Lifestyle Communities Limited (LIC) Earnings Call Transcript & Summary

Good morning, and welcome, everybody, to the Annual General Meeting of Lifestyle Communities. My name is Philippa Kelly and I'm the Chairman. I'd like to introduce my fellow directors this morning, Mark Blackburn, David Blight, the Honorable Nicola Roxon, Claire Hatton, and Managing Director, James Kelly. Also joining us is Darren Rowland; the company's Chief Financial Officer; and Anita Addorisio, Joint Company Secretary. It's really pleasing to be here in our support office this morning, which is a first for us and to have some of the team members present as well, makes it such more -- and there are also, may I say, equity holders in the company, so that's quite a special experience. Finally, I also welcome Andrew Cronin of PricewaterhouseCoopers, the company's auditor, and Andrew is here to answer any questions people may have on the financial statements. Today's meeting is being held as a hybrid meeting, and we're pleased to welcome those in person that I've already mentioned and anybody able to participate from overseas or from further away by the Computershare meeting platform. For those attending online, you can submit questions at any time. Both written and verbal questions can be asked. And to do so, please just follow the instructions that are set out on your screen. If we get questions of a similar nature, they will be amalgamated and answered when the relevant topic is addressed. Shareholders attending in person can ask questions by raising their cards when the item of business relevant is being addressed. And please state your name or the organization you represent before asking your questions. I'll address questions from shareholders in the room in the first instance before attending to online attendees. Voting today will be conducted by a poll on all items of business. And to provide you with plenty of time to vote, we'll shortly open voting for all the resolutions. If you're eligible to vote and attending online, please note that once voting opens, you can press the vote icon and all the resolutions will be activated with voting options. Please follow the instructions on the screen. For those attending in person, voting shareholders have been given a blue card at the registration desk, and please complete this according to the instructions, indicating how you wish to cast your vote. Once completed, then you can submit it to Computershare, our returning officer. We'll give everyone additional time after the formal business to complete their votes. So I now declare the poll open for voting. Before we move to the formal business of the meeting, I'd like to talk about the key drivers and trends that we're seeing across the land lease industry. Next slide, please. I think it's fair to say that land lease is no longer under the radar. We're seeing increasing interest from local and offshore institutions and the consolidation that's occurring in the sector with the Stockland's Halcyon acquisition and then most recently, Mirvac entering the industry with the Serenitas acquisition, shows us that there is an increasing awareness but also an interest in investing in this sector. From a customer perspective as well, land lease is building a very positive perception in the market as a form of retirement living. So both of these sectors show that the demand for land that we're seeing and an undersupplied market for customer, together with the rental streams coming from our homeowners who are already occupiers, are providing a very solid support base for the valuations. And we've seen values hold over the past year in contrast to many other sectors in the property industry. The demographics also with 32% of the Australian population over 50, is providing really strong momentum for land lease. And we see this momentum continuing, particularly as baby boomers continue to downsize and first homebuyers continue to buy. So regardless of the economic cycle, which may slow down from time to time as we may see presently, but the momentum is strong and the demand is there. Next slide, please. So this year has been a milestone year for Lifestyle. When James and his co-founders, Dael Perlov and Bruce Carter sat down 20 years ago to form Lifestyle Communities, I don't know that they really understood exactly how special Lifestyle would actually end up being. It's an incredibly special company that has a customer-centric culture and a great team of people working in the business. And so over this 20-year period, it's really a milestone to now have celebrated our 5,000th homeowner across 25 completed and developing communities and with 5 more in planning. So through the year, we opened a new Clubhouse at Lifestyle Meridian, and for those that have seen it as a number of investors did recently on the Investor Day, I think everyone was completely blown away by the quality of product that's been produced there. We also welcomed first homeowners to Lifestyle Woodlea and Lifestyle Bellarine. So one of the differentiators of Lifestyle is the experience that it provides as well as evolving its product. And so as clubhouses continue to evolve, the quality of homes improve, we're also evolving the product offering and experiences for our homeowners. And a fabulous new initiative was taken this year with the implementation of Club Lifestyle, which actually now provides our homeowners with the ability to have their own free holiday within our communities. And that's quite an outstanding initiative. In terms of financials, our operating profit increased 16% to $71.1 million. And importantly, the annuity income stream grew to $47.2 million. And you can see on the slide that operating earnings per share has also increased to 68.1 cents per share. So these strong and solid returns for the year underpinned by 356 settlement homes, we also had 3 new acquisitions, so we're continuing to build out the development pipeline so that we have just under 6,000 total homes available over the next few years for the homeowners. I'd like to now pass to James for his presentation with a bit more detail on the operations of the business.

Thanks, Philippa, and if we could do the next slide, please. Thank you. If FY '23 was a busy year, FY '24 is even busier. We kind of don't stop at Lifestyle, and we continue to grow and grow. We have had our 10 projects in active development, which was the highest number we've ever had. And we've got 2 more scheduled to launch in the second half of this financial year. Our land acquisition team stays really strong and continues [indiscernible] and we've got to now 1,000 homes now to be developed. Operating cash flow continues to grow, which is supported by increased homes under management and also our deferred management fee. Time on market for resales is decreasing, and we've brought on a fantastic new Head of Resales and team to support the ongoing resale of our customers' homes. It's great to see the average annual capital growth now over 10%. New home settlements in the second half, will be definitely second half weighted due to simply project timing. So the team have a very, very busy second half, settling homes in line with what we forecast. We had 4 land acquisitions more recently since June 30. One was Clifton Springs which was announced in August, one Yarrawonga [indiscernible] it's going to be just so interesting as we get into that sector and the response from talking to homeowners has been very, very positive. It's quite an iconic area in Victoria to retire. And also one was Inverloch as well, which is somewhere we have looked for the last probably 15 years to find some land and the acquisitions team managed to secure a really, really prime lot close to the beach. And [indiscernible] Clyde, where we've got Meridian and we've got Riverfield, we've also acquired a new site from the same developer in Clyde as well. So we've got great hope for that project as well, and it should settle as quickly as other projects we've had in that corridor, which is where we've got a cluster of 10 communities as people [indiscernible] Meridian development. And next slide, please. So our positioning, we continue to work in clusters really. So Southeast is probably one of our biggest clusters. The Bellarine is next. So buying that additional site also down, sorry, in Drysdale as well has opened up that market, and it continues to reward us with strong sales. We're trying to definitely continue to break into that Northwest corridor where most of Melbourne's growth is going over the next 20 years. And we're doing that through projects at Deanside and Woodlea as well as Wollert, and then we'll launch -- or Merrifield has already launched and underway. So we're sort of building a brand presence in that corridor as well. Plus, we've now sort of gone a little bit further afield with Inverloch [indiscernible] we've had for a while, but with Phillip Island. And there, there are more destinational projects. Next slide, please. We're absolutely capital recyclers, as we've said from the get-go, so we basically build, get our money back and then we've got this ongoing annuity trail. And I think there's a really good chart just demonstrates which stage each project is in. So we've got 3 in cash recovery, which is Woodlea inside of Meridian. And then we've got the projects I mentioned that are now under development, which are basically in cash drawer, which is St Leonard, Woodlea, Bellarine, Riverfield, Ridgelea, Phillip Island and Merrifield. And then projects yet to be started is Yarrawonga, Ocean Grove, Warragul, Clifton Springs, Clyde and Inverloch. So what's really critical for us is the phasing in each of those projects in terms of whether they are in a cash harvest or cash recovery phase or a cash drawer phase. And you can see at the moment, we're pretty heavily into a cash drawer phase. Obviously, that will then change over the next 12 months, and we expect 4 of these projects to then switch to a cash recovery phase moving forward. Next slide, please. [indiscernible] this is one of the most exciting things we've ever done and continues to reward us. We've now at a really exciting phase with Club Lifestyle. By the end of this month, we would have completed the kitchen, the reception and the 25-meter pool will be live. We're putting in also a fantastic beach as well. And that's really aimed at our amazing 5,000 existing homeowners to give them an experience and a value-add to their experience from the Lifestyle Communities. In total, Club Lifestyle has 28 pillars, which are now open, 23 amazing [indiscernible] motor homes. And why would we invest at this type of money in this type of opportunity? 4 really key reasons. One, it's a unique differentiator for us, particularly against competitors. No doubt, it helps drive sales and comes with a free beach house is such a fantastic link to that, absolutely helps drives referrals as people sit on their deck, having a beer and taking a selfie and sticking it on Facebook. And again, it's that real value-add to our 5,000 homeowners, existing homeowners to now eventually to live a bigger life, and then hopefully tell someone about that as well, which [indiscernible]. I think we've got a video to show of Mighty Club Lifestyle. If we could show that now? Thank you. [Presentation]

[indiscernible] it has just been extraordinary and they absolutely loved it. So final slide. We have also been repositioning the brand. So when we started Lifestyle Communities all those years ago, we were selling [indiscernible] generation and then in 2013, we met the baby boomers and we came out the tagline, Downsize to Bigger Life, and now we have met the Gen X, so we have been working hard to reposition our brand and Life Unlimited is our new tag that will help drive and set the strategy for how we move forward presenting Lifestyle to the market. It certainly speaks to opportunities, possibilities and empowerment, and that's really what our homeowners are seeking and it definitely positions our brand for the next stage of growth. So last video, this is a new TVC ad that we've had running on Channel 7 and Channel 9, and we've also had a similar ad on radio all over the Melbourne. I know lots of people have seen it, and we had so much good feedback, but we'll show it one more time. [Presentation]

Fantastic. Thank you, and back to Philippa.

Thank you, James. So we will now move to general questions from investors. Any specific questions relating to the items we are voting on today, we'll do when we address those topics. Darren, have we received any questions prior to the meeting or online?

There's 2 questions online, Philippa, both from [indiscernible]. So the first question is, in view of Stockland and Mirvac's expansion into land lease development, has Lifestyle Communities become a takeover target?

Thank you. As we spoke or I spoke earlier about consolidation starting to happen and a greater awareness from institutions in the quality of as an investment product, I think it is fair to say that there is interesting groups amassing a business and people aren't shy of talking about [indiscernible] talked about it. Obviously, we've now seen Mirvac and Stockland. Whether that translates to Lifestyle being a takeover target is a different position. We are an equity -- we're a public equity company. So our shares are traded on market. Therefore, the shares are always available for sale to people that want to purchase them. Having said that, we've had a very settled register for a very long time, and we're not seeing any volatility across the shareholding register. So we are a public company, people can trade the shares, but we're not seeing any activity that would cause us to think that there is any activity currently underway.

Second question from [indiscernible]. What is the status of the effort to trademark Lifestyle Communities?

I'll pass to James to take that on the trademark issue.

So yes, look, we did Trademark the brand originally when we started 20 years ago, and we've been using that brand now for 20 years. So the move to trademark the brand and continue to trademark that brand really supports the position that Lifestyle Communities has created in the market as the leading land lease operator in Australia. And we also defend that brand. So we have got some legal action against competitor at the moment who's using that brand, and that will get sorted out in due course, both the trademark breach and also for deceptive misleading conduct.

Thanks, James. Any further questions, Darren.

No more questions online.

So I'll now move to the formal business of the meeting and the notice of meeting has been made available to all shareholders and has also been available on the company's website. First item of business is to receive and consider the financial statements for the year ended 30 June 2023, together with the director's report and the auditor's report, as you've seen set out in the annual report. There is no requirement for shareholders to vote on these reports. Darren, have we received any questions relating to the management of the company or these reports.

No questions online.

Thank you. Well, there being no further questions, we'll move to the vote. The first 2 items must be passed by an ordinary vote and the third by a special resolution. Proxy votes received prior to the meeting will be shown on the screen for each resolution dealt with today. I propose to vote the proxies left to my discretion as Chair in favor of all resolutions. 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 direct report for the financial year ended 30 June 2023 be adopted in accordance with Section 250R subparagraph 2 of the Corporations Act 2001. Item 2 is subject to the voting exclusions that are outlined in the notice of meeting. And please note that a vote on this resolution is advisory only and does not bind the directors of the company. Instructions in respect of the proxies received are displayed on the screen. Darren, have we received any questions in relation to this resolution?

No questions online.

Thank you. Moving to item 3. This item is to consider any thought fit to pass the following resolution, that Mark Blackburn having retired by rotation in accordance with Clause 8.1 subparagraph A2 of the company's constitution and being eligible and offering himself for reelection, be reelected as a Director of the company. Mark's profile has been included on the notice of meeting, but I'll also invite him to speak to his reelection. Mark?

I joined the Board of Lifestyle almost 4 years ago. And during that time, the company has grown significantly in size, capability and market capitalization. In my role as Chair of Audit, the committee is focused on ensuring the quality of the financial systems, internal control framework, financial information and reporting, I have not only kept pace with improvements but ahead of the company's rapid growth. Furthermore, I believe my experience and expertise enables me to bring a strong financial and business lens to discussions and decisions at Lifestyle Board meetings. I'm excited about the future opportunities at Lifestyle. And with your support, I would like to continue to contribute to that success through my role on the Board.

Thanks, Mark. And I can tell everyone that Mark is a very solid director around the table. So the Board with Mark outstanding recommends that shareholders vote in favor of this resolution. And instructions again received in respect of the proxies prior to the meeting and displayed on the screen, which is a very positive endorsement. Darren, have we received any questions?

No questions, Philippa.

Thank you. So if there are no further questions, I ask that you place your vote in relation to item 3, concerning the reelection of Mark Blackburn. Item 4 is a special resolution, that the proportional takeover provisions contained in Rule 6 of the company's constitution be reinserted with effect from the date of the meeting. This is in relation to the proportional takeover provisions, and instructions in respect of the proxies received prior to the meeting are again displayed on the screen in front of you. Darren, any questions?

No questions, Philippa.

Thank you. So I ask that you place your vote in relation to item 4, concerning the renewal of the proportional takeover provisions. As everyone votes, this brings us to the end of our formal business. And we'll now provide everyone with an additional minute for poll voting to be concluded and as the Computershare move around the room to collect the voting slips. [Voting]

If there are any additional questions anyone would like to ask while we're waiting, we'll take them from the floor.

Could you explain to me the proportional takeover, does it say that a 40% person can't run the place? Or what does it actually say the proportional takeover?

As I understand it, Anita, you might need to correct me if I get this wrong, but I do -- I think it's refreshing the ability for a person to take a takeover. Anita, could you help me out here.

Yes, that's correct. So it's just renewing that clause, but it's really giving protection to shareholders as well in that it would actually need to go to a vote. And it's just protecting the minority shareholders. So it doesn't just mean that someone can come in and take that takeover, but it's not at all about that. It's really just about a small minority takeover if that were to happen. Does that provide you clarity?

If somebody has [indiscernible] shares, let's say, 20% or 25% and if they sell it personally, they can do that and then leave the other 70% behind? [indiscernible] takeover now where Australia [indiscernible] is trying to block it with 16% or 17%. Then you've got [indiscernible] where one person has got about 30%, 32%, is now taking over the business without the small guys having no say in it. So I'm just wondering, I didn't read that proportional section in your thing. So I want to know what it actually means. That's all I want to know.

So just in reference to your question specifically, no, that's quite different, and that comes under the takeover provision. So generally, that's generally anyone with a 20% shareholding. That's when they could potentially block a state with a takeover. So that's, I think, the 2 examples you have referenced there, where this is very different when someone wants to buy minority. To we are talking smaller parcels of shares in the company proportionally over time, so that's quite different to what you are referring to. And we can certainly send additional information and we can have a chat afterwards as well if that works.

And thank you. I'll now close the voting. And the results of the poll will be notified to ASX and put on the company's website later today. On behalf of the Board, I'd like to thank James and particularly the Lifestyle team who shows such dedication and commitment to the company and thank you to our shareholders for attending and your ongoing support and investment in Lifestyle Communities. Thank you.