Lifestyle Communities Limited (LIC) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Lifestyle Communities Limited Full Year Results Call. [Operator Instructions] And finally, I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome James Kelly, Managing Director, to begin the conference. James, over to you.

Thank you for that. And welcome, everyone, to the call, and thank you for taking the interest to listen in. For this year, we celebrate 20 years, which is splashed all over our annual report and our presentation deck. Since we started in a coffee shop in Melbourne, it was years ago, to try and reimagine what living could be like to be above 50, we spent so much time researching our customer, the market, what was on offer in Australia and America, and it's set on the unique model that defines what we do today. From the get-go, we had a moral, ethical and social mandate to do the right thing, create a business that was truly for purpose, and we have never wavered from that mandate. We pioneered a model that is management, not development-focused, that is a laser-like long-term focus on our homeowners to deliver amazing experiences that result in overall referral rates. We've also maintained a focus on shareholders by recycling capital to drive organic growth and deliver above-index returns. I think one of the most unique things about Lifestyle at this time, when I reflect back, is that we are still doing the same thing 20 years later with a constant focus of evolving the offer in line with our changing customer to always deliver an aspirational product and service offer. When we started in 2003, our target customer was always born in the war generation. In 2013, we met the baby boomers within the -- bringing our sales for the next 10 years. And then 2023, we have met the Gen X, so a slightly different customer again. I found it just so exciting to see how the team has re-managed our service and product offering to accommodate this new customer, particularly in the [ 17 years ] that we launched this year. Again, to understand this customer, it certainly opens up our addressable market in terms of who we can pitch the Lifestyle product to. As long-term management, we have [ pinned ] the benefit of the DMF in the land lease sector, which gives our homeowners assurance that we have their backs in making sure that our communities are looked after and giving them confidence that their home values are supported. We're increasingly seeing a really receptive customer around this proposition. I was also just so pleased to see that revenue from communities has doubled over the last 5 years, which really cranks the benefit of the new income streams from our operational business. I think one of the most exciting things in my time is that we launched amazing Club Lifestyle. It's located on the beach, a new community down at Bellarine Peninsula, Leopold. Club Lifestyle was the outcome of the strategy to provide end value to all homeowners living in the Lifestyle Community as great memorable experience that will both drive referral as well as differentiate against competition. The Club itself is on the beach. It's absolutely amazing, consists of 28 bespoke villas, 23 cabin and park slots, 2 motor homes, a design [ cab ] kitchen, pitch and putt golf course, a mini zoo, and the list just goes on and on and on. It's been really good. We, last night, actually went to a function at one of our new communities at Meridian, has opened the clubhouse with about 200 people in the room, and we were launching Club Lifestyle. Gosh, the response in the room was just so extraordinary in terms of just -- so I appreciate the fact that Lifestyle Communities has continued just to value add to their lives in so many different ways. So it just restated my confidence that this was a really strong differentiator for us moving forward. We also had the opportunity to actually roll this Club Lifestyle type villa product out of Phillip Island, a newly purchased site at Yarrawonga; and also Warragul, which will pave a world of opportunity for our homeowners [ to even do their life ]. We employ an incredibly passionate team. And I know that those of you who actually visit our communities, we always hear comments back on how amazing our team are. And this team is just incredibly customer people-centric and have celebrated our 20 years of both attaining a WGA accreditation as well as being recognized as a [ finalist in ] AFR Best Places to Work. We passionately believe in giving our team an amazing workplace for their empowerment and support in all they do, enabling to take whatever steps needed to drive the exceptional customer and home experiences that we're so proud of. If I look back over 20 years, I think this has been our greatest achievement of what sets us apart from the rest. I'd now like to pass over to Darren to talk through some of the financial results.

Thanks, James. I think whilst new home settlements quite rightly gets a lot of focus in our business, the standout for me this year is the operating business, which James has alluded to. It's delivered a 50% uplift in earnings since FY '21. The compound effect of the increased number of homes under management and the strong price growth in our resales business has really started to come through in terms of earnings and annuity cash flows. With our rents linked to inflation, we're able to maintain our margins this year. And it was also pleasing to see the increases to the pension and commonwealth rental systems come through, which meant that our rent as a percentage of the pension actually decreased this year. It's this linkage, coupled with the value, that we're able to deliver back to homeowners using our increasing scale with things like the micro grids and Club Lifestyle and consolidated electricity purchasing and other discounts we're able to offer. It's further highlighting the benefits to our homeowners of our model, not only providing high-quality, affordable housing, but also broader benefits to the cost of living to our homeowners, which we're really starting to see some traction with in the current climate. On the new home settlements, as we flagged in June, they're slightly lower this year than our expectations, which is really attributable to customers at 2 projects. It's taking a little bit longer to put their homes on the market. Looking through this, the positive is that the sales of these projects are performing well, and we did not see any material change in cancellation rates. The feedback we've had from many of those customers is they're looking forward to listing their homes in the spring, getting ready for the seasonal selling season in Melbourne. Just on the balance sheet, with the substantial uplift in development activity as we've launched 7 new projects, we've seen increases in inventory levels as we've commenced the works on infrastructure roads, clubhouses, homes, et cetera. This increased development activity and the land we've settled on contracts that were in the pipeline has been funded out of our existing debt facility, and we'll continue to draw into this facility as we work through that development program. The increase in development activity obviously coincided with a substantial uplift in interest rates as they went through a period of normalization from their pandemic lows and certainly a fast-paced economic environment this year, and we're very active with our response, regularly reviewing and updating all of our project forecasts and models, keeping on top of things and adjusting sales prices as we go. In addition, we introduced some interest rate hedging into our loan book this year, and that's helped us manage to speed the change in interest rates, giving us time to adjust our sales prices to pass them through to end customers. We do expect our cost of debt will continue to average up over the next little while as the increases in FY '23 annualize through. And we've got $100 million of the hedging that rolls off in December '23. But following this, we'll still have $240 million hedged until December '26. So this will provide some stability and certainty going forward. This change in climate obviously saw some compression in our debt covenants, and you can see those disclosed in the pack. We've still got sufficient headroom in those covenants and sufficient funding in place to develop our -- to deliver our planned development pipeline. And we want to once again thank the banking syndicate, all of whom participated in our upside in October. We're very appreciative of their ongoing support, and it's great to see them getting behind affordable housing. In the property market more broadly, despite the fast-moving rate environment and a lot of negativity in the press, the external market and the customers where we operate actually performed quite well this year. The confidence in the new home build market remains pretty low with some of the activity that's been going on there. So we continue to see strong demand for the established homes that our customers are selling and they move into a Lifestyle Community. Now this means our customers are still able to achieve a substantial equity free-up when selling their family home. And again, this really helps with the cost-of-living pressures that are out there at the moment with many more customers looking to make a change and relieve some of those financial pressures. On our property valuations, cap rates remain steady this year, but we did see an increase in our property valuations, which was attributable to the rental growth; and also the strong prices in our resales business, which uplifted the DMF valuation. We've also seen in recent months a number of third-party sale transactions in the land lease market announced, which gives further support to the valuations in the sector and highlights the continuing strong demand for land lease assets. Just on cash flow, the statutory operating cash flow was negative this year, which was down to the large step-up in the development activity. We've included some additional detail on the cash flow on Page 21 of the investor presentation this year, which helps separate out the development cash flows from the operating business. Under our capital recycling model, the development cash flows will ebb and flow depending on where we're at in the development cycle for each community. And this can really be seen when you look back over the last 3 years with FY '21 being negative and FY '22 being positive and then FY '23 being negative again as the development cycle has played through. But on this page, you can also see the 50% growth in the annuity cash flow since FY '21 that I referred to earlier, and it's great to see that operating business really starting to generate some increasing scale. Finally, I just wanted to echo James' comments and give a big shout-out to the entire team launching 7 new projects in a year whilst maintaining a growing operating business and keeping our very high standards and customer focus, no mean feat. The increased activity levels touches all areas of the business. And it's really pleasing to see the investments we've made in not only processes and systems to bringing on new people and training that's really started to put us in good stead to manage this additional volume and operate as a new cadence for us. It's been brilliant to welcome so many new people to the business to help us bring these new projects to life. And from our perspective, the energy in the business is really infectious at the moment, and I'm really enjoying it. I'll just close with one final prediction on the outlook, and that is a 3-1 victory to the Matildas tonight.

Here, here. Really great, bring it on. So look, in closing -- thanks so much, Darren. And I've got to say, the presentation and the AGM report is just outstanding, in my view, a real step-up, it's sensational. But with the slowdown in greenfield sales in terms of just lots or people who buy lots to put houses on, we've seen a real slowdown in that market. And that's actually the lease-outs and land opportunities. And we've been sort of waiting for this moment to come through and showing up this year. So where it's been a really, really interesting level of deal flows to buy sites in the areas we'd like to be buying them, so yes, we're really excited about that. So watch this space. You'll hear more about that at the half. But in the interim, we bought another [ crafting ] site down at Clifton Springs on Bellarine Peninsula, which is a really beautiful site; and also went up on the -- out in Yarrawonga, which is this all Melburnian, sort of Nevada sort of retirement on the Murray, and I think that site will do extremely well. And [ Cardiff ] is a really interesting model for us to take on with a slightly different product. So yes, really exciting to see how that rolls out as well. We put another forecast out for 1,400 to 1,700 settlements over the next 3 years. That might be a tad conservative, but we're really just being a little cautious around making sure we all have projects up and running and firing, and we'll be happy to update the market whenever we see that changing. Segment, we're certainly seeing, as Darren mentioned, a strong property market, consumer confidence starting improve, which is doing well for a pretty strong sales half, which is great to see as well. We also -- we built up just a record number of homes last year. So with the strong sales, we see construction prices going to plateau in the freeing up of the supply of labor. So in closing, what a fantastic 20 years it's been, and we are blessed to have the best team, the best Board who are all 100% in line to keeping reimagining what Lifestyle has to offer. I'd like to express my deepest appreciation to every individual who has contributed to our organization's wonderful success and growth over this time and also to the shareholders over this time as well who backed us right from 2007 when we first listed. It's been a fantastic journey for everyone. As we stand at this juncture, looking ahead to our future, we simply cannot be more excited about what lies ahead. It's just extraordinary. And we'll definitely continue to innovate, transform and lead the way forward in the industry and always continue to make meaningful difference to the lives of others. So thank you. And I'd like now to pass back to Paulie just to take on some questions.

[Operator Instructions] And your first question comes from the line of Lou Pirenc from Jarden.

A few questions on the financials, if I may. Maybe start with the cost base. I mean, clearly, strong operating revenue growth, but the margin hasn't really -- or if anything has come down, is there -- should we expect more scale benefits over time? Or are costs pretty variable there?

As a general principle, Lou, we don't really look for margin expansion at operating business because we're very mindful that we're delivering value back to the homeowners, and we're also mindful of their impact relative to the pensions and [ common ] rental systems and those things. So typically, what we aim for is to try and hold those margins steady. And then as we generate the ability to deliver value back, we tend to give it back to the homeowners in the hope of really delivering better service and driving referrals. So it's not ultimately a goal to sort of delivering margin expansion. It's more about using scale to allow us to do more things, if that makes sense.

Yes. And that's the same goal for, I guess, project management, sales, marketing and corporate overheads, which also went up quite significantly in '23? Or are there more scale benefits there?

Yes. So if you just touch on each of those separately, the -- I guess the development margin, it's usually pretty consistent across the projects, but it does ebb and flow reporting period to reporting period depending on the mix of homes or mix of projects. We typically make a slightly lower margin early in a project and then a slightly higher margin at the end as we ratchet prices through the project. So that will sort of ebb and flow around. But in the fullness of time, it should be pretty consistent. The marketing costs went up this year purely because we launched so many new projects, and there's a little bit of front-weighted sales and marketing effort when you launch a new project. So because we had so many launch in the [ 1 year ], that's what drove that up a bit. And then in the overheads, yes, look, we are a growth business, and we're always sort of making sure that we've got the right tools of trade in the back end to support the growth. Ultimately, we would like to see some scale coming into that overhead line over time, but we're definitely not a sort of CPI growth business in the overhead line.

And then final question from me, can you just remind me how you decide what fair value uplift for the DMF you kind of book as your operating profit and what you book below? Kind of big difference between '22 and '23, so I just wanted to understand it.

Yes. So what we do with the DMF is we take the value from the most recent independent valuations. So that's what we booked as the operating profit, and that's essentially what we unlock every time we settle a new home. So when we move someone in, we create the rental stream as well as the DMF, and we book the fair value uplift of both of those things. And then at the end of each year, we re-undertake the valuation exercise, and any movements in the assumptions in those valuations is what we sort of attribute to the market. So the valuer has a different view on price growth or they change their discount rate or something, that's what we say as just a nonoperational part.

Your next question comes from the line of Chris Gawler from Goldman Sachs.

Just a couple of questions from me, more on the demand environment and the settlement outlook. Firstly, James, just noting your comment around the medium-term settlement guidance potentially having some conservatism in terms of getting projects up and running. Interested to get your thoughts around whether that's more supply or demand driven, that conservatism? And what you sort of need to see to have more confidence to potentially lift that in the future?

Yes, Chris, it's a little bit more around -- we've launched projects and just making sure that we -- there's no supply issues in that or labor issues. It's just really making sure that we hit the time lines we need to hit and deliver them when we need to deliver them. So yes, it's just a little bit of conservatism to make sure our projects are moving forward as we go. We've got a bit of a low ground risk with rock and bits and pieces like that. So we want to make sure we get that out of the way as well. We've got one project that we were counting on in the settlement process at Ocean Grove 2, which has got tied up with some external service issues beyond our control. So we're just not sure which year that's going to ultimately land in. So it's that sort of stuff, Chris, that I guess we are just being a little bit just cautious around the expectation. I guess if you look at the project list on our release and the presentation, it looks like we can still do more. And so -- and that's obviously what we're going to be striving to do as we always do. So yes -- and I guess also, currently, the cadence rate is buying 3 sites a year, and kind of these sites really generate sort of 1,400 to 1,700 settlements a year kind of thing. So that's what we've been sort of averaging. So maybe you can also say that when we step up to 4 sites a year, that would produce another number. But I have to say, if you look at the current pipeline, you'd probably be thinking more is possible. And yes, we'll be certainly striving towards that.

Yes, sure. And then thinking a bit more near term, interested to hear a little bit more about some of the lead indicators that you're thinking for sales so far in FY '24, inquiry rates and so forth? Just kind of a bit more color around your comment that you're feeling positive heading into the spring selling season this year.

Yes, it's been really interesting, Chris, because like we've had kind of Melbourne completely out [ of the woods ]. There hasn't been a lot of property in the market. So everything it sells -- again, we've got a first home buyer buying our customers' homes. So -- but we've just seen interest rates going up over the last 3 months, and there's a little bit of negativity in the press and these sort of things. So we just had a sort of -- slightly sort of choppy waters in getting customers to put their homes on the market and saying, is it the right time to get the homes in the market? So we're now starting to see that change in particularly sort of July, August, that's starting to change. So -- which is a good thing to see. So that's -- we're starting to see customers now moving with much more confidence to list their homes and sell them and sell with us in Lifestyle Communities. So on the sales side, yes, we are seeing a pickup in consumer confidence around thinking about downsizing and those sort of things. And we're also ranking up in different types of marketing ideas, which have been in the sort of pipeline for a while and then it started to hit home as well. So yes, there's 2 good things that are happening around increased net demand. But fundamentally, I think we're seeing consumer confidence going to improve, and that will then lead to a stronger market and many encouraging our homeowners to get -- our customers to get their homes on the market, so thinking homeowners would love our communities and build with us.

Yes, that makes sense. And then just one more question, just on FY '24, interested in getting a little bit more color around the skew half-on-half. I know you commented that there'll be a bit of a second half skew, but I also note that you've got around 330 houses at the moment sold or awaiting for settlement. Just sort of interested in your thoughts around the skew this financial year to settlements.

Yes, it's really around project timing, Chris. Obviously, these new projects that we've launched during this year, we've got to get through a certain level of development before we can move homeowners in. So we've got a lot of presales on those projects, but ultimately, we can't settle them in until the house is built. So Phillip Island is a good example of that. We took sort of 50-odd deposits in the first month there. But those homes, they're sort of 12 months away from being what they were at that time. So they'll deliver in the sort of fourth quarter of FY '24. So it's really truly around project timing and when those projects will be able to build homes.

Your next question comes from the line of Ben Brayshaw from Barrenjoey.

I was wondering if you could just talk about the fair value uplift in operating earnings for the second half. It seems like it's a little higher than what would be implied by the settlement skew. Has anything changed there between the value attributed to homes on completion versus the recurring rental increases?

No major change, Ben. The big difference is the rental -- the valuation is linked to rental growth. And because we put through a 6.6% rental increase on the 1st of July, that gets picked up in the valves, and that's what's really been the major driver of the difference there. Otherwise, the other key inputs, the cap rate remained pretty steady, but we did also see a little bit of uplift in DMF, which was attributable to price growth. So those are the 2 sort of main moving parts around the fair value.

And just in the current environment, could you also just comment on average settlement times in terms of when you complete a presale to broadly when you would expect that, that will settle, notwithstanding your comments that there's lumpiness in the project profile, but just in terms of your expectations for settlement times at the moment?

Yes, it's a really good point, and I think you kind of gave my answer in your question, but the average is a little bit misleading because we sort of have 2 main groups. We have the groups like the Phillip Island people that I've described before, which will put a deposit down sort of 12, 18 months before their home is ready. So those people, their settlement time frame for 12, 18 months. And then we'll have people like we're seeing at Wollert and Deanside site at the moment where the home is finished and ready to go for them to move into, put a deposit down today, they straight away put their home on the market and they move in, in 3 months' time. So the average might be 8 or 9 months, but there's very few people that actually sit on the average. It's either you're sort of ready to go and you get into it quick or you're pre-buying and you're 12, 18 months away.

Terrific, Darren. I just have one follow-up question. Have you published or perhaps could you talk to the average hedge rate? You mentioned that a percentage of your debt was fixed. I think it's around sort of 65%, and you had a swap in place that was going to roll off, but you still got hedging in place until FY '26. Could you just talk about the profile there in terms of the average hedge rate, please?

Yes, we didn't actually publish the rate, Ben, just for commercial reasons, but we have published a weighted average cost of debt for the last year. And we do expect that's going to average up this year just with the speed of interest rates that have gone through the level of unhedged debt that's still out there and then, obviously, this hedge rolling off in December, as I mentioned earlier. So I mean, ultimately, the goal for us with hedging wasn't sort of -- I mean you always want to minimize the interest cost, but it's more around certainty for us so that we can build it into our pricing models and make sure that we can recover that interest through the sales process. So the hedge strategy was largely around getting some, I guess, stability into that cost line so that we weren't jumping in the market and changing our sales prices every 5 minutes as rates are moving so fast. So yes, that's I guess a long way of saying that we kind of expect to move closer to the variable rate over time, but it will take a little time to get there. And then depending on what happens with interest rates in the broader market, who knows after that?

Your next question comes from the line of Tom Bodor from UBS.

And Darren, I was just interested in your comments around likely second half skewed, the settlements. And just wanted to understand -- and also acquisition opportunities presenting in the market. Just wanted to get a feel for how high your gearing might go at the midyear and where would you be comfortable or not comfortable in terms of percentage gearing and debt headroom or under debt?

Tom, it's Darren here. Yes, it's a good question. I think ultimately, where it goes will depend on settlements. So it sort of does ebb and flow a little bit. I think as we saw last year, in December, the gearing went up a bit and then in the half, it came down. We had that same profile the year before. So we're expecting something a little bit similar this year, to be honest. Hard to say exactly where it's going to go because we're still working through sales and settlements that can contribute in this first half. But ultimately, we're comfortable with where that sits. It will go up and down a little bit depending on what comes through in the half.

Okay, sure. But would you be, say, comfortable finishing a period with your headroom under $100 million, for example?

Yes. I mean, ultimately, the debt facility that we've got is $525 million. The plan is to draw into that over time anyway as the business continues to deliver these new projects. If you look back in the history of how we've grown that facility, as we develop more and we finish more assets, we can then borrow a bit more, and that allows us to increase the cadence of development. So that model has been the model since 2012, and we've got no plans to change that model.

Okay. That's clear. And then just on your ICR, do you expect that to be higher or lower in FY '24, given ranges in interest rate moves, but also settlements changing as well into next year?

I guess the answer is, yes, we expect it to be higher or lower. Ultimately, same answer, no, it really does depend on where the settlements land. Like if we go get to the [ banking ] flow well and we get to the top end of our plans, then the interest cover will be higher. And if we're slightly behind, it will be slightly lower. So it will ebb and flow a little bit similar to the gearing.

Okay. Great. And then just back -- picking up the comments you made around the [ ground ] rents and linking to CPI and pension, and it's gone down as a share of the pension, just in absolute dollar terms, it's sort of getting up there in that sort of mid-$200 range for a couple. I appreciate pensions are indexed to CPI, but it feels like everything is inflating pretty high -- significantly at the moment. Does there become a point where those weekly rental fees are unaffordable for your customers? Or are you starting to see the pushback on the sales side?

No, just purely, it's a relative thing because at the same time, pensions went up 7.2% over the same period. So we've got our rents up 6.6%. And so, yes, they are actually better off again. So yes, they just get the [ relative ]. The other really good news was the first time in 20 years, almost rental assistance went up 15%. So -- which is -- yes, that's a really good [ labor issue ] in terms of trying to make rentals more affordable. So it's kind of all green, quite well for pensions at the moment in our communities, so yes.

Tom, we track our positions in our sort of, I guess, I mean, testing point with the homeowners. We know how sensitive they are in the cost of living space. So we do measure this quite closely. And where the rent sits today relative to the pension is lower than what it was back in 2009. So we do track those settings pretty closely, yes.

Yes. I mean I was asking more in the context of everything else is a lot higher. So there's just an affordability constraint at some point, but I appreciate that example.

Well, there are some benefits of our model, mate, because we're able to shield people from some of those other increases. So our electricity rates haven't increased anywhere near where the broader market has. And then leaning into some of the other features and benefits we offer, people can use our car and save themselves one tank of petrol every 2 months, and that really helps with some of those other costs as being challenges.

It's actually clear. And then -- sorry, go ahead.

Tom, it's interesting, you talked about homes and they help to say, God, thank goodness, I'm not living in my existing house. I don't know how I fought to leave. So, because all those ground-based costs and less electricity, water, all the other things, they're paying to gas. In the existing homes, they're not having the shields and those guarantee in the Lifestyle Community. So -- yes. I tend to get more on the positive, as Darren's saying, so thank goodness, [indiscernible] they are taking.

Yes, that's clear. And speaking of Labor government and rental affordability, I appreciate the Andrews government might have walked back from the idea of rent caps, but is that something you've thought about the risk around that and how it could impact your business?

Yes. Look it's a hard one. Yes, we're always sort of mindful of it. I mean, it was a pretty sort of -- pretty cheap from the hill top [indiscernible] our premier, I've got to say, and we're in discussions with the treasurer sort of go. Whatever happens just make sure you exempt our category from this, because we've got 90 leases with fixed rental increases, which is exactly what Dan Andrews wanted. So we had a really good hearing around that from this prices, treasure, so it's great. So yes, so yes, we were certainly on the front foot about it. But I just don't think we're delivering exactly what they want, which control the rental increases or long-term leases at [ Savannah ] we kind of secretly box for them.

Your next question comes from the line of Rushil Paiva from Ord Minnett.

Just a couple from me. Interested to hear your comments on the performance of your communities from a settlement perspective. I know during the presentation and during the trading update, you mentioned there were a couple of communities in the Northwest of Melbourne that underperformed. But were there any other communities that either underperformed or outperformed? And I have noted that it looks like your expectations for the Pakenham community in terms of it reaching normalized settlement rate has been pushed back by about 6 months. So could you just -- able just to comment on those couple of things, that would be great.

Yes. Great. The Northwest is still -- yes, we're putting a lot of effort in North West, understand that customers, running some very different campaigns that we run before. And they're outperforming better than what they were performing 12 months ago. The main thing there too is that, very much -- we were pretty much delivering what we've delivered the previous year. So we're just always sort of push to do a little bit there as well. The Waves and Bellarine and in the Southeast are doing very well. So tick, tick, tick, pack them, just had a bit of [indiscernible] issue to that range is, a sort of delay, not caused by us, but caused by the land developer from who we bought the land from, who just had a slight delay in getting services, roads in this space to us. So let's just set us back a little bit. But yes, it is tricky when you're buying sites as part of englobo site where you're relying on the developed services side. It's a little bit out of our control. But it's just something you have to work through. But -- so yes, it's -- we're now sort of seeing a stronger September, October, in our view as sort of we come out of the sort of delay, what's been going on through winter and also through interest rate rises going to. And so we're sort of sensing, we'll see the market restrengthen over the next couple of months.

Perfect. So I think [indiscernible] was asking you about the DMF. Correct me, if I'm wrong, but this time around, you have disclosed the amount of resales in the period, but not necessarily the amount of resales are tracking in DMF. So I guess, firstly, are you able to disclose that number? And secondly, are you able to maybe just make a comment? I know in the last couple of periods, the amount of resale attracting a DMF, the volume has been a little bit lower versus expectations, but certainly, the average DMF -- sorry, the average DMF per resale has grown quite significantly. So you have those trends also continue?

I'll take this one, Rushil. This is the worst question that we get because it's impossible to predict DMF. Ultimately, we are in the hands of our homeowners and many things drive their decisions to either stay or go, including health or death reasons. But health or death typically is sort of 50% of the resales and then it's 50% for any other reason really. So it sort of gives me nightmares on the forecasting front. We do our best to try and predict where it's going to be, and we've got a few different ways that we try and come at it. But -- yes, it's very difficult to predict. And ultimately, it's not something that we really drive. Like the way we think about resales is when somebody makes a decision to sell their home, our KPIs are, how quickly can we sell it and what is the capital growth that we can deliver through that process. And that's where we work with our team on the incentive side of things. So -- in terms of the volume, it's really not something that we can control. On the non-DMF, we've actually moved away from that sort of smart buy guarantee. That was in there originally, because there wasn't a lot of knowledge around land lease products, and we saw some uncertainty from customers way back in the day. We're just finding as the model gets more mature and as land lease normalizes, particularly with others coming in to the space and this being a genuine asset class that people understand and get now the need for that really dropped away. So yes, we're just sort of no longer offering that.

So basically, we will no longer have non-DMFs. We're just heading out, but good or bad, being recently there will be no non-DMF sales.

Yes. No, that's very clear. So, I might just try and sneak in 2 more questions. Just quickly on site rental in terms of the EBITDA margin, that fell about 2% year-on-year roughly or thereabouts. Just wondering what your expectations are heading into FY '24 and beyond. Do you feel like the FY '23 level is a more normalized level and that should carry forward? Or how are you viewing that at the moment?

It does move around a little bit, just particularly when we have new communities come online. So what knocked it around a little bit this year was Meridian. We had a high number of homeowners move in before the Clubhouse opened. So that means we've got all the operating costs that none of the revenue, because the rent doesn't start until the facility is open. So really, the change in the margin is driven by that. It's not driven by a change in our cost structure or anything like that. So it will sort of move around a little bit. The next year, with so many new communities coming online, we'll have that same issue that sort of multiplied a little bit. So we might see a little bit of the margin coming back next year and then picking up again in FY '25 as the rents kick in at those communities.

Yes. Perfect. That makes sense. Sorry, just 1 last question. Just regarding the home settlement guidance. So the FY '22 and '24 guidance, just taking into account the FY '22 and '23 settlements achieved. That leaves still a fair range of -- a fair range for FY '24. So just wondering what your thoughts are regarding what would drive the bottom end and the top end of settlements. Is it a question around the construction supply chain? Or is it more regarding demand?

It's definitely not construction. We'll have all the products built and ready to go. Really made in these near-term areas, it's ultimately down to homeowner's choice like, we sell them the home that's available for them, but they choose where to move in albeit. So a little bit outside of our control in those near-term areas. But yes, definitely, we work with the homeowners. What we try and do is create a bit of star, promo about moving in. So we create all this excitement about the new life that they're going to have. Or we get them involved in the activities and try and really get them emotionally invested in the community as early as possible because they made the decision to do it. So get on with it, is the sort of style that we go for. So definitely, all that in front of us in terms of trying to just move through people through that journey as quickly as possible.

We always invite deposit holders to the events in the Clubhouse. And at this 1 last night, where we had [ 200-300 ] people. You have a lot of deposit holders there. And oh my gosh, I was just passing employer to move in. So yes, it's that top of [indiscernible] that we can see whether [indiscernible] we also got a VIP pass. So there's lanyard that they can actually come and use to pull all the facilities before they moved in. Net debt also just increase their familiarity with the facilities to get to more people, but also again, still drives that promo. So yes, there's a lot of other things that we do to sort of find, ensure that their homes in the market and it sells pretty quickly. And a lot of that is self driven by the homeowners as we described.

Your next question comes from the line of Scott Hudson from MST.

Just a couple of questions. Further to, I guess, the previous questions around Pakenham and I've also noticed a slight slippage in settlement expectations for the shows in Merrifield, could I just maybe understand, I guess, what's driving those to shift from sort of FY '24 into FY '25?

Yes, slightly the same we being relying on services from others. So -- unfortunately. So the service was slightly delayed by -- and it took place [indiscernible] it could be just side effect. So -- and that just puts that out slightly. And then, I think [indiscernible] Merrifield. Yes, that's been a servicing issue to get access to the site. So we just -- we've worked through those now and they are underway. We'd like to fix impairments into FY '24, and we're certainly working to achieve that. But -- we're just a little bit cautious here to make sure that we don't rely on them for sure.

Darren, your comments around, I guess, gearing maybe rising again slightly towards the end of the first half '24. Is that a development spend impact? Or is -- do you expect settlements to be down in first half '24 relative to second half '23?

Yes. So we are expecting settlements to be slightly lower in the first half relative to the second half of '23. That's exactly where -- I don't know to be honest. We're still working through that process. But at the same time, we've also got a very full development program going on at the moment across all these new projects. So it's a little bit of both, to be honest. The ebb and flow, I know I've used that phrase a lot today, but it really can be influenced slightly by the number of settlements we get. So, it might be down a bit, it might be up a bit, but it's definitely not something that we're focused on. We've got the plans in place. We've got the funding. We've got the presales going, we're rolling on. And ultimately, in that near term, the result will be what it will be.

Okay. And then I guess, just in terms of Clubhouse timing. So, I guess, would you -- Bellarine and Phillip Island, can you give us a sense of when those clubhouses are expected to open?

Good questions. So -- testing me here.

I can do it.

Bellarine is opened in May and it's beautiful. Magnificent. Woodlea is sort of February, March. I always say December, but it's probably more like February, March. Phillip Island, still probably 12 months or more delay, as is every other 1 that we've launched. The only 1 really that really completed in FY '24 is Woodlea.

Okay. So Riverfield and Phillip Island, no rental income until FY '25?

Yes, that's right.

Okay. And then lastly, just the new land acquisitions, I guess, one up towards the Murray River you're confident in the mine profile from sort of the more regional landscape?

Bring it on, I say, Scott, it's really interesting. Yarrawonga, we'll see a lot of alignments [indiscernible] development, Yarrawonga. So we won't be adopting that comes right now, but it's -- yes, it's a really interesting one for us. We're doing a smaller format product there. And its prior -- it's 110 sites or something, and it's not -- it's interesting for us, actually, the demands are in our control. But it just as by slightly different product and give it to go, and we'll do a sort of smaller pipeline for our footprint. But the attraction was [indiscernible] So yes, we're really excited by it. You can get sort of -- you do what you do every day and then you get Yarrawonga, where it gets really excited by going, this is different. So yes, I just want to buy a helicopter, so that need to get up, 3 hours away, kidding. But yes, that -- and the Murray River for us is actually something we're exploring quite heavily, cost for Melbourne's quite aspirational now. And associated with that to the time we made with us. So that's what Yarrawonga leads into.

Your next question comes from the line of Suraj Nebhani from Citigroup.

Just a quick 1 on the sales rates. Just looking at this chart on Slide 14. It seems like some of the recent projects are -- sales rates are tracking more in line with the longer-term average versus, let's say, the ones that were launched in 2020 and '21. Would it be fair to say that the sales rates are lower than, I guess, what you may have anticipated?

If you ask James, you'll always say the sales rates are slower than we anticipated. But no, we've probably got 3 sort of categories, and I think I'll put this on 1 of the slides that we've got sort of new in corridor or growth corridor projects that are performing in line with historical averages. And we're perfectly happy with that. I think we put the example in the beam side relative to some of our other first in catchment projects. And [indiscernible] our worst performer at the moment, that it's actually ahead of those 2 projects, which they both were great projects. So -- yes, we're not worried about those ones in line with historical average. They're important to deliver into those catchments because they're all big catchments with big populations and will be great corridors for us over the 10-year journey. So it's important that we get in there and build the brand and start to build a presence in our referral network. And then over the top, we've got some star performers down in the Southeast where we were in that catchment early 10 years ago, and you can see the benefits that you get by sort of persisting with some of those corridors. So they're always great catchments for us. And then, the destinational projects, in particular, Phillip Island and the Bellarine, we had really strong first month sales 50, 55 sales in the first month of those projects. And then, they've kind of adopted a more traditional sales rate from that point on. So a lot of people just busting to get in there and then we cleaned out the database and reset and now we're sort of getting back to normal operating. So yes, I guess long answer that every project is kind of slightly different for us, and they've all got their different marketing strategies and plans.

Sure. Sure. That makes sense. Maybe just a general question on the demand side. I don't know, James mentioned that a bit on the longer-term forecast being conservative. But just on the path to getting there in FY '24, do you anticipate demand to be, I guess, stronger over the next 12 months than what it has been over the last 12 months?

I think generally, we're forecasting that. But who knows? I mean, [indiscernible] for a time, but the economy could -- but generally, we were expected to be a little stronger. As we hope, it's sort of consumer conference element sometimes and settling down. It's been alluded to, again as Darren says which projects,in what area as well. The Northwest can get a little bit more [indiscernible] more quickly than say, the Southeast or the Bellarine or others. So it's -- yes, it's tension free. But overall, yes, we are expecting consumer cost increase and keep going. I think the other big driver is, this is so much discussed about this affordable housing crisis. And -- yes, so there's a number of different factors that sort of lean into what we're doing. You've got government stimulus, which is recently we talked about recycling of housing and getting [indiscernible] rooms out of their homes. Also, we've got very attractive product to the government because we actually have our product on the ground. And Victoria, I discussed about building lots of homes, well, we are actually building lots of affordable homes. So it's a whole journey of generating interest at space. So yes, that's another sort of side factor there, which is interesting for us. But I think, yes, generally, I think also the other thing is this opening up this addressable market with the Gen X. We've just started to lean into that with our products and our marketing and everything else. So that, I think, should also increase sales as well. So yes. So that's my [indiscernible].

Perfect. Appreciate the color. And maybe 1 for Darren on the hedging side. Is there an expectation that the hedging once it expires is renewed into the next year or not really?

It's a good question. When they hedge rolls off, we'll still be sort of 60% hedged on that debt facility. So to be honest, may we'll probably just have to think about it at the time. Things are quite different today than what was happening sort of back in May last year, where we were getting rates going up every month and more so. So yes, it's a bit of a wait and see, to be honest.

Okay. And the final 1 is on the pricing of homes. I know, the way you sort of priced product, any rise in rates or costs should get captured there? I'm just assuming like is there -- there any scope to increase prices further, but just checking like what sort of numbers would you expect, I guess, on the pricing growth side on new homes near term?

Yes. So we do price our homes on a cost recovery basis, and that adjusts based on the input cost. But we do use a bit of a pricing strategy to assist with sales as well. So price increase is a great way to sort of find out whether somebody is genuinely interested or not, because if they were going to buy, they would buy before the increases, and not after. So we do sort of line up our price increases around milestone events like clubhouse's opening or way homes and things like that. We also do sort of increase prices through the development as the risk sort of decreases. So the best time or the cheapest price in 1 of our developments is on day 1, and the most expensive is on year 5. So we've got lots of different techniques around pricing, but ultimately, the overarching strategy on every development is the same, which is just to recover our development costs.

Your next question comes from the line of Oliver Stevens from Entrust Wealth.

Just wondering in regard to resales, obviously, there's a variety of reasons. But historically, what percentage of departures are due to residents sort of not being satisfied or deciding lifestyles not for them?

It's a very small percentage. We really back our sales team to -- we said to our sales team. So firstly, we've got a noncommissioned sales team. So, again, they're not driven to go, try and create a lifestyle for someone where it's not appropriate. So that's number one. Number two, they do a lot of screening in the process to actually try and ensure that customer is making the right decision. And we do a lot of engagement with that customer, buy them into the community, they can sort of walk around, they can meet other homeowners and [indiscernible]. So hopefully, by the time they actually have to move in is 100% the right decision. But yes, most people move out early days, I would say less than 1%. If is that 1%, then it would be a health reason, unexpected health crisis or a change of [indiscernible] the children move to Queensland suddenly. Those things with crises. Yes.

And I guess -- Yes, sorry, James, just a related question. I guess you sort of understand when people leave, why they are leaving, so you can get on to that early if there is indeed an issue, I guess?

We The exit surveys all the time. Most of them -- I've always said that with the wall change, they were moving enormous for a sort of a death stone in the sense of they're there to until the very end. If You tend to find now with the younger baby boomers and Gen X, it's more a stepping stone. It's not necessarily the last destination. So that does free up equity spend, some of that keep some of that. You see the house prices go up and they might then sell again and do something else. So it has changed a lot over 12 years. Now it's much more into -- this definitely health and death. Yes, health and death is the reason with that, but we're seeing a lot of maybe even increasing number of people just moving on for lifestyle circumstances being to something different.

Your next question comes from the line of Green Walters, Private Investor.

Thanks to you and the team for producing another pretty nice annual report. Just a couple of bits of feedback if I could. You mentioned in the board about conducting homes homeowner surveys. Are you able to publish the results of those in the forthcoming reports?

Yes, we don't really publicize. So -- and we -- I think the reason why is, at the moment, we just tried to ourselves, we've only just started these surveys. So when we get a really better sense of it, we might be able to do that. But I'm not sure what it would necessarily achieve by doing this. We did have it in this report. We took it out. And we even want to have this sort of ongoing roadshows saying your Net Promotor Score is up a bit, what's the problem or down a bit[indiscernible] it was kind of -- it was a sort of more a metric that we didn't think was missing about great value to the conversation. But look, it's a work in progress for us and what it brings. So yes, they're with us as we sort of work out what we are going to do with those type of score going forward.

Okay. So I did notice there was employee engagement scores and I would [indiscernible].

Obviously, we told that's the one. That's in there. So -- Yes, that -- yes. [indiscernible].

And also just moving forward, if we could go back to the streaming version of the conference call, so we can have a bit more interaction and maybe with the other questions and present them to you that way?

Yes.

Your next question comes from the line of Warren Jeffries from Canaccord.

But just quickly, just on the hedging, so $100 million rolls off by December this year, was that right?

Yes, that's right.

And then, in the $200 million, I missed it earlier. There's another $200 million? December '26? And just -- I mean, you haven't got anything due for a little while yet, but when you might next revisit the total facility and an uplift to that?

Yes. Look, our facility has well involved as the business is growing. So the plan is to sort of continue that journey. Exactly when that happens, we have to stand out, we'll keep you posted. But if you look at how it's grown over, certainly over the period of time that I've been here as we deliver some more assets to the balance sheet, that allows us to then borrow a bit more. That allows us to increase the developments and that's basically how the capital recycling model and that's the organic growth story works for us. So keeping with that model, yes, you can expect a role and uplift at some point.

[Operator Instructions] And your next question comes from the line of Raveen Kuhadas, who is a private investor.

Congratulations on 20 years. I just had a great question on -- I just had questions on your top lifestyle initiatives. How do you see the experience -- the experiences in that in your Club Lifestyle evolving over time? And how does it fit with the broader lifestyle offer as you look [indiscernible]?

Yes. Good question. So this was a real strategic issue around just recognizing that you move into lots of communities, you get a lot of people -- ourselves there. But in terms of then taking the total sum of the parts, it came the opportunity to actually provide something on top as well to add that greater value. And I think in a way, it was a way of sort of putting something that differentiates against, say, some of the more property developer type, onto competitors who wouldn't be looking at those types of things. So we just saw as a way of not only adding value to helping try referral into longer term, but also just differentiating our brand against others, because it just -- you sort of really highlighted or shown a light on why Lifestyle is just so different to other competitors in Australia. I can't imagine anyone else that even contemplating what we've done, but see the homeowner feedback has been just extraordinary. And they're able to invite a friend down as well, particularly if there's a single-occupied front dorm and if someone wants 2 bedrooms. So what a great way of driving a referral, which you're seeing there in your own beach house, which is free to use or in the motor home which is free to use or the caravan parts which is free to use and you're walking down along the beach and you've just passed the sort of the drinks bar down on the leisure center down on the beach and having a drink on the balcony overlooking the view. It's most extraordinary asset, I think we ever bought, but. So I guess it's a legal way of just sort of showing what lifestyle is truly about adding value to homeowners and also helping drive referrals. So we just saw it as a strategic initiative, and it's just conventional. And we just found a piece of land that just matched it perfectly.

Great. So it sounds like it differentiates us from some of the other players that gives our homeowners more value. Is there scope for monetization down the track? Or is it more purely an accelerant and value add -- accelerant to the value add?

It's sort of a value add. Correct. Yes, we wouldn't monetize it. It's -- yes, it's just not something that's -- when you say it's free, you get about 5 people actually faint in the room, or it's just like you're kidding. And we got a big stick on our raceway that says, my home comes with a free beach house. So it's pretty powerful, there's a marketing message, and we're now working hard to get that message out to all our homeowner groups and also putting on the stores, our online initiation portal. So we've got activations in every community with sort of 2 deck chairs, a cooler run down, a bottle of champagne [indiscernible]. So yes, we've relined into what the opportunities we saw. So -- yes, as this space, I think it's a unique opportunity to really express the brand and express the value of our brand.

This brings our Q&A session to a close. I'd like to hand back over to James for closing remarks.

Thank you, Cole. I really appreciate that. Thanks, everyone, very much for being on the call and looking forward to catching up with many of you over the next week. Thanks so much, and [indiscernible].

This concludes today's conference call. Thank you, and enjoy the rest of your day. You may now disconnect.