Lifestyle Communities Limited (LIC) Earnings Call Transcript & Summary

Good morning, and welcome to Lifestyle Communities Investor Analyst Conference Call. My name is Anita Addorisio, Company Secretary of the company and moderator for this call. This webinar will be recorded for the benefit of those, who are unable to attend today, and the webcast will be available upon request. Please be advised our conference call will strictly be limited to 1 hour and due to the number of attendees we will endeavor to address as many questions as possible during this time. We encourage you to contact the company via the Investor Center available on the company's website, should you have any queries following today's update. Our presenters today are Managing Director, James Kelly; and Chief Financial Officer, Darren Rowland, who will provide an update on the equity raise and FY '24 half year results, as released to the market earlier this morning. This will be followed by a Q&A session for which I now outline the procedure, as presented on your screen. Prior to asking questions, we invite you to introduce yourself and advise the organization that you are representing. If you wish to ask any written questions, please do so via the Q&A function. To ask a verbal question, please select the raise hand icon to be placed on queue. You will be invited to speak at the appropriate time. Please note that questions received via the Q&A function, which are of a similar nature will be grouped and answered at the appropriate time. I now invite our Managing Director, James Kelly, for his presentation.

Thanks, Anita, and welcome, everyone, to the investor call, and thanks for your attendance at this sort of historic moment, where we actually have announced that we're actually going to do a raise. I know for a long time, I've been saying that we will -- we're capital recyclers, we will not do a raise. But sometimes these moments come along, where the opportunity is just so good that you have to rethink your settings and that this is one of those moments. So let me just unpack that in terms of why we're raising the $275 million. Firstly, the last phase we did was in 2012, we raised $30 million. We were oversubscribed and we've got to $36 million. And we've been recycling that capital ever since. The industry since then was a cottage industry, no one knew what land lease was, and now obviously, it's an incredibly well-recognized asset class, and it's really been supported by the likes of Stockland, Mirvac, Ingenia and others in the space. And it's, I think, set for sort of its next huge level of growth moving forward. The big tailwinds to this sector, the macro elements are really the aging population, which everyone knows about that more recent recently has been bolstered by the Gen X, which is a really exciting new cohort that's entered our addressable market. And basically, we've got a sort of less than 2% penetration rate into the addressable market. So the opportunity is significant, and then the opportunity to capitalize on that is also significant as well. The next big thing that's happened, particularly over the last sort of 12 months and 3-year hangover from COVID is we've started to see the whole housing industry sort of discombobulate. What's happened really is that from the sort of hangover of supply chain issues and pricing, we're now starting to see homebuilders more so in Victoria actually than other states start to see some insolvencies that did impact for sure, our first half results, and I'll get Darren to touch on that shortly. But what it has opened up is significant land buying opportunities for us, as second and third tier developers have been unable to sell land and therefore, are more prepared to sell in [ global parcels ]. The third opportunity for us is that we've got the organizational capability now of sort of 5 years of investment and that you've seen that flowing through our sort of corporate overheads of being able to deliver more, and it's a bit like sort of having all our potential, but with this capital constraint. And I know my team sort of chomping at the bit to sort of get into a much bigger opportunity moving forward. So we're sort of recognizing that we also have that organizational capacity to deliver. Let me track back to then why? So we bought 4 sites this year, and we started to walk past site opportunities more frequently. We missed down a big one down the Bellarine, and our Head of Acquisitions, Chris, sort of said to me, there's this massive opportunity of sites coming and Darren really saying we just haven't got the capacity -- definitely got the capacity on our balance sheet to keep doing what we're doing through a year and delivering what we've got, but just have not got capacity to pick up 5 additional sites. Since that discussion, Chris has sort of accumulated 5 additional sites that are really high quality. And so yes, it was a moment of probably my reflection to say, we've got to set the business up this next stage of growth. This is a step change for Lifestyle. It held a new stage of growth and with the organizational capacity to deliver it a market that is stronger than it's ever been, the land lease industry sort of itself set for a tape up in terms of consumer understanding around what that sector is, it's just too good opportunity to miss. So the $275 million we're raising is the 5 sites and also the firms to develop those sites. It is that step change opportunity for Lifestyle. We always had to carve out that we've not raise capital unless an extraordinary opportunity came along. We thought it would come in one line from one player. But here, it's coming multiple lines from multiple players. So yes, that opportunity we want to seize on. I'll pass to Darren now just to take us through the last half results.

Thanks, James. Good morning, everyone. Welcome to this exciting day for us. It's big announcement, and we're very excited about the opportunity in front of us. I think this slide first half '24 highlights really sums up exactly what James was talking about. We've sort of got quite a unique situation. We've got the underlying business performing really well. So we saw strong revenue growth. Margins held up well, cash flow increasing, supported by that inflation-linked rental increases, increased homes under management and our resale prices continuing to see really good capital growth. So underneath all that, the operating business is performing really well. In the developing business, definitely some challenging conditions. I think we pulled it out here, obviously, the interest rate environment, everyone would be well aware of, persistent high inflation, particularly in the construction sector and certainly an outsized number of insolvencies in the homebuilder market really knocked around consumer sentiment for our customers, and that's had a flow on -- impact on our timing of our settlements. Just to unpack that a little further, sort of a normal scenario for us would be if the homeowner is -- it's our home that we're building for them is going to be delivered in June. We would be contacting that customer in sort of March and saying, okay, it's time to put your family home on the market, you'll market that for 30 days. You'll then have a 60-day settlement window. So by the time the cash is in the bank for you, our home will be ready, and you can move in the next day, and that's sort of our traditional preferred state. What we're seeing at the moment is with all the builders sort of having some challenges, customers are saying to us, look, that's all well and good, but we're a bit worried about the building industry. So you show me the finished home first and then I'll put my home on the market after that. So that's having the effect of sort of pushing a lot of our settlements out to the right. We did see that a little bit in June. We had obviously hoped that, that would correct itself and the market would normalize. That hasn't happened yet. In the long term, we think that it will. It's just we're not exactly sure what that time is. So yes, the first half results are slightly softer in the new settlements world, but definitely nothing that's giving us concern or pause. And the flip side, though, is this opportunity that's been created. And as James sort of called out, we've kind of done everything in our power to capitalize on the opportunity without turning our minds to the equity raise. So we've sort of signed 4 new contracts already this year. We've got pretty creative with settlement terms on some of those. We've obviously raised additional debt in December, but it did get to the point, where there's a limit to what we could put into the pipeline based on the settings we had, and that's really what led us to the situation today with the equity raising. We're very much looking forward to capitalizing on these opportunities, which will deliver longer-term growth for us into the FY '27, '28, '29 time frames. So if you just jump to the P&L for the half quickly, sorry, just going to wait for the slides to catch up. You can see on the P&L, obviously, 124 settlements. So you can see revenue continuing to grow from the site rental. DMF flat for the year. The challenge we're having with the DMF is, we're obviously beholden to homeowners making decisions to move out, and that's not something we can control. But the KPIs that we are seeing in terms of time on market for those homes and capital growth still really strong. So as soon as we're getting homes available, we're selling them. And we think that leans into a little bit of the consumer sentiment piece as well. Obviously, in our established business, there's no construction risk, and that's really sort of underpinning demand there. Margins holding up in that space really well. First half, second half, we always see a little bit of movement based on our refurbishment program. So you will see some movements half-on-half, but overall, no material change to margins. Similar thing on the development margin, when we have settlements at different projects at different stages, that mix of project and the mix of homes does move that margin around a little bit. But overall, the pricing models are still the same. We haven't changed our settings, and that will all sort of correct itself in the fullness of time, as projects move forward. We will just call out the increase in project management, sales and marketing costs. Obviously, we've got a lot of projects in development at the moment that our pre-revenue homeowners haven't started moving in. We're marketing those pretty heavily. We've got our construction teams in full swing and our sales teams out there sort of working the database. So on a per project basis, that number is pretty consistent, but obviously, a lot more projects underway, so that number is quite high this period, but the settlements will start to come through in '25 and '26 off the back of that. Otherwise, we've had good success in passing on the inflation and cost increases in the construction side of the world. So you'll see the average revenue per settlement is keeping up with those cost increases. If we just jump to the balance sheet, as I called out before, we're sort of pushing the balance sheet to fund the development and deliver these increases in settlements into '25 and '26, and that underpins this 3-year guidance, which we're still confident about delivering. The challenge, obviously, was funding these extra sites that are coming through the door. So great news in getting the capital raising away. What will happen with those additional sites is no change to our sort of typical buying cycle, which is usually putting a deposit down on a block of land when we buy the site. Going through a sort of 12-month to 18-month settlement window during that time, we get all of our planning in place, permits, design, et cetera. So there will be a lag between when the money is raised and when it gets deployed. That money will be used to pay down debt in the short term, and then we'll draw back into it, as the planning permits are issued and as construction ramps up. Just jumping to the cash flow quickly. As I said, good performance in the operating side of the business. We're seeing good increases in the underlying cash flow that will continue to increase, as homes under management increase. And you can see there the heavy development spend for those 7 projects that we launched in FY '23, really starting to see those costs come through, as those developments ramp up. And then they'll progressively start turning into capital recovery mode, as the settlements come through. And then final comment for me is just a big shot out to our banking partners. We did a big debt raise in December. It was very well supported by our existing partners, and we're also very pleased to bring in new banks, Westpac and ANZ into the syndicate. Obviously, it's great to get their support in the delivery of affordable housing, and it was a great competitive process to really modernize our debt facility and set us up for the next 5 years. So on that note, I'll hand back to James for the look forward.

Thanks, Darren. Thank you. In terms of outlook, I just wanted to sort of go back a little bit to go forward, weekly in 2012, our sort of strategy of being a capital recycler of running a business that was incredibly customer and homeowner centric, which drove our referral rates, and we keep leaning into that -- leaning into that, as we move forward. Finally, we're focused on greenfield sites, not brownfield roll-ups and that will always remain our fundamental tenet. Over those 12 years, that's delivered EPS growth of 25% and annuity growth of 25%. So we know those settings are right and it put us in good stead, have been the main driver of our growth over the last 12 years. Post this capital raising, those settings remain. We will still be a capital recycler. We're still focusing on greenfield development, and we are still incredibly focused on fantastic homeowners and our wonderful customers know that changes. What this does here obviously is a sort of step change in what we can now deliver. And with the organizational capacity to do that, I think it's an incredibly exciting time. For me, it's a bit of a watershed in terms of just -- I just can't be more excited about this opportunity I got to say because these sites that we're looking at are very, very good and does create that opportunity to really take Lifestyle into sort of next year. So I'm very proud of what the team have delivered and a huge shout out to [indiscernible] as well for sort of bringing this to fruition. In terms of our outlook, again, no change to our 3-year guidance, expect 1,400 to 1,700 settlements between FY '24 and FY '26. We've mentioned homeowners are taking longer to list their homes because of the uncertainty around whether their builder will -- our builder will complete their homes. They want to see the homes built before they list their home. We've launched a number of different strategies around that, and they're starting to take effect. So I'm confident that will start to turn around, obviously, in FY '25 and onwards. We will definitely see an uplift in settlements, as Riverfield and Phillip Island's start to ramp up as well in the second half. The continued construction activity and spend across the projects, which we have in active development, plus some early works at Yarrawonga and Ocean Grove 2, and it's really exciting to see those projects now come to fruition, particularly the small lot product we're doing at Yarrawonga, which also heralds a sort of new interesting product range. We've tested some of that product in some of our other developments and it's going extremely well. And obviously, the mainstay of our business, we're not property developers, we are long-term annuity income managers and managers of homeowners. And it's great to see our community operations increase in terms of its profitability and that really is the long-term growth for the business, as well as growth of ongoing dividend. So with that, Anita, I'm really happy to pass to questions.

Thank you, James. We now welcome your questions, and we'll commence by addressing verbal questions before taking written questions. So we currently have Tom from UBS on the line. Tom, please proceed with your question.

Good morning, James and Darren. Thanks for your time. Given the raise, there's no change to the medium-term settlement guidance, I acknowledge that the acquisitions today are probably more likely for '27 to '29 type settlements. Just be interested to understand, could you characterize this as BAU type acquisitions or out of the ordinary?

Sorry, you mean -- and definitely out of the ordinary, Tom. I mean, obviously, we're buying sites all day every day, but we're limited with the amount that we can fund by the capital recycling model. So out of the ordinary in the sense that we've had a lot come to us all at once in addition to the sites that we've already bought under our BAU model. So BAU will definitely continue in the background.

So, where can we expect to see gearing fall in the medium term? Will it be back up to 40? Or do you sort of see it running lower in 2, 3 years' time?

Yes. I mean, we definitely don't publish gearing targets, but we don't expect it to stay at the current levels for very long. We're obviously going to get into these sites and start developing as fast as we can, and we've got the existing projects still in the mix as well. So we will see gearing creep back up over time, but also subject to where those settlements fall in the medium term.

Okay. And then can you just confirm, where your cancellations and defaults are sitting for the half versus your long-term level?

Very, very low, Tom. We have very, very low cancellation rates. So typically, at [ $500 ] fully refundable stage, we're less than 20%. And if they put down a $5,000 deposits less than 1%, and that's usually only through death or ill health, that occurs. So it's the usual very low rates, Tom.

Has it changed in the last 6 months?

Not at all.

Okay. And then just one last, if I may. I'll be very brief here. But just wanted to understand where the old LVR metric, which I know just dropped out of the presentation would have [ sat ] at the half and where your ICR is on a 6-month basis looking back.

Sorry, Tom, we tweaked the language on the LVR just to be a bit more reflective of what its actually capturing. But -- and we don't measure ICR on a 6-month basis, so I can't answer that for you, unfortunately. But yes, the obviously, the gearing metrics and all that, you can calculate off the balance sheet. But no, sorry, we don't measure ICR on a 6-month basis.

Next, we have Rushil from Ord Minnett. Rushil, please proceed.

Good morning, James and Darren, and the team. Can you hear me?

Hey, Rushil, absolutely.

Great. Perfect. Just I wanted to start off with guidance. I noted that the FY '23 to '25 guidance and the DMF resale volume guidance has been dropped. So I'm just wondering, firstly, can you comment on whether the FY '23 to '25 settlement guidance still stands? And then moving on to the DMF guidance, if you can provide any color there as to what your expectations are, both in the short and medium term?

Thanks, Rushil. No, it hasn't been dropped mate. We just roll it forward each year, as we move the projects in. So that the current guidance that we have out there is [ 1,400 to 1,700 ] between '24 and '26, and we've reiterated that today. Same with the resale guidance, what we published in June is still the current guidance, so no change there.

Okay. Fantastic. Thank you for confirming that. Just in regards to the settlement profile for some of your communities, we noted that Pakenham, for example, looks like the point at which it reaches a normalized settlement rate has been pushed back a little bit. So just wanted to see if you had any comments regarding any particular communities that were either outperforming or underperforming in terms of your, I guess, your expected settlement rate?

Yes. Pakenham is just pushed out slightly because we're waiting on the developers to actually give us road access and access to services as well. So that's pushed us out a couple of months on that one, where our civil works are proceeding at full flight. It's just a delay in getting homeowners actually moving in there, which is just a little unfortunate. We always -- we're quite unique in the sense that often we're moving on to land, and Chris is negotiating license rights to get on there before we even own it, which is fantastic for the IRR, I've got to say. But -- so yes, Pakenham is like that. Ocean Grove 2 will be like that. So yes, it's not an uncommon thing for us to get on there before roads and services are complete. It's just the risk of getting developed to supply that as per the agreed timing. We don't sell those sites until we actually have road and service access. In terms of just how the communities generally are performing, really strong, Rushil, across all of them. The Northwest still just runs at our historical averages. And I think you can see from the [ worm ] chart that's in the pack, how they're all going -- really excited, Bellarine has been sort of tracking along, which is great, and it's sort of coming to an end. And Club Lifestyle has also been a big driver of inquiry and referral as well. So that Club Lifestyle is really leading up to what the original ambition was for that offer. It's a great differentiating one as well, and it's a really good brand differentiator. So yes, that's a really exciting part of what we're doing as well. So yes, Southeast really strong, Bellarine strong, Northwest, a little bit much more towards our historical averages.

Perfect. And maybe just one last question, maybe for you, James. I know you mentioned -- apologies if I misinterpreted this. I think you mentioned during your presentation that some strategies are being put in place to alleviate concerns around construction and incoming residents wanting you see a completed home. Are you able to just expand on that in terms of what those strategies are, they're sort of in the form of incentives? Or sort of any color on that?

No, it's actually -- because we've used one builder almost from the get-go, Todd Devine Homes. We [ play in ] cost plus. So basically, we can't go broke because it's cost plus. So 99.5% of our homes delivered absolutely on program. In fact, I think it's almost 100% now. So we just produce what we call the smart move-in guarantee [indiscernible], where we're saying to homeowners, if by any chunk your home is not ready by the agreed date, not only will we store your stuff, but we'll give you a free holiday, obviously, down at a beautiful Club Lifestyle, and that's our guarantee. It's been really well received by those, who yet to put their home on the market that we've currently got. So yes, the other strategies we've been putting Rushil is, it's been a big [ burner campaign ], which our marketing team is just so amazing at. So it's all around -- all its missing is you. So one of the big things we see with homeowners, they want to move in, they don't want to miss out. So we've been leaning in hard to that to say life is short, don't waste your time, get connected, come part of the community and live bigger life. So yes, we're doing a lot of activity around that and helping drive that sort of FOMO element, to say, "Oh, I'm sure the house is going to complete, let's get listed. We want to move in. Let's get going. So -- and I could list off another 10 behind that, actually, Rushil because we're doing a lot with that cohort to try and turn this uncertainty around into certainty.

Next, we have Ben from Barrenjoey. Please proceed, Ben.

Hi, Ben.

We might just move on to the next question and come back to Ben, if that works. We have Lou on the call from Jarden. Lou, please proceed.

Can you hear me? Sorry.

Hi, Lou. How is it going?

Yes. Good. Struggling with the technology. Just quickly on the run rate of your projects, should we expect that to keep going up? Or is -- are these land acquisitions just to keep your 10 to 12 projects a year on the go at any one time, fairly, fairly stable. And then, I guess, the reason I ask is whether we should expect that [ $22 ] million annualized project management cost to keep going up? Or should we see that as fairly stable now?

Sort of really, you're asking about Rushil is that, we've obviously got to -- to suggest the next [ 5 ] not sorry, Lou -- sorry, Lou. And Lou, how we see it is we see absorbing next [ 5 ] and then that then increases our run rate. So we might be going from 3 a year to 4 a year or 5 a year or whatever. So it's obviously that upstep in our cover recycling that the $275 million provides, that means that we can do more projects each year and the property managing expense are down.

Yes, that cost line item is directly linked to the number of projects in progress, Lou. So absolutely, if the number of projects goes up, that line item will go up with it.

Yes. And you do expect a number of projects to go up?

Yes. I think the other way to think about it is pre today, we were doing 3 sites per year. Each site takes circa 4 years to 5 years to [ go to road ]. So as you're adding 3 and then 3 each year, and they're taking 4 to 5 to close out, that volume does increase. And it's exactly what's happened with the growth of the business over time. We were doing 1 per year and then 1 became 1.5, 2 became 3. So that's the way that sort of capital recycling velocity works.

Great. And then final question for me. I know you don't like giving guidance, but given that you're raising $275 million, do you expect your underlying EPS or earnings per share to still go up year-on-year or in FY '24?

Yes. I mean, we've put some color around the settlement numbers for this year, Lou. Obviously, that will give you a steer of where we think the settlements are going to land. You can see what the operating business is doing from the results today. Obviously, in the short term, the share count is going to go up a bit, and there will be a bit of a lag until the earnings come through from these additional projects. So yes, without doing the specific math, we've hopefully given you enough that we can sort of tease this out for you.

Ben, you've raised your hand again. We'll just see if you're available now from Barrenjoey.

I am. Thanks. Can you hear me clearly?

Yes. Thank you.

Hi, James, Darren. Just in terms of the $120 million increase in the net debt, could you call out what the main drivers are for the period? And second, just in relation to peak net debt, do you think you're at that point now in so far as FY '24 is concerned?

Hi, Ben. So the main drivers are land settlements for these projects that we've got under construction at the moment, as well as the pre-revenue development costs. So if I'll give you a sort of rough example, if we buy a block of land for $25 million, these days, we're spending circa $45 million to $50 million in development costs on top of that before the settlement start to kick in. And at any point in time, we've got different projects in different stages of that cycle. But in this particular year, we've got quite a lot of projects that are in that early cash draw mode, where we've got land settlement, early construction phase and no revenue. There's a slide in the deck that shows exactly which project is at which phase. And you can see that over the next sort of 6 months to 12 months, we'll have a number of projects that are moving from that cash draw phase into the cash recovery phase. So yes, the debt might draw up a little bit. We've had some more land settlements post [ 31st ] December. So it might go up a little bit more before it starts to, I guess, hit that capital recovery mode for those volume of projects. And then obviously, subject to the timing of when we can get these new ones into the mix that will change the profile again.

Yes. Fantastic. And in relation to the pricing on the underlying site acquisitions, James, could you just comment as to how you see that relative to the peak of the market.

You can find, Ben, that pricing doesn't necessarily come off dramatically at times like this. What you get is access and what you also get is ability to have a discussion on terms. So typically, in a hot market, Chris will be faced with the price is this and we want the money in 6 months and not negotiable. Now you're saying, yes, the price is the same, but we can give you 12 months or 18 months terms. And it's interesting -- interest in the old days, you'd always be pricing interest in terms. You'd be saying, if you want 2 year terms, you've got to pay me an extra $2 million because interest on that, well, the money I'm not receiving. If it was 12-month terms, it is x, y, z, and even Chris is not getting pushback on terms, which is good. So effectively, you're getting your discount through longer terms that are to our benefit.

Thank you. I will now hand to Scott from MST. Scott, please proceed.

Yes. Can you hear me okay?

Hey, Scott, how is it going?

A couple of quick questions. I guess, just looking at your, I guess, sales numbers, it looks like they've, I guess, slowed a little bit through calendar year '23 relative to calendar year '22 despite, I guess, a number of project launches through the period. Can you maybe just talk around sort of how you're viewing demand? Or is that just being impacted by negative sentiment across the broader market?

So there's a few callouts there, mate. We're not seeing on -- I guess, on an overarching basis, sales rates move around too much. We had a bit of a unique situation in '22 with obviously, that run out of COVID was pretty hot. And then we launched 2 projects at the back of '22 in December, which was the Bellarine and Phillip Island, both of which had a record breaking first months. So I think the Bellarine went first and got low [ 50s ] in 1 month and then Phillip Island came second and got high [ 50s ]. So that sort of skewed the numbers in the calendar year period-on-period. But ultimately, both of those projects after we work through that initial database that we build up and that sort of hot demand reverted to a more normal sales cadence. So that's the main difference between those 2 years.

Okay. And then, I guess, in terms of the cost of carrying those homes for sort of 90 days longer than historically, are you recovering that cost through the sale price?

Not really. No. So we give our customers up to 6 months to settle once the home is complete. It's something we always done to sort of destress the purchaser through the process. But typically, by generating FOMO, we tend to find until more recently that they will be pushing to get into their home. This is sort of a phenomenon we haven't seen, certainly in my 20 years at Lifestyle, where we've got people so uncertain about whether a builder will complete a home. But for a lot of them, their kids -- they might have had a home at Porter Davis or some of the other builders have gone through, and they've been pushed out 12 months, so nowhere to leave and all the [indiscernible]. So if they haven't got the kids, they've heard the stories. So it's pretty widespread through knowing at the moment this whole nervousness about construction. So yes, it is quite a unique situation. But then again, it's created our opportunity to go and get 5 additional sites. So it's of a double-edge sword.

And maybe asking a slightly different way, Darren, you're still expecting, given the, I guess, the extra carry-on inventory? Are you still expecting to -- for development projects to be sort of 0 cash outcome at the end?

Yes. Scott, we haven't changed our sort of process. So we're always running forecast to complete, which have assumptions around future costs and things like that. And then each quarter, we do a review of each project and adjust forward estimates and then that results in a flow on to sales prices. The risk that we face is where these things happen late in a project. So obviously, when you're early in a project, you can adjust, you've got lots of homes left to sell, you can tweak your sales prices and everything rolls on, where you're in the back end of a project and you've got not many homes there to sell, those late surprises can be challenging to increase sales prices in the market to recover. So what we're always trying to do is run, I guess, a delicate contingency in there to make sure that we don't get caught short and then you're sort of measuring each quarter relative to that to make sure you don't leave any money behind.

And then just lastly on the, I guess, development expenses, does -- you incur those costs prior to settlement, is that correct? Or that ramp up in the project costs prior to settlement?

Yes. It's a little bit of a quirk in the accounting. So for the infrastructure and the housing costs, whenever we incur those, they go to the balance sheet, and they get released to the P&L at the exact same time as the settlement revenue comes through. So you're always matching those 2 together. Unfortunately, for the sales and marketing and project management costs, they've all got to be expensed as incurred. So when we're in ramp-up mode on a project and where pre-settlements kicking in, if we're marketing hard and if we've got the sales team in place, those costs go straight to the P&L and don't wait for revenue. The big difference this time around relative to normal is we've just got so many more projects in that pre-revenue cycle than we otherwise have had before.

Okay. So then maybe just one last one. Can you maybe just give me a sense of timing on when -- I guess, the next bucket of projects will start, so Yarrawonga, Ocean Grove II, Warragul II, Clifton Springs, et cetera?

Yes. So Yarrawonga and Ocean Grove 2 are sort of middle of the year. We're in full swing on those now gearing up. The other ones are likely to be into calendar 2025 and staggered through that way.

We now have Warren from Canaccord. And I may just ask that you limit your questions to 2. I'm just conscious of time to give everyone an opportunity. Warren, please proceed.

Sorry, can you hear me?

Hi, Warren. How is it going?

Good, James. Just a couple of being asked, but just a couple of small ones. You gave an update at the AGM, I think it was [ 420 home sold ].

Oh, Warren [Technical difficulty]. Hi, Warren. How is it going? [Technical difficulty] 420 home sold is that -- that's where you cut off... Yes. And contracts on hand worth [ 278 ]. So is that -- is that still right that it's relatively static now, still 420 and about [ 287 ] of contracts on hand.

Yes, that's right. Warren, as sort of as settlements come in and new sales come in since the AGM, they've sort of netted each other off. So [ 1 in 1 out ], if that makes sense.

Yes. And just a small thing. Just on the resales, what percentage of the [ 75 ] got incurred at DMF because it looks like you're including all resales now, not just those will get a DMF?

We've actually removed the SmartBuy guarantee, Warren probably over 12 months ago now. And what we did was we brought this SmartBuy guarantee in way back in the day, where nobody really knew what land lease was, and it was one of those, I guess, consumer confidence pieces that said move in, and if something happens or if there's a change of circumstances, there's no fees if you want to move out. What we're finding now is as the business got bigger, customers can go and look at any of our existing communities, they can get that confidence in other ways. And so, we don't need to offer that anymore. So most of the sales these days are picking up DMF.

Right. So they're all capturing. So look a bit restated for the last few years. I think I touched on this before and restated up, but it's probably just capturing the gross number, is it?

That's right. And it's indicative of the guess, the volumes that we're expecting going forward.

Thank you. We'll allow one more verbal question before going to written questions. So I will now hand over to Peter Davidson from the Pendal Group. Peter, please proceed.

Just a question about the settlements in the half. From what you were saying, James, we had a situation, where people weren't actually moving to sell their properties and they were delaying because they were concerned about you completing. But you'd also mentioned that Todd Devine always completes for you, 99.9%. So your homes were ready, but they didn't settle because they decided not to settle. Was that what happened? Or can you talk me through that?

Yes. Pete, what they're doing is that they were basically waiting for their homes to be substantially out of the ground, roof on and looking complete before they even consider then approaching real estate agents, getting their home ready to go on market, running a campaign and then selling their home or whatever terms they could get 60 days, 90 days. And by then, we've already completed the home, and we're now sitting on it, waiting for that money to come through. So that could cause any from a sort of 60- to 90-day delay in what we would normally see go through, as we complete the home, they just move in and that we can almost settle contemporaneously. But yes, it's just been a shift that we -- I think we were talking about at June, and now we're still seeing it come through pushing settlements into sort of the second half and into FY '25.

So to paraphrase what you're saying is sort of customer reluctance rather than any production issue on your part?

Part of it saying, no, we're building -- yes, we've got no issues on supply chain, no issues on -- but prices are already firming up, which is great. So we have no price rise in September. We're not in for a price rise in March either, so -- in terms of our construction costs. So that's actually going really well, Peter. But, no, it's just purely reluctance is good word. And we've now published the 99.5%. One thing we're now doing meet the builder sessions at each community with our deposit holders and they can sort of reassure them verbally about the contract they're under and the fact that they're always building 99.5%. So yes, there's a lot to -- we sort of relent into this story over the last few months to just give reassurance.

I will now hand over now to Darren to address written questions received. Over to you, Darren.

Thanks, Anita. So there's a few questions in the written questions. The first from Chris at Goldman Sachs. [ This is ] 2 parts question. So the first part is asking about the gross development margin, which I think I did answer before, but really that's just a mix issue on the project. So we do expect that to bounce around half-on-half, but no major change going forward. The second question is around the lead indicators of inquiry and sales rates, and does that give us confidence into FY '25 ramp-up?

Yes, totally. So we've done really, really high appointments for January, and we're about to hit really high appointments again for February. So yes, I think there's some really, really good green shoots coming through. I think the Reserve Bank has done a great job of creating storm clouds ahead of in terms of what's happening in the world and now customers sort of seeing through that. Obviously, for our customers, the only certainty, they've got is taxes and not being here forever. So for them, time is nice. So we are marketing leads into that as well. So yes, we're very comfortable with the -- where inquiry is. Also, one other aspect of that is, we've now got our sales force system fully up to speed, and that's doing some fantastic work in terms of building prospects, putting on [ nurture ] journeys and putting through a lead process. And so that's also really helping to drive our appointments. Our referrals still stay -- also stayed really strong. So that part of business is going also extremely well.

The next question we've got is from Michael, just asking about the average cost of debt? We don't typically publish the cost of debt at the half year, but we haven't had a material movement since what was published in June other than what's been triggered by the RBA. The other thing I'd just add on the cost of debt, Michael, is most of our interest costs are capitalized into the projects and recovered through sales prices on the new homes. And I think that's all of the written questions we've got. We might pass back to you, Anita.

Thank you, Darren. I do still just see questions? I'll just confirm. Ben, did you have some additional questions you'd like to ask. Please proceed.

I didn't. Actually, no, I've addressed those. Thanks for following up.

Brilliant. Thank you, Ben. And just confirming if Peter Davidson, did you have another question you'd like to ask. Please proceed, Peter, if you do have a question. Peter Davidson, that is. Peter has already had the opportunity. So that's all good. I think we're good on the verbal questions. Darren, did you have any more at your end?

There's just one coming from Rushil that says, are you able to comment on your expectations for the site rental margin in FY '24? Did you incur additional refurbishment type costs. So thanks, Rushil. No change to margin expectations in that part of the business. It's a pretty steady part of our world. The thing that does move it around half-on-half is just the timing of those refurbishments, as you quite rightly point out. So we did have some come into the first half that won't repeat in the second half. So the full year margin should sort of normalize itself over time. So no change in settings there. And we've had -- sorry, one more question come out from [ Preston ] that says, please spell out the debt headroom/capacity post raise? So our current debt facility is $700 million. So post raise, we'll use those funds to pay down debt in the short term. That debt headroom will remain. So no change to the headroom, as a result of this other than the timing of funds, obviously. Sorry, Preston. I think that's all the questions we've got. So we might hand back to you, Anita. Thank you.

Thank you, Darren. So ladies and gents, we've reached the end of this Q&A session, which brings us to the conclusion of this conference call. We do thank you for your attendance today and invite you to contact the company via the investor center available on the company's website should you have any questions not being addressed here today. I will now close the webinar. Thank you.