expected to remain at comfortable levels throughout FY '27 in the absence of new acquisitions that are not currently under consideration today and expected to finish the year in '27 around 20%. The company extended the tenor of its 3- and 5-year corporate finance facilities during the year, ensuring continued secure long-term funding availability with an average debt maturity of 3 years. We maintain a strong liquidity position with significant facility headroom available at year-end and interest cover at 8x, comfortably above our facility covenant of 2x. I'll now hand back to Nathan.

Thanks, Leon. So, I'll now touch on the performance of our portfolio and the sales conditions that we're experiencing around the country. FY '26 saw record inquiry and sales activity despite a noticeably softer market in the final quarter. During the year, we received more than 30,000 inquiries, up 25% on FY '25, while gross sales increased 5% to a record 1,521 lots, homes and offices that were sold. Affordable and mid-priced land products were the strongest performers. Conditions weakened during the fourth quarter across all states as buyer confidence was impacted by rising interest rates, the Middle East conflict and taxation changes. Importantly, the weaker fourth quarter numbers were also explained by lower marketing spend, which generates less inquiry and sales as well as low stock volumes at the time. Anticipating this slowdown, we focused on securing sales further ahead of settlement and successfully built a larger book of presales. As a result, more than 90% of our FY '27 targeted presales are already contracted, providing strong earnings visibility for the year ahead. Most of the sales we are doing now are to support FY '28 and FY '29. So, whilst sales have slowed, we expect to have ample time to secure the sales we need for FY '28. The weaker conditions evident in Q4 have continued thus far into FY '27. Investors and owner-occupier numbers have been impacted, although in pockets, investors outnumber owner-occupiers, especially in Victoria. Sales cancellations remain at near record lows across the business. We are confident that significant underlying latent demand exists for our projects, which will again flow through to inquiry and sales once buyers have recalibrated to the new fiscal settings and market dynamics. We expect FY '27 margins to be broadly in line with FY '26 margins. Over the past 3 years, prices for many projects increased by over 30% in most markets, resulting in the very strong margins we have across these projects today. Prices increased by even 50% at some projects around the country. Some pricing pressure is to be expected given the strong price growth and margin growth experienced, and we have taken this into account in providing guidance for FY '27. The housing market is currently experiencing weaker conditions with higher interest rates and other factors weighing on buyer confidence and sales activity. We expect these conditions to persist through much of FY '27. However, the longer-term fundamentals remain very supportive. Australia continues to face significant housing shortages. Population growth remains strong and unemployment is low, all of which support underlying housing demand. Government incentives continue to assist first-time buyers, an important customer segment for Cedar Woods, whilst interest rates are expected to ease during 2027. Historically, confidence and sales activity improve once rates peak and begin to decline. With more than 9,600 lots and dwellings in our pipeline and a strong presence in growth markets such as Western Australia and Queensland, we believe Cedar Woods is well positioned to benefit when market conditions improve. The Victorian market arguably provides the greatest upside for Cedar Woods with that market yet to experience the price growth achieved elsewhere and making it the most affordable major capital. I now wanted to provide some insights into our portfolio. The portfolio remains highly diversified by geography, product type and customer profile. Residential land lots continue to represent our largest product category, while owner occupiers and first home buyers remain our dominant customer groups. This diversified structure provides resilience and reduces dependence on any single market or product segment. These charts demonstrate that diversification in our portfolio. Our Western Australian portfolio has been benefiting from strong economic conditions and a chronic housing undersupply. Our WA portfolio is comprised of 9 projects with a mixture of residential lots and apartments, and we are in a good spread of locations north and south of the CBD. Sales were strong for most of the year and prices grew significantly again, improving margins even further. The demand slowed in the fourth quarter and remains subdued in FY '27 thus far. In Victoria, we currently have 13 projects, which offer a wide range of products, including land lots, townhouses, apartments and offices. We have over 10 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. Victoria remains a medium-term growth opportunity. Market conditions have been soft as in other states, although 3 of our Victorian projects have been generating good sales and prices grew modestly in recent months. We have 8 projects in Queensland and a total of 2,133 lots and dwellings to deliver. There's a mix of land estates, townhouses and apartments in this portfolio. Our projects here performed strongly for much of FY '26, but like the rest of the country, slowed in Q4, and those slower inquiry and sales numbers are still evident in FY '27 to date. We have a strong presales book in Queensland, so are expecting strong Queensland contributions again in FY '27. Prices grew strongly in FY '26 in Queensland as well, further improving margins. The demand and price growth for affordable land product has been very good. The construction sector in Queensland continues to experience capacity constraints, especially with apartment builders on the Gold Coast. Queensland is expected to come good as sentiment improves, supported by migration, employment growth and a limited supply of housing. South Australia delivered another solid contribution with continued demand across our portfolio there. The state enters FY '27 with a visible settlement pipeline and significant future development opportunities. Sales conditions were good for most of the year, but slowed down in the fourth quarter as per the other states. In total, we have over 1,600 townhouses, apartments and residential lots yet to deliver, a pipeline which will keep us busy for approximately a further 8 years. Our South Australian projects are well established with strong reputations for quality and sustainability and will continue to make meaningful contributions in coming years. Maintaining a strong development pipeline is critical to supporting long-term growth, and acquisitions remained a major focus throughout FY '26. In the prior year, we implemented an accelerated acquisition strategy and successfully secured 6 sites, adding 1,184 lots to the portfolio. This has further strengthened our future earnings pipeline and increased the proportion of land subdivision projects within the portfolio. Importantly, acquisitions activity has continued into FY '27 with the expansion of our high-performing Bushmead estate in WA. We also have a number of additional opportunities that are currently under due diligence. We are now focusing our efforts on master-planned community sites and townhouse sites. And at this stage, we are open to opportunities in all 4 states, noting that the housing undersupply is nationwide. Our strong balance sheet and disciplined acquisitions process positions us well to continue to prudently replenish and grow the portfolio. And now to the outlook for our business. Looking ahead, we are confident in the short- and medium-term outlook for the business. Australia continues to face a significant housing undersupply, while population growth and low unemployment provide strong support for underlying demand. Interest rates are forecast to fall in 2027, and we expect this to be a catalyst for improved sentiment and higher sales volumes. We enter FY '27 from a position of strength with a strong balance sheet, ample liquidity and a successful acquisition program that continues to replenish and expand our portfolio. Importantly, we have a record $830 million in presales contracts in place, including approximately $290 million in presales that will settle in FY '28 and FY '29, providing significant earnings visibility beyond the current year. We are targeting FY '27 NPAT growth of 15%, building further upon the 36% growth delivered in FY '26 and 19% delivered in FY '25. This brings us to the end of our results presentation. We are now happy to answer any questions.

[Operator Instructions] The first question today comes from Michael Armstrong with Bell Potter.

Just of the $290 million plus presales for '28 and '29, I know it's early days and subject to change, but are you able to give an indication of how much of this will land in each period?

Yes. So, of the total balance, about 30% we're expecting in FY '28 and there's just over $50 million in FY '29. In saying that, $50-odd million for FY '29 relate to a building that has PC currently in June '28.

That's practical completion.

So there is a possibility that all of those could settle FY '28, but that's not our base assumption at this stage, where we have $50-odd million landing in FY '29.

Okay. And then just on the admin costs. I know you called out that '26 had the impact of increased headcount. Can we expect this trend to continue in '27? Or is headcount expected to be more stable this year?

Michael, yes, we expect the headcount to be largely consistent with FY '26. There is an increased, sort of, volume of activity in place across the business in terms of acquisitions, delivery, sales, marketing. So there may be a minor increase, but I wouldn't expect it to be in line with the increase experienced from '25 to '26.

Yes. And, to talk to admin costs more broadly, we could see some growth in those admin costs as we have some investment into some IT projects and some system things, albeit headcount is not necessarily ramping up.

Okay. So, yes, growth in '27, but less than what was -- what came through in '26?

Something like that.

The next question comes from Larry Gandler with Shaw and Partners.

Can you hear me?

Yes.

Nathan and Leon, just a couple of questions for me. First, with regards to your property page in the appendix. Just if you can help me understand Williams Landing, if you can kind of run through what the status of that whole site is, what are sort of the major developments or revenue generators you'll have for F '27 and maybe '28 there?

Yes. So FY '27, we're doing a small stage of townhouse slots. So we have about 7, 8 settlements there. And the -- we'll also have some settlements from our completed Strata office building Hudson Hub, around sort of 15, 20 settlements there. And the latest thing we're doing now is a new product for us, office warehouse, which we're in market selling and it's selling quite well. And that will settle late '28, early FY '29.

So Larry, there's about 10 hectares of mixed-use land around the new -- the train station yet to be developed. That can accommodate around 1,000 apartments or strata offices or similar product. The site has what's called a priority development zone, a PDZ, giving it ultimate flexibility in what uses are delivered on any particular site and without any height limit. So we'll look at any particular site, look at where we think the highest and best use is and structure a development approval around that. And so at any point in time, we can have apartments going at the same time as townhouses and office warehouse product or office product. And we -- it's fair to assume that in that land alone, there's another 8-plus years of development left to go depending upon Melbourne's recovery and the take-up of apartments in that location.

Great. A couple more questions from me, if I can. just on the same thing with the properties, Southbank, FY '29 is coming into view. I think it was originally slated for settlement around that time. Can you talk to Southbank?

So Southbank, we're just about -- or we're preparing for the launch of that project. It's been -- it's got the planning approvals. It's got the branding in place. And in that market, the capacity in the construction sector is much greater. There's many larger scale builders with the capacity to deliver that project that we're talking to. So we'll go through a 6- to 12-month presales campaign and then subject to those presales, get it under construction, and then we'll have a couple of years' worth of delivery and then it will settle.

We expect to be in presales in coming months. So all our materials are ready to go and just going through final process. That could be late FY '29 or early FY '30 settlement.

Okay. Great. Last question for me, probably for Leon. It looks like the FY '27 presales of $540 million.

Thereabout.

Yes. That suggests that sales growth might be around $40 million. If I just assume a 30% margin and a 70% tax rate. And then assume that kind of drops all over the bottom line, it's like 13% of your 15% NPAT growth. These are all my numbers. But the point being is it seems like a substantial portion of your F '27 guidance has been presold. Are there any detracting factors like you've got those extra staff or other cost elements that we should think about?

Yes. Like you said, we're very well sold and secured for FY '27, more than 90% of full year revenue is contracted in presales. And as we said on the call, we're expecting margin similar-ish in FY '27, relatively stable. As I mentioned to Michael earlier, we'll have some modest growth in admin and operating costs, but we'll get operating leverage because of the higher revenue and higher gross margin. And that will split out the guidance number, circa $75 million, that 15% profit growth.