Lifestyle Communities Limited (LIC) Earnings Call Transcript & Summary

Good morning, and welcome, everyone. My name is Philippa Kelly, and I'm the Chair of Lifestyle Communities. I declare the Annual General Meeting of the company open, and thank you for your attendance this morning. This is Lifestyle's first virtual AGM, and we're holding the meeting in this format to enable all stakeholders to attend given physical distancing requirements. However, it's a notably different experience from being able to meet in person, as we've done previously at the company's support office in South Melbourne. I'll now introduce my fellow directors: Mark Blackburn; David Blight; the Honorable Nicola Roxon; Georgie Williams; and Managing Director, James Kelly. I'm pleased to introduce Mark Blackburn, our newest director, to his first AGM. Mark is up for reelection with Georgie Williams, and you'll hear from both of them a little later in the meeting. Also present is Darren Rowland, the company's Chief Financial Officer; and Melissa Norris, Joint Company Secretary. Finally, I welcome Andrew Cronin of PricewaterhouseCoopers, the company's auditor, who is available to answer questions on the audit for the year ended 30 June 2020. There are a number of procedural changes this year with the virtual-only format. These are primarily to facilitate online voting and the ability to submit questions. In a few moments, I will open the online voting; and as in previous years, all voting will be conducted by poll. Shareholders and their attending proxies may vote during the meeting through the Lumi online voting platform. This platform is separate to the webcast program through which you are currently viewing the meeting. Details and instructions on how to log into the platform and vote are set out in the Notice of Meeting and also available on the Investor Center page of the Lifestyle Communities website. If anyone is having difficulty completing their voting, please call +61 3 9415-4024, and a Computershare representative will assist you. Voting is now open on all items of business and will remain open until the conclusion of the meeting. I will give you a notice a few moments before voting is closed. We will take written questions from shareholders and their authorized representatives throughout the meeting. Questions can be submitted at any time. [Operator Instructions] While you can submit questions from now, I won't address them until the relevant time in the meeting. Please note that your questions may be moderated; and if we receive multiple questions on one topic, they may be amalgamated together. Moving to the presentation for this morning. 2020 has been a challenging year, the impact of COVID-19 bringing uncertainty to businesses and their operations as well as how we all live our lives. Importantly, at Lifestyle, James and the team responded quickly and have adapted to new ways of working and embraced a virtual sales format. While restrictions on movement meant inquiry and new sales slowed, the residential market is now seeing clearance rates rise to the same levels as this time last year for existing home sales, and the volume of homes on market is steadily growing. Demand for affordable housing continues to grow, and downsizing by the baby boomer generation is forecast to increase. In fact, the events of this year may well result in broader demand for the active lifestyle experienced in our communities. As a people-based business, we have focused on the welfare of our homeowners to maintain communication, activities and engagement within each community. And James will speak to many of these initiatives in more detail shortly. Looking to future opportunities, we took steps earlier this year to strengthen the balance sheet and both increase the size and extend the term of our debt facilities, with the first tranche not maturing until 2024. Lifestyle has been able to acquire 4 new sites in FY '20 with each of these in existing growth corridors where communities are already established. This enables us to extend the housing pipeline out in future years and benefit from increased inquiry and homeowner referral that comes with nearby sites. With the level -- low level of affordable housing available in Victoria and being able to continue to acquire new sites means we don't plan to diversify outside the state, and we continue to believe Victoria provides the most attractive long-term growth opportunities. The annuity revenue stream has been proven to be resilient this year. It is a key growth component for the company and have built over time to $28 million for FY '20. This rental stream, together with development and new sites, underpin the increase in value of the property portfolio to $493 million. A number of new participants are entering the land lease industry in Australia, and we welcome new players to build awareness of the product and its advantages for homeowners. Lifestyle is a business creating long-term value. It seeks to make an impact to improve the lives of its homeowners while providing sustainable growing returns for shareholders. In closing, on behalf of the Board, I'd like to thank James for his leadership and the entire Lifestyle team for their ability to manage the events of this year, leaving Lifestyle well positioned for future growth. I'll now pass over to James Kelly.

Thanks, Philippa. Thank you and thanks for your kind words about Lifestyle as well on the team. I think that's what I'm most proud of in terms of what happened in FY '20. The team really leaned into its strength of customer centricity and customer service and our very people-focused culture and both still achieved a really, really strong result in FY '20 with 253 new home settlements and 280 new home sales but also managed to look after our homeowners during what was a very, very challenging time. And so for that, I'm extraordinarily proud. We also achieved 102 new resale settlements as well, which was also really strong. Just next slide, please. Our next slide, please. Thank you. If we go to next slide as well. Thank you. In terms of our -- next slide, please. Thank you. In terms of what -- how we tackled what was a once-only pandemic hopefully, it's certainly challenged us across a range of fronts. Firstly, our homeowners, the most important part of Lifestyle Communities, we're a very customer-centric business, obviously. And we're a management business and focused on managing our homeowners and giving them a fantastic experience, and that's what continues to drive our very, very high referral rates for new sales. Obviously, with the facilities closed, we went virtual in terms of the way we supported them and ran a whole range of amazing initiatives and programs to make them still feel engaged and made them still have a lot of purpose during a time when they were locked down in both the first and second lockdowns in Victoria. That puts us in very good stead for ongoing referrals. So I think all activities that we have with most people who weren't in one of our communities felt left out, and indeed those that had made that decision, again, puts us in a very good position now as we start to come out of lockdown. With our team, I was very proud that we're able to also retain all our team. And they were kept busy. Even though we have lockdowns, we still have to manage our communities. We still have to manage our business. We were still building, and we still made sales. So life kept going. And if we did have any spare capacity, we redirected their energy into initiatives that we've had to be done for a while. So it was a great way to sort of tick off some of the things that we've been looking at for a while, which is great. We also ran a very, very strong employee wellness program to make sure that they were looked after during this time, again, particularly through the second lockdown, which was very tough. I was really pleased we did another staff survey and saw that their over level of improvement in working for Lifestyle Communities actually increased from 8.5 pre-COVID to 9 post-COVID. So that gave me a sense as a team and with our people and capability team, we did a great job of looking after them. With our business, very clear from the get-go, with Project Bulletproof to make sure that we stress test the business so that we could see our way through this and maintain our human capital, which is the most important part of Lifestyle. We very much got on to develop the virtual sales capability. As Philippa mentioned, we increased our debt, so we can be more opportunistic moving forward with buying additional sites. And I think one of the biggest achievements I'm really proud of, we actually acquired 4 new sites over that year, which has set us up now with a pipeline of over 2,000 homes to be settled into the future, which is as strong as the pipeline could have been. And we're still looking opportunistically at other sites as well at the moment. A slide change, please. And so it's -- I feel, again, very proud of what the team's achieved in FY '20. And also, we leaned very heavily with our marketing and still engaging with our customers so that when we come out of COVID that we've been in a very strong position to reengage and start meeting them again and making sales. So with F '21 update, no doubt, it's been impacted in terms of settlements by the fact we couldn't make sales for the first 3, 4 months and only virtually. And -- but it -- not all was lost because that ongoing engagement with our customer meant that we're now seeing this updraft occur as we're coming out of COVID. And certainly, our phone lines are running extremely hot in terms of people willing to reengage and acquire a home at Lifestyle Communities. So the construction will continue and has continued, and we've got some really big milestones this year in terms of opening clubhouse and opening new displays. To date, we've made 44 new home sales, 60 new home settlements and 21 resale settlements. And what we're seeing at the moment is certainly the "ready to move in" market is very strong with selling stock and established housing as well. Debt has increased slightly just really as we've taken on some new projects and with our ongoing development commitments. And our inquiry again is starting to really emerge as, again, people -- the ring of steel has been removed and people can actually go out of their homes and acquire and actually meet with us in a couple of conceptual homes and buy from us. We're still confirming our range of homes for the next 3 years between 900 to 1,100 over the next 3 years. Again, that will be just subject to if there's any other COVID restrictions or something else comes out of the woodwork, but that's as we see it today. I'll give a bit of an update there, on next slide, please, in terms of sales and sales rates. Again, our virtual sales are very good at reengaging customers and informing them of what we're doing. But without physical inspection, it was pretty tricky to get meaningful sales. But certainly, it meant that we didn't have cancellations, which was great or as many cancellations, you would have thought, which is great. Next slide, please. We've given a bit of an update there on the new land acquisitions, a bit of a development update. I won't go through those individually other than to say that you can see how busy Lifestyle Communities is at the moment. And we're very much on track with our 2 acquisitions per year, which means that, that pipeline only strengthens over time as well as does our capacity to sell homes also. Next slide, please. In terms of a further slide on our developments in progress, you'll see some big milestones there, opening a new clubhouse at Mount Duneed. And you'll see also at Plumpton, Wollert that new clubhouse is going to come to fruition. The launch of St Leonards, which is a really, really exciting project on the Bellarine that will very much appeal to Melbourne people looking to downsize and look at also working from home. We've sort of created home offices in those product down at St Leonards as well to tap into that market, which is great. Ocean Grove will complete as well, and that's a project that's gone extremely well. In terms of -- next slide, please. We have clusters around Melbourne. That is the way we think about our business. And we're building to these clusters, which means that we drive strong referral rates from existing communities. So our cluster strategy, so to speak, around Geelong, Bellarine, up the north, the southeast and down on the Mornington Peninsula is building knowledge of the brand and knowledge of our product. And you also got surrounding communities that you can show customers what our communities actually look like. Next slide, please. So just in summary, certainly, the company adapted very quickly and adjusted to all new practices associated with COVID, just as we're now adapting as we're coming out of this as well. And again, very proud of the team in terms of the way they've been able to do that and deliver that. Our marketing campaigns have been absolutely on message, on song, the whole way through, again, really leaning into the opportunity of people to be able to downsize their community and live a bigger life. We've got those key milestones coming through, including final settlements at Ocean Grove and Shepparton, Mount Duneed clubhouse, Kaduna Park clubhouse opening, first homeowners moving at Plumpton and first homeowners moving at Wollert. So there is certainly plenty going on at Lifestyle at the moment. Our balance sheet is still very, very robust. We have access to $110 million in cash to look -- not only to look at what we need to get through but also to also look at new acquisitions as well. And again, those 4 new acquisitions in FY '20 really provides a very strong development pipeline moving forward for Lifestyle. So it's all very good news. Thanks, Philippa.

Thank you, James. Moving now to the formal business of the meeting. A Notice of Meeting has been made available to all shareholders and is also available on the company's webcast. The poll is currently open for all items of business. Item 1, financial statements and reports. This item is to consider and receive the financial statements of the company for the year ended 30 June 2020, together with the directors' report and auditor's report as set out in the annual report, a copy of which has been made to shareholders online. There is no requirement for shareholders to vote on these reports. We have received a number of questions, which we will deal with now in relation to either the reports or the management of the company. The CFO will read out each of the questions and who provided them, and then we will respond.

Morning, Philippa. Morning, everyone. The first question we have comes from John Whittington, who's a volunteer with the Australian Shareholders' Association. John holds proxies for 10 shareholders for approximately 22,000 shares, and his question is as follows. Madam Chair, the fair value adjustment of properties accounts for over 50% of reported profit, so it's a very material item. Would you please explain how shareholders can be sure that the property valuations that lead to these adjustments are realistic in these unusual times?

Thank you, John, for your question. The valuations are underpinned by the annuity cash flows, which we've discussed; also increased settlements; and the newly acquired properties as well as taking into account the market conditions at the time. And I note that the increase for this year was lower than that in the prior year. As well, the property valuations are supported by 3 independent valuers. And in an extra step this year, we took -- had a separate review undertaken by PwC as the new auditors. So we -- there was a great deal of consideration of Board, and the Board remains comfortable with the level of fair value investments.

There are no more questions on the accounts of this one. Now there are some other questions on some of the other resolutions, so I'll read those out at the appropriate time if that's okay.

Thank you, Darren. There being no further questions on the accounts, we come to the items of business for which a vote is required. The next 4 items of business require a shareholder vote. The first 3 must be passed by ordinary vote and the fourth by special vote. Item 2 is subject to the voting exclusions outlined in the Notice of Meeting. Proxy votes received prior to the meeting will be shown on the screen for each resolution dealt with today. I propose to vote those proxies left to my discretion as Chair of the meeting in favor of all resolutions. I appoint Angela Liapis from Computershare as the returning officer. Moving to Item 2, remuneration report and the next slide, please. Thank you. Item 2 is to consider and if thought fit to pass the following resolution as a nonbinding ordinary resolution, that the remuneration report forming part of the directors' report for the year ended 30 June 2020 be adopted in accordance with Section 250R(2) of the Corporations Act 2001. Please note that a vote on this resolution is advisory only and does not bind the directors or the company. Instructions in respect of the proxies received prior to the meeting are displayed on the screen. I'll now respond to any questions received about this resolution.

Hi, Philippa. We do have a question from John Whittington from the Australian Shareholders' Association. His question is as follows. Madam Chair, could I ask if, in future, you can include in the annual report a table of the actual take-home remuneration of the KMP. Our members really find remuneration reports quite challenging to grasp, and a simple table of what was taken home helps a lot.

Thank you, again, John. I'd point you to Page 33 of the annual report, which does deal with the entitlements to KMP. The -- we have set out as best we're able the full remuneration in salary and fees. Potentially, there might be some confusion about the vesting of options and the value of those at any particular time such as 30 June, but you will [Audio Gap] by all members of KMP on that page. Are there any other questions on this item?

No, there's no further questions on Item 2.

With no further questions on this item, I ask that you place your vote concerning the approval of the company's remuneration report. [Voting]

Moving to Item 3, the reelection of Georgina Williams as a director. Item 3 is to consider any thought fit to pass the following resolution as an ordinary resolution, that Georgina Williams, having retired by rotation in accordance with Clause 8.1 of the company's constitution, being eligible and offering herself for reelection, be reelected as a director of the company. Georgie's profile has been included in the Notice of Meeting, and she will now address the meeting.