Ingenia Communities Group (INA) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Ingenia Communities FY '23 Results Teleconference and Webcast. [Operator Instructions] I would now like to hand the conference over to Mr. Simon Owen, CEO and Managing Director. Please go ahead.

Good morning, everyone, and thank you for joining us today. I'd like to make a few opening comments before jumping into the presentation. The past year has been an incredibly challenging period for Ingenia and 30 June could literally not come around soon enough. We know that it will take some time to earn back your confidence, which we are determined to do. The commencement of a new financial year provides us with the opportunity to hit reset to establish new targets and take stock of market conditions. We started last year experiencing chronic labor shortages across many of our development projects, which cooled our ability to deliver new homes in a timely manner. Build times extended to over 30 weeks per home, and this continued until March 2023. And once homes did start to get delivered in volume over the last quarter, the impact of 12 interest rate increases had taken their intended impact on the housing market and prospective purchasers became hesitant to commit to the sales journey. For the first time in over 3 years, we had to aggressively utilize incentives to drive settlements. However, there are also many positives to report for the year. Our rental communities are reporting both record high levels of occupancy and strong rental growth. For many capital cities and regional towns, it is often near on impossible to secure a rental accommodation and it's quite likely that this will only get worse over the coming years. Yesterday, I was visiting our 3 rental communities down in Melbourne, which are located in Chelsea, Frankston and Carrum Downs, and across over 500 rental homes, there is not one vacancy. Each community has a deep wait list. And we have approvals in place to add another 50 homes, which we will commence to roll out in the coming months. Our tourism business continues to boom as many families grapple with rising living costs. Affordable domestic travel will likely become a key beneficiary. The vast majority of our holiday parks are now also pet friendly. And Qantas couldn't be doing a better job in promoting the benefits of a self-drive family holiday. The key demographic drivers that underpin our business model remain firmly in place, an aging population, a housing affordability crisis, the population drift to the regions and buoyant demand for domestic travel. We are enjoying strong pricing power and have in-built inflation protection. We are enjoying increased demand from changing work and migratory habits. And we are making solid progress on our sustainability goals, including our emissions reduction program and the creation of more sustainable communities. We are at an important nexus in our development business. And the pendulum has clearly flung back in our favor with a multitude of mid-tier builders now chasing our projects. We are a Tier 1 development brand and have worked hard to secure a strong reputation as a partner of choice with quality builders up and down the East Coast. This should not be underestimated in terms of the positive impact on our business over the next 3 years. Over the past 6 months, my foot has been hovering over both the brake and accelerator in terms of commitment to more build starts due to the incredibly challenging macro factors at play. We are still at a nascent turnaround period, but the supply complexities of the past 12 to 18 months have faded and I can see some clean air. In recent weeks, we have actively committed to commencing dozens and dozens of additional homes across at least 5 projects. We started the year with approximately 58 homes with another 240 or so under construction, and leading into Christmas, can readily see us committing to another 250 plus homes. The resi market is incredibly challenging to read with many push and pull factors. But as I travel from site to site, the pickup in activity and the renewed confidence from our sales team is clearly visible. In my position, I am able to have both insight and perspective from my numerous touch points with industry players from planners, builders, local councils and analysts. The residential market is tightly poised and the X factor that has been missing is consumer confidence due to the barrage of interest rates -- interest rate increases. We saw further evidence several weeks ago that the RBA is likely not far from peak rate. And the nature of the Australian residential market is that buyers will not want to miss out on the next property run. We have seen this time and time again and Ingenia is well positioned to be a key beneficiary. As confidence builds for people to sell and downsize, we have a multitude of communities in highly desirable coastal locations at various price points to meet what I fully expect to be a significant pickup in demand. We remain cognizant to what is playing out globally, which could change everything overnight, but also highly attuned to the fact that there are some 300,000 to 400,000 people coming every year to Australia and they all want a place to live. Many purchases are spooked by the prospect of their builder going broke mid project. We read and hear about the terrible stories every day. Having a small level of available homes is an absolute positive, especially when combined with busy development sites where our prospective customers can now see upwards of 50 trades at work, constructing literally dozens of homes at every community in market we have. This gives our purchasers considerable confidence to proceed as they are contracting with Ingenia. This year, we have commenced more communities than ever before, including Bobs Farm and Fullerton Cove on the New South Wales Mid-North Coast; our Victoria Point community in Brisbane's eastern suburbs; our Millers Glen community in the Queensland Scenic Rim; Bargara on the Queensland Capricorn; and most recently, Australia's largest DA-approved lifestyle community which is 1 hour north of Sydney at Morisset, which I toured last week with the Chairman. These projects are forecast to materially drive settlements and earnings growth over the next 3 years and will underpin our revised 3-year settlements target of 1,600 to 2,000 new homes. At its essence, Ingenia's business is underpinned by owning land and collecting cash rent. A significant component of this rent is supported by Commonwealth pension and rental assistance payments. This is supplemented by low-risk, high-velocity and profitable development of regional and out of metro lifestyle communities geared towards the rapidly growing number of downsizes and young retirees across the East Coast. I should also mention that overnight we executed agreements with our development partner and largest shareholder, Sun Communities, to extend our development joint venture for a further 7 years. This is an incredibly exciting announcement, many months in the making and highlights the close relationship that exists between Sun and Ingenia. And we greatly look forward to working closely with Gary Shiffman and his amazing team over the next 7 years as we develop and operate some of the most iconic lifestyle communities on the Australian East Coast. Joining me on the call today are a number of Ingenia's executive team, including Donna Byrne, our General Manager of Investor Relations and Sustainability; Natalie Kwok, our Chief Investment Officer; Karen Landy, our General Manager of Corporate Strategy; and Von Slater, who heads up our Development business. I would like to especially acknowledge the great job that Karen did as acting CFO over the past 8 months during a really challenging period. And I would especially like to warmly welcome our new CFO, Justin Mitchell, who joined the business last month. Nothing like stepping in as the CFO 6 weeks before results. And I'll ask Justin to introduce himself and talk to the financials shortly. I'm now going to step forward on to Slide 2, which is called executing on strategy. Over the past year, we have really focused on better execution within our development platform, improving our operational yields, looking at expansion of opportunities within existing communities and proactively managing our balance sheet. Our Holidays revenue was up by 36%, driven by continued growth in occupancy and rate, organic investments and recent acquisitions. The domestic holiday thematic will be with Australians far, far longer than many of us are thinking and Ingenia is strongly leveraged to this story. Our Lifestyle community business now comprises 35 communities either established in development or in planning, which now represents over 50% of our business. We have a development pipeline of some 5,775 new home sites, one of the largest in the industry, which will underpin many years of profitable growth. We continue to focus on divestment of noncore assets to recycle capital. And in addition to divestments announced to date, we have over $80 million of noncore communities or land under conditional contract offer or due diligence. Our group continues to prioritize our ESG program, which remains core to our strategy and align with our vision, purpose and values. We remain a leader in diversity and inclusion. And we are well advanced with our Green Star strategy for pending new lifestyle community developments. And with that, I'm now going to hand over to Justin to discuss in more detail the Group's financial performance and capital management.

Great. Thank you, Simon, and thank you for that introduction. And good morning to everyone on the line. Well, it's great to be back in the listed property space and in a sector that I actually feel very passionate about. It's also good to see so many familiar names on the call today and look forward to catching up with many of you over the coming days and weeks. As Simon alluded to, I've now been in the CFO role for 7 weeks and I'm really pleased to be presenting my first results for the Ingenia Group. During the year, the Ingenia team has been focused on embedding the acquisitions completed during FY '22. At year-end, we now manage or own 107 individual properties and 15,500 income-generating units. Let me start with the key financial highlights for the year ended 30th of June 2023 on Page 5. As a result of the full year impact of the acquisitions I referred to before and the continuing strong operational performance across our Tourism and Lifestyle rental portfolio, revenue grew 17% to $394.5 million, with Tourism increasing in total 31% and Lifestyle rental increasing 39% to $76.8 million. EBIT growth of 7.5% has been tempered by the challenges faced by our Development division, as well as our support center and corporate costs increasing as a result of ongoing inflationary pressure and an investment in people and systems to support the expanded portfolio. Underlying EBIT, which was towards the top end of the guidance range communicated in February, declined 11%, impacted by the increased interest costs associated with higher cost of funding and increases in drawn debt levels. The group's statutory profit and EPS declined as the benefit of our revaluation increments was significantly lower in the current year. This was due to softening cap rates and the realization of development profits on projects, which was, however, offset by stronger net operating income across the portfolio. Our final distribution of $0.058 per security has been declared, taking the full year distribution to $0.11 per security, which is consistent with the prior year distribution. Moving to Slide 6 on divisional EBIT performance. As previously mentioned, the Lifestyle rental business delivered strong performance as a result of high occupancy, full year impact of the FY '22 new home settlements, inflation-linked weekly rental increases and the impact of 12 assets acquired during the prior year. Increases of circa 6.5% have been applied to rent reviews across the year, with higher rates applied to those in the latter half of the financial year. This resulted in a 34% increase in EBIT for Lifestyle rentals to $36 million. Our Lifestyle development was impacted by the first half construction challenges that we've spoken to previously, which has now largely abated, and a slowing residential environment in the second half impacting settlements. Together with higher portfolio costs associated with the growing active development pipeline has resulted in lower current year development EBIT. Just focusing on Ingenia Gardens, which continues to see high occupancy and positive rent increases. However, it has not been immune to the inflationary environment, which has impacted not only wages, but our operational costs as well. This combined with the sale of 2 assets in Horsham and Tamworth during the year impacted the portfolio, which declined 9% at an EBIT level. As Simon alluded to before, tourism has performed well with domestic holiday demand, enabling strong growth in occupancy and rate, coupled with the impact of acquisitions. This delivered a significant increase in the portfolio EBIT of 31% to $46 million for the year. Capital partnership income reflects the group's ability to derive income from the rollout of our joint venture's existing developments and the funds managed by the group. EBIT declined as a result of performance and acquisition fees recognized in the prior year not recurring. With the group's expanded asset platform, the expense base has increased across operational, support center and corporate due to the full year impact of these acquisitions. This was also impacted by higher volumes across rentals and tourism; general inflationary pressures, including salaries, insurance, rates and taxes; coupled with an investment across business; in compliance and governance costs; increased investment in technology, resources and systems; as well as ESG initiatives to support the platform for recent growth and also future expansion. I will now turn to Slide 7, and I'd like to discuss and give you an overview of our balance sheet and capital management. The Group's balance sheet continues to be well positioned with an LVR of 31.4% as at 30th of June. We are well within our covenants and have sufficient funding headroom with undrawn facilities of $147 million. These facilities have a weighted average debt maturity of 3.4 years, and our next maturity not due until December 2025. From a cost of debt perspective, we continue to manage this with approximately 53% of our drawn debt either fixed or hedged with a weighted average maturity of 2.8 years. At 30th of June, the average cost of our drawn debt, inclusive of margin was approximately 4.6%. We have continued to recycle capital throughout the year with $55 million divested. Combined with strong cash flow from our Lifestyle rental and Holidays business, we are actively managing the capital requirements of our development pipeline. Over the past few weeks, I've had the opportunity to meet with Ingenia's banking partners. It was great to hear they continue to have strong support for Ingenia and the sector more broadly, which is a positive from a future funding perspective as our portfolio grows. And finally, turning to Slide 8. Following a prolonged period of cap rate compression across the Lifestyle rental and Holiday assets, the cap rates across our portfolio have expanded from December 2022 by 14 basis points to 6.05%. Ingenia Gardens remained relatively stable. Despite this cap rate softening, overall, Ingenia has been -- has seen a slight uplift in our total portfolio value, driven by strong NOI growth, which was partly offset by the realization of development profits on our development projects. I will now hand back to Simon.

Thanks, Justin. And after 12 years, you didn't miss a beat. Let's jump forward to Page 11 and discuss our Ingenia Lifestyle business. In this segment, which comprises our core lifestyle communities and all ages rental business, we grew the revenue by 39% and segment earnings before interest and tax by 34% compared to the prior comparative period. Key drivers here were a first full year contribution from acquisitions which closed in late 2021, organic investment in new homes and strong rent growth. We're also able to broadly hold our operating margin in a high inflation market, which demonstrates the quality and resilience of this business. We have high-quality CPI-linked rents supported by government pensions and transfer payments and Commonwealth rental assistance. Let's move to Slide 15, which is the first of a few development slides that I would like to talk to. We built and completed a record 458 homes for the year, including completing over 200 in the last quarter alone. This number would have been materially higher again but for the severe issues we experienced with trade availability in the first 8 to 9 months of the financial year. We settled 374 homes for the year, with an average home price up 19% to $487,000. And this is as much a reflection of change in mix as it is of price growth. Margins contracted approximately 300 basis points when compared to FY '22, but pleasingly, were up nearly 1,000 basis points on the result recorded for the first half, and this is predominantly volume related. Looking at Slide 16, I'd like to make some comments on our build times and inventory levels. Build times continued to slowly normalize towards pre-COVID levels of 18 weeks and are currently running on average at 25 weeks, although this does vary significantly by project and by state. Construction cost growth is moderating, but we are yet to see any meaningful examples of prices retreating. At 30 June, we had 58 completed homes. However, more than half of these were already deposited or contracted. We have not had any completed inventory for many years, and across 18 active projects, I believe our inventory levels are still very low. We have some 194 homes presently under construction plus another 40-odd in the JV with Sun. So we are watching this balance very closely. As I noted previously, it is a key topic of conversation internally about the timing and volume of new home commencements. Hopefully, the next few slides really give you some perspective on the scale and momentum that is now truly underway at Ingenia. Slide 17 shows you the 14 projects in market where we are actually building and selling homes. Slide 18 shows you the 4 new projects which we have recently launched, including the largest DA-approved lifestyle project in Australia at Morisset, 1 hour north of Sydney. The chart on this slide also shows you that Ingenia has the largest pipeline of new communities projects in New South Wales compared to any of our peers. And Slide 19 shows you some of the new and exciting projects which we are taking through planning and final design ahead of launching in the next 1 to 2 years. The combination of these 3 slides is how we intend to deliver on the 1,600 to 2,000 settlements over the next 3 years, with further growth beyond that. Now touching on Slide 23, and I'll just talk briefly about our Holiday business. Holidays continues to perform strongly in the current environment with earnings before interest and tax up 31% to $46.4 million. Our margin was down 300 basis points, principally as a result of higher operating cost environment and some additional cost allocations to the Holidays business. We have continued with a strong investment in organic growth into this business, including the addition of a further 38 holiday cabins and more than 30 annuals, permanence and rental homes as we seek to diversify community earning streams. Now, touching briefly on our development partnership with Sun on Page 26. Today, we announced a 7-year extension to our development partnership with Sun. The terms are broadly the same. However, the key difference is probably now that Ingenia and Sun will jointly own stabilized communities for a 5-year period before Ingenia has the right to exercise its 12-month option to acquire Sun's 50% interest. Sun has been a great partner for Ingenia over the past 5 years, especially through the COVID period. And we look forward to working closely with them over the next 7 years. And I'll now close on group outlook, which is on Page 28. Our focus this year is on driving continued operational efficiencies, looking for cost outs, managing our balance sheet settings and successfully launching and driving settlements across the 18 communities we now have in market. We are not providing a settlements guidance at this stage for FY '24. In terms of financial guidance, in terms of EBIT, we are looking at 10% to 15% growth in EBIT and underlying EPS of between $0.208 and $0.223, which works out to be between 0% and 7.2% growth in underlying EPS on FY '23. We see the opportunity to develop and sell between 1,600 and 2,000 new homes across the FY '24 to FY '26 period. And over the course of the balance of this financial year, we have a significant number of high-margin, high-quality projects coming to market, which will drive the business forward. And with that in mind, I'll now hand over back to the moderator.

[Operator Instructions] Your first question today comes from James Druce from CLSA.

Just curious about the capitalized interest policy. What are you actually capitalizing interest on? I noticed it's picked up from around $3 million to $9 million over the period, which is 1% of earnings.

Yes. James, its Justin here. Maybe if I take that one. Obviously, our capitalized interest relates to the work we undertake on our investment properties, so a lot of the estate Master works. And so that's partly -- I guess, given the fact that we're increasing the amount of developments being undertaken as well as the increase in our interest cost has resulted in increase in the amount of capitalized.

All right. But a couple of years ago that was virtually nothing. I'm just wondering if anything has actually changed. You have been increasing developments over time naturally anyway.

Look, going back in history, I'm not sure. But my understanding is that nothing has changed. I think if you probably look at the percentage of the actual interest cost as a proportion of amount capitalized, that's probably a good starting point to understand the actual ratio that we capitalized.

All right. So that number this year is roughly going to be flat or still increasing do you think?

Well, I would expect it to increase probably given the 2 main drivers of it, which is, one, our interest costs will no doubt go up as our level of debt increases as we continue to build out the portfolio.

Right. Okay. And then just on the timing of the 4 new projects that you've got coming online, when are they due to actually start selling?

Sure. So referring to those 4 projects, so Fullerton Cove, yes, we're selling in market at there. And we would anticipate first settlements will occur in the last quarter of '24. In terms of Morisset, the builder starts on site in October. And we expect first settlements in that project in the first quarter of FY '25. In terms of Bargara, the builder has started on site and we had our first slabs poured yesterday. And we expect, yes, first settlements to occur in the last quarter of this financial year. In terms of Beverage, we're still doing -- putting in the roads and civil and infrastructure. And so, I would anticipate settlements in that project will probably be in the second or third quarter of FY '25. So you will only see contribution from Bargara and Fullerton Cove in this financial year.

All right. That's clear. And is there anything -- any change in sort of mix to call out over '24? I know you're not giving settlement guidance. But in terms of sort of price point, how should we think about that?

Look, more and more of the new projects we're bringing to market are increasingly at a higher price point. That's reflective of the coastal community. So I guess at Bargara there, that is the only lifestyle community being developed on the East Coast of Australia that is actually ocean front. And so, the homes there will be ranging from -- in the low to mid-6s up to north of $1 million. Fullerton Cove, the homes there will be ranging from low to mid-7s through to $1.4 million, $1.5 million. So most of our new projects that we're bringing to market are going to be in that sort of $600,000 to $800,000 range. There are a couple of exceptions to that. So our project in Beaudesert, which is Millers Glen, that project there, homes are from the low 4s through to low 6s. So that's probably a bit of an exception. But most projects are at a higher price point, James.

Okay. That's great. That's great color. Actually, I've got one more question, if I can be greedy. There's a few more, but I'll just end with this one. In terms of sales rates, I think you mentioned you've got 324 deposits on hand and I think you had about 288, I think, that was around the 4th of July. Is that sort of how we should be thinking about the sales rates over the past month?

No. So this is quietest period of the year in the residential market, is winter. And so, next week when we step into spring, we expect the market to really start to take off, so as people come out of being buttoned up in the family house. And so we would expect that for Ingenia -- and I wouldn't expect it would be any different whether you're a traditional resi developer or any of our peers, is that the run home from here to Christmas is our peak sales period for the year. And we would expect to finish this calendar year with a materially higher number of deposits and contracts on hand, offset by however many homes we expect to settle in the first half of the year.

Your next question comes from Tom Bodor from UBS.

I was just interested in the Lifestyle rental margin, which was consistent or stable despite a big increase in numbers of communities that you own, having acquired a lot recently, and that was around that 50% mark. So I was just wondering, incrementally, do you think that is your sort of margin at which you add communities? Or should you be able to get that over 60% in time?

Yes, Thomas, to -- look, it is -- I think there's definitely some growth in there. Whether we can get that to 60%, that will be -- remain to be seen. But I would think there's at least another 300 or 400 basis points in that. Now, we are operating in a higher inflationary environment at the moment. And so after labor, other key costs for us include utilities and the consolidated accounts or rates that we pay. And we're seeing increases of -- 15% per annum is not uncommon. And that sort of is -- even though that might only be 10% or 15% of the entire cost base of running the community, that is really tempering or cooling the otherwise very strong rate growth -- rent growth that we are getting through those communities. We expect those increases to moderate. The new communities we're bringing online are increasingly far more self-reliant than some of the older communities that we purchased or we developed a decade or 2 ago. Yes, it is a challenging environment at the moment. There is significant cost inflation that we are exposed to across the business.

Okay. That's very good and helpful. And then in terms of just your divestment program, you've got $80 million that is in advanced DD or [ AORs ] or whatever. Are you going to sell more beyond that? Or once those are sold, you're sort of cleared of your noncore assets?

Look, I would anticipate that most of that $80 million will be divested over the next 6 months. So all of that $80 million is either -- is under offer, it's under exclusivity. The purchaser is spending hard dollar due diligence. And so we have reasonable visibility on that. In terms of further divestments beyond that, I think that is quite likely. What we're seeing in the market at the moment -- and we're just trying to get the right balance -- but it is very attractive time in the market at the moment to be refilling our land bank. And so we're seeing vendors, the owners or the option holders of land, they're more prepared to trade. They're more prepared to enter into conditional arrangements, to do deals. And so, we, I guess, want to get the right balance between having capital available to go down that path. And I'm sure we've got great sites, particularly in New South Wales, which is a real focus for us. But we don't want to, I guess, divest too much and impact the underlying earnings of the business. But we continue to do a comprehensive review of all the communities. And we are also offloading a couple of pieces of land at the moment that are no longer part of our core strategy moving forward. So I would potentially see further divestments beyond that $80 million. But you would see that I think our balance sheet is in very good condition. Our LVR is conservatively set. Our ICR is very strong. We've -- it's been a long time coming, but to enter into a new 7-year development partnership with Sun Communities, I think, is a huge vote of confidence from Sun. So divestments beyond that $80 million would really be to take opportunistic advantage of land buying opportunities that we're seeing in the market at the moment.

[Operator Instructions] Your next question comes from Solomon Zhang from JPMorgan.

Just a question on the 3 settlements target. I guess it implies 600 settlements per annum at the midpoint. I know you're not providing sort of quantitative guidance for '24, but just interested in the shape of how you expect this to play out over the next year? Is it going to be more of in ramp-up or a bit more of a hockey stick at the back end?

Solomon, look, I don't think it's going to be a hockey stick shape. We're not going to go backwards. I think we've certainly got the ability to build a lot more than, that 1,600 to 2,000 homes, the environment that we're seeing at the moment until we get to a point where the RBA is clear that we're at peak rate. I think a lot of purchases are going to continue to sit on their hands. And -- but once we get to that point, I truly think the market is going to really take off. And we just want to make sure we've got enough stock. We're very conscious that to build a new home at the moment, it's still taking 23, 24 weeks. So for us to settle homes in the second half of this financial year, from January to June, we have to commit to those homes before Christmas. And for our projects in Queensland, in particular, if the slabs aren't poured before January, that home is not going to be ready by 30 June. So we're watching that very closely. So I guess how large the volume of settlements in '24 is will really depend and be a function of when we get to a point where the new governor says we're hitting pause for a time being and then I think the market will really take off. And we expect that that will then be a very strong -- a start of a very strong cycle, which will continue for a number of years, driven by the structural imbalance that exists in the Australian housing market at the moment. We're simply not building enough homes. And I think kudos to the federal government for the great initiatives that it's announced over the last few weeks, long overdue. But there is no land that's approved and the ability for those homes to be delivered in the next couple of years is going to be really challenging because there's just no land that's available, particularly in Southeast Queensland. The development pathways in New South Wales are calling. And Victoria is probably a more challenging market to invest in at the moment. So it is -- there's a lot of challenge out there. But as quickly as the RBA hits pause, then, I think the market will take off very strongly. And we've got some amazing -- we probably overplayed with the number of photos we've put in. But the pipeline of projects that we have in market that are coming to market that will be coming to market very shortly. And there's another 6 or 8 beyond that that we have under option where we don't have to buy the land subject to getting a DA that we want. And a lot of those DAs are already being lodged. The pipeline is coming together extremely well. It's taken us a long time to curate and get there. And there's been some absolute frustration. But I think the strength of our development business is really going to shine. And I think there'll be strong measured year-on-year growth across those 3 years. But the level of settlements we achieve in '24, we really need to see how the next 3 months play out, how strong the summer selling period or the spring selling period is going to be. But certainly, when I'm out in the site, so in the last months I've been through all of our projects in Queensland, all of our projects in New South Wales and most of our projects in Victoria. And there is renewed optimism from the sales team on the staff. We're committing to new homes. I think in my opening comments, I outlined that we have 58 homes that we started the year with. We have another 240 odd that are under construction and now the 250-odd that we're committed to starting before Christmas, like we're clearly building a lot of product this financial year.

The second question was just on incentives. You called out a bit of rent free as well as discount to support settlement ahead of June '23. Just curious to see are those completely dropped off or this; what sort of incentives, are currently in the market?

Yes, that's a great question. So the run home to 30 June, we had a range of incentives that were in place that would be anywhere from 6 to 12 months rent-free. So our average rent would be, let's say, $200 a week. So that incentive would be around $10,000 on a home that we're selling for $0.5 million, so not hugely at the margin. There are also 3 or 4 communities where we would have had incentives, whether its cash back, style arrangements of up to $25,000 that was really concentrated at 3 or 4 projects. So we're certainly not across the board. And for the first time in a long time, those -- the rent holiday has continued across most of our projects since the commencement of 1 July. So that would be pretty unusual for us to do that. But whilst we are very positive about the outlook, we are conscious that we're still in a market where for a lot of purchases, they're sitting on their hands. They're just reluctant to commit and unless we give them a reason to step forward and commit to purchasing a home. A lot of them were to say, "Yes, look, I'm interested, but I'm just going to wait." And so the incentives are still very modest. We control those very tightly. Our salespeople certainly don't have the incentive -- the authority just to apply incentives, but it is something that we watch very closely. But just at this point in time, we still think it's necessary. We work watch closely what our competitors are doing. And so you can see from our results between 30 June and today's results, we have grown the number of contracts and deposits on hand quite materially. And those incentives have been an important part of that. I suspect over the next month or 2 that we'll probably wind those back. Our Head of Sales is just looking at me grimacing at the moment. But we'll -- I don't suspect they're going to be on the table for much longer, but they are there at the moment. And I can't remember the last time that we would have had that sort of incentive in July or August. It's been many, many years.

If I just sneak in one more. So maybe a question for Justin; any discussion around potentially changing, I guess, the way that land lease development profits are recognized? As you sort of alluded to earlier, Ingenia does take sort of below the line devaluation once the land lease states move from construction to stabilization. You can sort of make the argument that the margins are maybe slightly overstated. I guess stock has taken a slightly different approach with lower margins but no revaluation, just interested in your thoughts there.

Yes. Look, it's obviously early days for me, 6 weeks. I guess my primary focus has been to getting to today and delivering the result. It's something that I do have in the back of my mind. And it's something we will look at either from a transparency perspective. But from what I understand, it certainly has been flagged in discussions with Donna and my predecessor. It is there quite transparent around that. We obviously are in accordance with accounting standards as well, which I think is important to highlight. But look, certainly something we can look at. But it certainly hasn't been -- hasn't consumed a large part of my agenda so far.

Your next question comes from Suraj Nebhani from Citi.

So firstly, on the joint venture, please, positive results there with the extension. Can you make any comments on the capital commitments from each party over that 7-year period? Obviously, it depends on the number of projects, but at least if you look at the current project pipeline, just any idea of capital commitments there?

Suraj, I might direct that question to Karen Landy, who oversees our partnership with Sun and also is the person who chaperone the deal home over the last couple of weeks.

Suraj, while there's no binding commitment on either party to commit to specific new projects. There is certainly a willingness of both parties to look to new opportunities, which was why the extension was so important for both parties. Each project that we've got on foot will require additional capital. And both parties are committed to fund through a blend of debt and equity and that commitment is there from both parties. In terms of the structure for new projects, we have a process that is established for that. And both parties remain committed to explore those projects. We have cash flow and forecast for both of the -- so for all of the existing developments and projections that reflect a debt structure that's consistent with a gearing level that's similar to the headstock, which is in that target gearing range of 30% to 40% and we'll match that with equity accordingly.

Okay. So I mean the way I'm reading those comments is that there will obviously be a ramp-up in the settlements over the next few years. So it's fair to say that some of the debt that you're placing in into the structure and the joint venture will probably go in now and over time, it will probably come back as settlements start coming in. Is that probably the way to think of it?

Suraj, that's correct. We've got an existing $50 million debt facility within the joint venture that's nonrecourse already. And that's partly utilized on the existing developments. But there's still undrawn capacity within that. The joint venture already recycles cash flows in the sense that as home sale proceeds from home settlements are realized, we recycle that back into the developments as well as to capital calls.

Just -- Simon here. Just one thing -- so we have 3 projects we're developing with Sun that we anticipate will stabilize in the next 2 years or so. And the way the revised development partnership is that those communities will remain within Sun-Ingenia for the first 5 years of operation, for which we will collect a management fee. And so that, again, further reduces the capital requirements on Ingenia, because we won't have to utilize our balance sheet to buy Sun's interest out until the fifth year of stabilized earnings. So I think that's a really positive development for Ingenia in our balance sheet. But it also means that Sun can access some of the stabilized rents that these great communities will deliver.

And just one broader one for you, Simon, on capital partnerships. I know you had alluded to a few other capital partnerships as well. I was just wondering if you can give any update on progress and I guess which businesses are targeted for capital partnerships.

Yes. So we remain actively engaged with a handful of prospective capital partners at the moment. So I guess when I say engage, that means they're doing asset tours. We've -- we're negotiating term sheets. We may not go down that path. But we certainly have a number of parties who are extremely interested in the sectors in which we operate. Those capital partnerships would extend across holidays, Ingenia Rental and the development component of our Lifestyle business.

And is it fair to say that you -- I mean, the terms of those are -- may or may not be similar to the Sun JV?

Yes. That's -- I mean the Sun JV is a development partnership. And certainly, in the Holidays business and the Ingenia rental, there are development components within that, but they're more stabilized rent. And so, yes, it would not be dissimilar, but it would be -- it wouldn't just be cut and paste from the Sun agreement. But we need alignment with the right partners. I think our balance sheet is in exceptional is probably too strong a word, but it's in great shape. I think the LVR is at the lower end of our range. We've shown our capacity to divest assets in a disciplined way. And we've also -- whilst it's taken a while, we now have signed as our development partner for the next 7 years. So we don't need to bring in additional capital partners. But if we can find that partner who's aligned where it makes sense for our shareholders, where it means we can accelerate our development of our Lifestyle business. If it means we can free up capital to make -- to invest more into our land bank. Then, they are the sort of things that we would look at. But we're not rushing into it. We don't have to find a capital partner. Justin and I are very comfortable with the settings of the balance sheet. And it is something that we talk about with the Board all the time.

And just one final one on the -- I guess, the sales rates. And you've given a number in the past where you talked about monthly sales rates on communities. I know you have 14 on the go at the moment with 4 more launching near term? Is there like a monthly number, just that how we can take away and maybe watch or something like that? Like what are you targeting for sales rates, I guess, and just trying to get a sense of numbers there.

Look, I'll be pretty reluctant to give an individual sales rate per community. But if you look back over the years, it really depends on the depth of the catchment and the price point we're operating at. But like typical absorption might be 40 or 50 or 60 homes per annum. But that's once the community is being stabilized in terms of there's a clubhouse available and we've got the builder in there at the moment. It is a really challenging market to read at the moment. Until the RBA hits pause, it's really hard to read exactly where customer sentiment is at the moment. And we've got some amazing projects in market. Our inventory is still extremely low as at 30 June. And at the end of July, inventory was broadly the same. We've got a lot of homes that are completing. We're encouraged by the first 6 weeks of this financial year. But we've had to work hard to get those deposits and contracts. We're still utilizing some very modest, highly disciplined incentives in market. We may provide some further color around settlements for this year -- later this year. But again, it's really just we want to, I guess, just watching the customer very closely and waiting for direction from the RBA.

Your next question is a follow-up from James Druce from CLSA.

Just 1 or 2 quick follow-ups, if I may. What was the like-for-like growth in the lifestyle business over the year?

In terms of the rental?

The rental, local like rental year. I think you mentioned the rates were up sort of 6.5% or something, but I didn't hear the like-for-like number?

Yes, we didn't include it in the presentation, but it is sort of mid-single digits.

Yes. Okay, that's clear. And then, in terms of tourism for '24, maybe I missed the comments. But just sort of are you expecting continued strong growth there? Or how are we sort of looking at '24?

Yes. I might -- Matt Young, who's our -- heads up our holidays business is on the line. I might direct that question to Matt, if you're okay.

Thanks, Simon. Good morning, James. We're obviously having considerable growth in the last financial year. What we're still seeing is growth is probably at a more stabilized level, but year-on-year; our bookings are ahead versus same point in time last year. And I think just the domestic economic conditions at the moment; I mean in itself that holiday at home approach. And I think we'll start to slowly see some of the inbound market come in with China opening up again. So that doesn't represent a large percentage. But it does introduce a new market that's been closed out for a number of years.

Okay. That's clear. And one more, if I may. Just on the $80 million in DD, is there any -- what proportions in the Gardens business? Is that 0 or there's some there?

We haven't given any split between where it is. But it's a combination of existing communities where we collect rent, be there holidays and some land.

Your next question comes from Rushil Paiva from Ord Minnett.

Just 2 quick questions from me. Just starting with the development business and the margin more specifically; I think you mentioned in the coming years, you're expecting a higher stronger price mix shift in terms of home sales price. And you have mentioned that from a cost perspective that the cost base has increased ahead of the anticipated pickup in settlements. I'm just wondering your expectations for the development margin in FY '21 and beyond. What type of -- do you expect an uplift in the margin? And if so, are you able to provide any guidance there?

Yes. It's great question. Von, who is our Head of Development; is on the call and I'll throw it to her in a moment. But maybe just a couple of overarching comments. So we do expect the margin to tick up over time. The 4 new communities that we have that we're building at the moment, which aren't going to contribute a material amount of settlements this financial year. So that's Fullerton Cove, Morisset, Bargara and Beverage. We are investing in marketing across those 4 projects. And so, that is going to, I guess, temper the margin a little bit, because until those projects really get to a point where they're contributing strong consistent developments every month. And there's going to be marketing dollars going in every month to support it without the commensurate sales. And Von, maybe do you want to comment briefly on what you're seeing in terms of the tender cost for getting from builders and what's happening with the cost of building homes?

No worries. Thanks, Simon. Yes, look, the industry is certainly in a different place than it was last year. And I think Simon mentioned it early. But I've got to almost a cure at the door of large reputable volume builders that want to work with us. And I think having that, they're often followed by a large number of trades that are actively hungry for work. And we think that's going to allow us to drive some sharper pricing that the industry or we haven't certainly experienced in the last little while. This morning, up in Queensland, I met with one of our large volume builders up here and just talking anecdotally about what's happening in the market. And it's the same kind of messaging I am hearing nationally is price rise is still happening, albeit at a much scaled-down version, so across only different small parts of the industry where maybe there's high demand in Queensland concreting also similar down in Victoria, both on the supply and the trade side. What is -- positive, that we're hearing, is the trades of walking back to the market, even though the large volume builders might have been looking ahead and looking for work, the trade base wasn't actively doing. So when the trades are actively looking for work in the market, we know that we're going to see some positive wins from that. We don't expect that to be huge discounts or price decreasing. But we think there will be more stability in the pricing market. So that's positive.

It's much appreciated. Just a follow-up question on the settlements front. I know you provided FY '24 to '26 guidance and you're not providing FY '24 guidance at this point. In the first half results, you did provide FY '23 to '25 guidance. I know the market has been tough since then. I'm just wondering that FY '23 to '25 guidance of 1,750 to 2,000 settlements, do you still think that's achievable? Or I guess the question being, has that do you now think your guidance will be more back-end weighted towards FY '26, because of the current residential market backdrop?

Look, where we ended up in FY '23 with settlements was materially below where we started the FY '23 year and so achieving that 1,750 to 2,000 still absolutely achievable. But what we've really put forward is what we think is a realistic assessment or forecast of the settlements over the next 3 years looking forward. We're - we've taken on board, the feedback and the lessons of last year. We're making sure that we're putting out a target that we can absolutely achieve. And again, just wanted to call out that once we're positive bullish on the medium term outlook for demand, making an accurate call today on where -- what the next 3 to 6 months looks like. That's really hard because until the RBA hits pause, we're having to really hustle and work hard and incentivize our customers to make the decision. And we're making sure that we've got these amazing communities coming through. We're committing to new homes and we've got to keep that stock moving. And I'm sure whether it's at our AGM in November or at the half year results, we'll be able to provide a lot more color. But at this point in time, we're really just providing that look forward for the next 3 years.

That does conclude our time for questions today. I'll now hand back to Mr. Owen for any closing remarks.

That's great. We'll wrap it up there. I appreciate. There's been a lot to digest this morning and lots of great questions and thank you for your time. Donna and Justin and myself look forward to catching up with everyone over the next few weeks. And if you've got any urgent questions or you want to test something before you put out a note, please feel free to reach out to Donna or Justin this morning and we'll endeavor to find time to catch up straightaway. So thanks very much for your time today.

That does conclude our conference for today. Thank you for participating. You may now disconnect.