Lifestyle Communities Limited (RJW.F) Earnings Call Transcript & Summary

Good morning, and welcome to Lifestyle Communities Investor Analyst Conference Call. My name is Anita Addorisio, Company Secretary of Lifestyle 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. 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 our Chief Executive Officer, Henry Ruiz; and Financial -- Chief Financial Officer, Darren Rowland, who will provide an update on the FY '25 year-end results as released to the market this morning. This will be followed by a Q&A session for which I will now outline the procedure as presented on your screen. Prior to asking your questions, we invite you to introduce yourself and advise the organization that you are representing. [Operator Instructions] Please note that questions received by the Q&A function, which are of a similar nature will be grouped and answered at the appropriate time. I now invite our CEO, Henry Ruiz, for his presentation.

As the newly appointed CEO this financial year, it's a privilege to present our results today. I'm joined by our CFO, Darren Rowland, also joined with our Deputy CFO, Angela Farbridge-Currie; and our Senior Executive Assistant, Clare Lewis in the room. Moving to Page 1. During FY '25 with a fresh perspective, we did a detailed look-back at the key drivers of success of the business over the last 20 or so years and equally where we could learn from some of the choices that didn't play out as envisioned. This work has resulted in a refreshed strategy for the company, including an evolution to our purpose. This can be described as we reimagine a way to live for independent downsizers. Moving to Page 4, the FY '25 operating and financial performance summary. We observed early signs of recovery after a challenging FY '25. It can be described as a tale of 2 halves. We saw 139 net sales with the balance being 41 in the first half and 98 in the second half, and we're encouraged by the recovery in H2. Moving to the right-hand side of the slide, you can see that this trend continues into FY '26. And you can see the August number, which is accurate up until the 22nd of August. We also undertook portfolio optimization, executing contracts to sell 4 parcels of land to rightsize our development pipeline. That created $114 million in capital that will be recouped. Post those divestments, our portfolio and pipeline remains strong with over 5,700 homes, of which 4,128 are currently occupied by over 5,800 homeowners. To break that down further, you can see that there are more than 800 homes in the remaining developing communities and more than 700 homes to be developed from the retained land bank, giving us 4 to 5 years of pipeline. This year also saw a significant VCAT decision handed down on the 7th of July that declared our DMF calculation methodology in our contracts void. In terms of the financial impacts of that decision, $135.5 million after-tax write-down in the carrying value of investment properties and a $54.5 million after-tax provision for the repayment of the DMFs previously collected. To be clear, the DMF is permissible under the Residential Tenancies Act. We have moved to the purchase price as our go forward for new contracts and the original DMF clause based on the sale price is subject to the outcome of an appeal. Moving to Slide 5, the FY '25 results snapshot. I'll just draw your attention to a couple of the numbers. On the right-hand side, you can see that the land bank has been optimized, as I outlined on the previous slide. You can see in FY '25, our portfolio and pipeline is 5,750. If you move further down, you can see the total assets carrying values has been reduced due to the VCAT decision. As you move further down, you can also see that the dividend declared remains paused until our balance sheet is delevered and our sales cadence stabilizes. From a debt perspective, the debt peaked during this financial year in May at $490 million and is now trending down, finishing at $460.5 million. More detail will follow in this presentation. Moving to Slide 6, going deeper on new home sales performance. As I said, it was a tale of 2 halves, and we saw good recovery in the second half. Despite subsequent VCAT decisions and the further media coverage in July, we had a solid start to FY '26. Pleasingly, the conversion rate from our face-to-face appointments has improved from 23% to 24%, and we are continually focused on site activations to get prospects to visit the site and experience the offering for themselves. Our team has done a good job of focusing on qualifying prospects and improving our speed to respond, which have delivered these results. Moving to Slide 7. Our resales performance and resale volumes have also been impacted by market conditions, as you would expect. When we finished the year, the number of homes on market at 30th of June was 56. The key message is our properties are selling. It's an empowered sales process where homeowners are in control of the sales pricing and the home presentation, supported by our team. More broadly, people want to stay in our communities. Customer satisfaction continues to remain strong across our communities. And this year, we saw it go up from 76.7%, up from 75.8% at the same time last year. Moving to Slide 8 to touch on our capital management initiatives, which we announced in February 2025. $119.8 million change in operating cash flow from negative $115.2 million in FY '24 to a positive of $4.6 million in FY '25. We have adjusted our total debt facility and rightsized that down from $700 million to $571 million, reflecting our near-term development requirements. We also have extended the tenor on $176 million of the $265 million tranche, which was due to expire in August 2026 until 2029. You can see that reflected on the chart to the right. In terms of inventory and working capital improvements through a combination of targeted pricing strategies on selected homes where we're meeting the market and adjusting our build rates at our development sites to match our sales rate and an absolute focus on selling completed homes, we've seen a reduction of 359 unsold homes in the system as at 31st of December 2024 to 269 at the end of this financial year. That's a 25% improvement and 40% to our ideal carry rate. In terms of land optimization, as I've touched on, I will go deeper on shortly, we've adjusted our land bank to carry 4 to 5 years of land supply. Moving to Slide 9. In regard to our debt covenants and key metrics, post the VCAT adjustments, we have headroom in our covenants. Drawing your attention to the loan-to-value ratio, we finished at 47.8%. In regard to the ICR, if I draw your attention to the table on the left-hand side, you will see that our adjusted EBITDA is $73.7 million. Our interest paid is $24.8 million, and the interest cover ratio was 3x, well above covenant. Moving to Page 10. I just wanted to take the opportunity to walk you through a waterfall that gives you a view of how we are deleveraging both in this financial year with a small look ahead to the first half in the next financial year. Going from left to right, you can see our peak debt, which happened in May at $490 million, the initial land installments coming in at $10 million, working capital release through the financial year at $17 million has seen us finish at $463 million. Looking forward, we anticipate a working capital release of somewhere between $22 million to $30 million. You can see the land sales, which in total aggregate to $100 million, interest added back in of $12 million to $14 million, and we expect to finish in the range of $345 million to $355 million. Moving to Slide 11. As I mentioned earlier, our team has been laser-focused on reducing unsold homes in the system since the 31st of December 2024 with ongoing reductions planned in FY '26. If I draw your attention to the middle of the page, you will see the numbers broken out by communities, but in aggregate going from 359 to 269 at the end of the financial year, and we highlight our optimal range being 156 to 121. As I've mentioned before, a lot of this is focused on our targeted pricing strategies on select homes, focused selling on completed homes, and we've modified our build rates to reduce further inventory buildup. Moving to Slide 12 and providing a bit more color on our land optimization. We were carrying 8 sites, representing more than 7 years land supply based on our current sales cadence. This represented circa $273 million of committed capital. Our refreshed strategy sees us wanting to carry 4 to 5 years of land supply. It is a fair question to ask, how did we get here, and context does matter. Much of this land was committed in financial year '22, '23 before the downturn in the sales cycle was fully evident. So moving forward, we announced in February the plan to recoup $80 million to $100 million via land sales. As I alluded to, 4 contracts or 4 -- contracts have been executed across 4 sites. You can see the details below on the table, and we expect to recoup $114.1 million. Just to draw your attention to the gain and loss on those sales, I wanted to upfront address Drysdale. It was a very unique site where we had a very high purchase price given the cycle we were in. The carrying value also incorporated stamp duty, GST, consultants, and it also had an obligation around a $5 million contract for civils. We tested the market and got similar range responses, and so we optimized for speed to conclude that sale. The other call out I would like to bring to your attention is that Ocean Grove II, while signed, is still subject to due diligence. But in short, we committed to recoup $80 million to $100 million and have delivered $114 million. Also, just to conclude, we are now finished and drawing a line under land sales as part of our go-forward strategy. Moving to Slide 13. Taking a big step back, ultimately, the key job to be done in terms of value creation is growing our annuity income stream. And the way we do that is to sustainably grow the number of homes under management, offering the opportunity to generate fees from weekly site fees and management fees. Despite the financial impacts of the back of the VCAT case, the underlying business is growing. Darren will now add more color to the underlying business performance. Thanks, Darren.

Thanks, Henry. Before we move into today's results, I just wanted to acknowledge the delay in bringing the markets to -- the results to market. The VCAT decision was handed down on the 7th of July, and that required a substantial amount of rework across our accounts, property valuations and audit. There's obviously a lot of additional pressure on the team, and I'm incredibly proud of the way our team responded to that. They've worked tirelessly over the last 6 to 8 weeks alongside our auditors, valuers and the broader team to make sure that we could deliver these results as accurately and completely as we possibly could given that decision. So I wanted to just take this moment to thank the team for all of their commitment and dedication. The accounting standards require the FY '25 accounts to reflect the most recent legal interpretation of the DMF provisions, and we've done that, and that's regardless of our intention to appeal the decision. So as a result of that, we've recognized 2 material changes this year. The first is a $77.8 million provision for potential DMF repayments, representing a comprehensive estimate of exposures to repaid prior customers that have paid a DMF. The second is a $193.5 million reduction in the carrying value of our investment properties. Now these valuations assume that each site transitions to the new contract structure at the next turnover event. Now if our appeal is successful, the majority of these changes will be reversed at that time. So turning to the income statement. We reported an underlying operating profit of $64.5 million pretax prior to accounting for those VCAT adjustments. And given the challenges this year, this is a reasonable outcome. It's down around 15% on the prior year, driven mainly by a lower volume of new home settlements, which were 268 this year compared to 311 last year. As Henry noted, the operating business continues to grow and supported by new home settlements and inflation-linked rental increases, which together drove a circa 10% growth in annuity revenue. Development margins were lower this year due to targeted pricing to meet the market. And this was partly offset by a $7 million reduction in sales and marketing costs as we adjusted spend to meet the reduced activity levels. And at the bottom of the page, you can see the statutory adjustments, and we've provided a full reconciliation between statutory and operating profit on Slide 40. Pardon me for a moment. Come back to the start here. On the fair value adjustments, there's a lot of information on this page, but I just wanted to draw your attention to Category 3 in the table to the right. So this is typically what we would report for market-based fair value movements. And for this year, that would have been a $20 million decline prior to the VCAT adjustments. You can also see in Category 5, the valuation impact of the land sales that Henry spoke about earlier. As we move to the balance sheet, the 2 VCAT-related adjustments I mentioned earlier were partly offset by a circa $81 million reduction in the deferred tax liability, leaving an overall net asset impact of approximately $190 million. Elsewhere, we saw a reduction in trade payables offset by higher drawn debt as the planned land settlements completed during the period. Debt peaked at $490 million in May 2025, as Henry touched on, and has since started to reduce as our capital management initiatives flow through. And we expect debt levels to reduce further over the next 6 to 12 months as inventory continues to unwind and contracted land sales complete, and that's that debt bridge that Henry touched on, on Slide 10. On the cash flow, it was pleasing to deliver positive operating cash flow this year despite the lower level of settlements. I wanted to acknowledge our development team in particular. They showed great discipline in adjusting the development program to match demand, reducing planned development spend by over $100 million during the year. And that required a huge amount of work, and I wanted to thank them for it. Looking ahead, we anticipate positive operating cash flow to continue in FY '26 with projects in progress now past peak spend and moving into their capital recovery phase. Subject to settlement outcomes, we expect a working capital release of around $20 million to $30 million over the next 6 months, plus the circa $100 million from planned land sales. And together, this will underpin the deleveraging that Henry mentioned earlier. So to close, I'll note that these accounts reflect the full downside impact of the VCAT decision. And if that appeal is successful, much of this will be reversed. But importantly, we are not simply waiting for the outcome of that appeal. And with that, I'll hand back to Henry, who can take you through our forward plans.

Thank you, Darren. So moving to Slide 20, it is important to outline the VCAT implications and also how the company is thinking about the path forward. So as we stated earlier, Lifestyle Communities intends to appeal the VCAT decision. Our position at a high level is that we have sought legal advice consistently through our history and our DMF fee structure and disclosure is consistent with the Consumer Affairs prescribed form. The basis of the appeal is effectively over a technicality around the proper meaning of the words, details of the amount payable. In lay language, it's really around a precise and known starting number versus the details of a way to ascertain the number, more akin to how the Consumer Affairs Form describes it. The next steps are the appeal documentation to be lodged on the 5th of September and the Court of Appeal anticipated time frame, we are told is 6 to 12 months but to be confirmed. Just to round that out, we have sought a second legal opinion from another highly respected [ KC ], who has agreed with the original arguments made and has new perspectives with the benefit of the original hearing, and he will become the new lead KC for the appeal. Moving forward to Slide 21, just for clarity in terms of the implications for deposit holders or future homeowners, our existing homeowners and our approach to deceased estates. I'll take them one by one. For deposit holders and future homeowners, our go forward is that it will be based on the homeowners' purchase price and pro rata over a 5-year period to a maximum of 20%. So that is how the DMF will be calculated. For existing homeowners selling, the DMF clause will be subject to an outcome of the appeal. In terms of deceased estates, we have announced previously that Lifestyle Communities will no longer charge weekly site fees for services provided to deceased estates, largely based on homeowner feedback around the opportunity to sublease was not preferred by homeowners. And from our perspective, together with homeowners, it is easier to sell vacant and potentially staged properties. Moving to Slide 22. All of that said, we are prioritizing our customer base, and we're not waiting for the appeal process to conclude. Together with some of the management team, we embarked on a Roadshow Listening Tour to all 25 communities in the recent weeks. It strengthened our listening channels and connection with our homeowners, and it came through loud and clear that many of our homeowners value our offering with very few seeking to leave. We've actively incorporated their feedback and we will continue to do so into the future. And our conversations with homeowners have strengthened our conviction that the DMF does have a place to customers amongst a suite of options. Moving forward to Slide 23. So we are focused on providing customer certainty and choice through new contract options, and I wanted to outline some of those here. On the bottom left-hand side, you will see that for new customers, we've moved to the new contract structure I just touched on, which is based on the DMF being calculated off the entry price or the purchase price. For existing customers, given the appeal, we outline that if the appeal is upheld, the previous deferred management fee will remain [ afoot ]. If the appeal is a loss, the deferred management fee will be void. There is a new option, which is we're working through and taking steps based on homeowner feedback to amend the new contract structure to potentially offer that to our existing homeowners, and that is an ongoing conversation. On Slide 24, as I said, we're taking steps towards creating a pathway for homeowners to have a choice to modify contracts to move to that new contract construct. If I draw your attention to the table on the right, what you can see is effectively the carrying value adjustment bookends from 0% take-up to 100% take-up. Now depending on what that take-up rate looks like for existing homeowners, we'll adjust our carrying values accordingly. It's still too early to say where that may land, but we are in good engagement across our communities. Moving to the left-hand side, some early data from our deposit holders shows that to date, of the 68% who have indicated a preference, 47% have indicated their decision to opt for the new contract structure, which is informative. Moving to Slide 25, we are also introducing a new option in the second quarter of FY '26. Listening to market feedback and future prospects, we are introducing a new option to pay upfront for a no exit fee option to sit alongside our deferred management fee option. You can see in the middle of the page, and it's illustrative only, but to make the point effectively at the upfront purchase price, there will be an opportunity to include in that an upfront management fee. And the calculation of that fee will be a percentage of the eventual deferred management fee using a net present value type calculation. From our perspective, it is a genuine choice for new homeowners, and we will be agnostic to that choice. And as I said, we will announce more about that once we get ready to launch, which will be in Q2. Now I touched earlier on, we've gone through a process of a strategy refresh, and I just wanted to go a little bit -- I'd just like to cover that in a little bit more detail on Slide 27. So to bring us to a close and touch on our strategy refresh, as I alluded earlier, our renewed company strategy reflects an evolution to our purpose, reimagining the way to live for independent downsizers. It is brought to life through 3 strategic pillars: be the go-to choice for downsizers, be renowned for the homeowner experience and powering our growth engine. Moving to Slide 28, we are in the process of operationalizing the strategy in 2 phases and our underlying belief that our strategy is always on and always evolving based on market feedback. So what's well underway, I just wanted to touch on a couple of key points. We have an elevated market orientation where our new home sales pricing will meet the market. Our product design and specifications is now going to become a refined list and the best of taking all the learnings that we've had to this date in the company. We have a focus on both sides of the downsizing journey, not just the sale process as it relates to people being interested in moving into a lifestyle community, but equally helping them with their own sale process of their existing home and ultimately getting to settlement. Part of that is helping people in terms of price expectations, providing good information for them to select the highest performing agents and some information in regard to marketing their property. In addition, we're simplifying our brand and go-to-market strategy, and we will be having a new brand campaign hitting the market that is heroing homeowners in mid-September. Ultimately, we are maturing the platform and positioning for the next development cycle. In terms of work that has started but still has a number of outstanding features to complete, we are doing a technology review and planning to see how we can enhance business performance. That will be focused on tooling, cost efficiency, our ability to make more data-driven decisions and leveraging AI as it makes sense to do so, particularly around the homeowner experience. The second one I really wanted to draw out is a review of the capital needs of the business, aligning with our future growth aspirations, and we still have work to do there. And the last but not least is strategic workforce planning, aligning our team to our growth agenda. Moving to Slide 29. A way to think about our strategy from a time line perspective is that it has 2 phases, as I alluded to at the beginning. We're calling those phases the get strong phase, which is about maturing the platform and our grow stronger phase, which is capitalizing on the growing market opportunity. The Victorian population of people aged over 55 is anticipated to increase from 1.9 million to 3.1 million by 2046, an increase of over 60%. And the acceptance of land lease is maturing as an asset class in Australia and now widely accepted by consumers. So moving to the next slide on Slide 30, the macro themes that have underpinned Lifestyle Communities success over the last 20 years remain and are intensifying. With a growing aging population facing into a national housing crisis, which is underpinned by the rising cost of living, there is a growing demand for affordable housing for downsizers, which in turn frees up homes for first home buyers and young families. Moving to Slide 31. Thinking about social, psychological and health factors, there's an increasing importance of life longevity and health for our downsizing homeowners. When compared to other Australians and Victorians aged over 55, Lifestyle Community (sic) [ Lifestyle Communities ] homeowners report a greater sense of satisfaction in all aspects of their lives, which is quite an incredible result. If I draw your attention to the first column around all things considered, how satisfied are our homeowners as a whole when compared to the Australian national average or the Victorian average, you can see Australia is at 74, Victoria is at 72.3 and people living inside Lifestyle Communities is at 81.3. This is an independent personal well-being survey that is run by Australian Unity and Deakin University. What you will see as you look at the bottom of the page is double-digit percentages higher than those Victorian averages around the future of security, feeling part of a community, what people are achieving in life and their satisfaction with personal relationships. And our team are very focused on continuing to support holistic health for our homeowners. Moving to Slide 32. Equally, moving forward with a lens on affordability, there's no doubt that the property market has been through a difficult cycle, impacted by interest rates and other localized factors, particularly in Victoria. Our commercial model needs to adapt to these market forces. And you can see on the graph on the right-hand side that it's quite cyclical in quite short periods of time. So what that means is that going forward, our pricing strategy will need to adjust as market conditions change. In a challenged market, our sales prices will reduce with the market. Our goal is to maintain average selling prices at 80% of the median. It does mean we will make lower returns in that type of a market. However, on the flip, in a strong market, sales prices will rise as we all understand. And our goal is to maintain average selling prices at 80% of the median, and we will make increased returns. The key message is we will follow the market, and we do anticipate in FY '27 and beyond, we are heading into a growth cycle leading to increased returns. So in concluding remarks, in FY '26, shareholders can expect to see further significant change. We will continue to deleverage our balance sheet and expect net debt levels to reduce below $360 million by the 31st of December. The business will emerge stronger and better positioned to maximize the opportunities when the next development cycle emerges. Positive operating cash flow is expected as we further target inventory reduction for built homes and communities have passed their peak development spend phase, and so that will further add to our operating cash flow. New home settlement pipeline is also sitting at 273 (sic) [ 237 ] contracts on hand as at the 22nd of August, and 162 of those relate to homes that will be available for settlement in FY '26. And we expect that to continue to grow as we further sell into FY '26. In summary, we're seeing some early signs of recovery in the broader market, and we will continue to mature the business through our get strong approach, ready to grow stronger through the next development cycle heading into '27. And last but not least, we have an incredibly passionate, resilient and committed team at Lifestyle who truly believe in our purpose to reimagine a way to live for independent downsizers and homeowners. So thank you, and back to Anita for questions.

Thank you, Henry. We now welcome your questions, and we will commence by addressing verbal questions before taking written questions. We have Murray Connellan on the line from Moelis Australia.

Just wanted to touch on sales rates, please. I was wondering whether you could give a bit of color on interactions with buyers since the VCAT outcome. It sort of looks as if those sales rates have sort of continued in line with where they were prior to. Have you had any sense that the buyer sentiment has changed in any way?

Look, it's still early since the most recent ruling. Buyers are coming in very informed and buyers do shop around and compare us to competitors. Those that are opting to put deposits down are buying in, one, because our model allows for equity free up; and two, they enjoy the experience that they can see across our offering. So they come in fully informed and are making their choice accordingly.

Got it. And then just in terms of the potential for shifting residents into a new DMF structure or shifting existing residents through contract amendments. That 47% of 68% who've responded so far, has Lifestyle Communities made a decision as to whether or not it intends to shift them over to that new structure? And will that be happening in the next 6 months?

So let me just clarify. So the statistics you were talking about then are our deposit holders, and they have made the shift and have signed contracts to that effect. The chart on the right is really around -- think of it as an opportunity chart depending on the option that our existing homeowners choose to take. It's still too early to call on whether -- which way that will fall, but there is definite interest. We're in early stages of providing more information, and we want our homeowners to really be very clear on the choice in front of them so they can make an informed choice. So we will come back once we know more, but we anticipate that will take us a couple of months to bottom out.

And next on the line, we have Tom from UBS. Tom, just confirming if you wish to ask a question, you just unmute.

I was just wanting to just drill a bit more into this opt-in approach to the revised DMF for existing homeowners. And I'd be interested in understanding how the conversation with those homeowners will go. Are there incentives for people to opt in? And equally, at a community level, is there some sort of a potential implication if the take-up is low in terms of service levels?

Sure. Look, the conversation has been a very open, transparent one. Like I said, in recent weeks, we've spent a lot of time face-to-face with every one of the communities. And as we walk through the implications of the VCAT case, the feedback from some of our homeowners was that they would be interested in being given the choice. In terms of the process that we're going to go through, like I said, we're going to provide much more information just so people are very clear on the potential financial outcome for them. The feedback we have had that is appealing to some of our homeowners is certainty around the outcome. And many of our homeowners were super clear as they signed the deferred management fee contracts around what they were signing up to. For many of them, the new contract is, from a financial perspective, beneficial. So it's an ongoing conversation, but I would say still too early to call in terms of outcome.

Are there any implications though for service levels if your take-up is low, for instance? I mean, obviously, you have a lot less revenue if you don't have residents taking up this option.

We need to work through that. Our goal is to prioritize our homeowners in terms of the service offering, but we haven't bottomed that out, and that's why that's -- it's both -- it provides certainty for our homeowners and it also provides certainty for us. So there are some of the things that we're working through over the next 3 to 4 months.

And do you anticipate any incentive, be it at an individual level or a community level if people opt in?

That's not our intention. Our intention is to play the merits of both of those offers or the choices that people have in front of them. We think there's pros and cons depending on what people's stance is, but we just want to provide equity across the entire customer base. And so it's really about offering our existing homeowners the same option that our new homeowners are being given.

Okay. Great. And then just a final one. With the upfront management fee, and I'm sorry if you mentioned this on the call, I may have missed it, but do you have a sense as to the percentage that it would be? Or are you still working through that?

Yes. We're still working through that. I mean, like I said, it will be a calculation around net present value, but we still just need to bottom out exactly what that percentage will be.

Next on the line, we have Scott Hudson from MST.

Yes. Just had a couple of questions. Can I just clarify, I think you talked about optimizing sort of the design profiles? Are you going to be offering residents less choice coming in? Is that sort of just a development margin optimization strategy?

It's actually more about uptake. So really taking a holistic view of what designs have been most desirable over the journey and trying to do that both efficiently from a timeliness perspective, cost efficiently from our perspective, but it will be guided predominantly by demand. So what is most attractive to future prospects based on what we've heard from our existing homeowners.

There'll still be sort of a lower volume of choices available just based on pushing people to more popular choices.

Yes. The way I would describe it is that we have a lot of choices at the moment, and we're trying to streamline that across the communities to make it more efficient and actually make the decision process easier for new prospects.

Just in terms of the new pricing model, it's sort of sticking at 80% of the, I guess, the local median house price. How does that sort of compare to the -- or how do you manage that versus, I guess, historically, that view that you sort of price the early parts of the community relatively cheap and then increase price through, I guess, the development phase?

Yes. So our overall intention is to price at that 80% level for new developments. We think that, that is attractive based on the research that we've done and then providing choice in terms of, as we said, the deferred management fee or the upfront option, I think, will be a further financial benefit to people coming in. So in a market that is stronger, we will follow the market up as well, which is a point of difference.

But I guess you could get -- you could have a, I guess, scenario where people buying later in the development are paying a lower price than people who entered into the community earlier.

Yes, we could, Scott. Similar to, I guess, any other property market out there.

Property market. Yes.

I mean, I guess, big recognition is most of our homeowners have been homeowners themselves for most of their lives, and they're very attuned to property cycles. So as much as that's not an ideal scenario, it's just a reality of the market.

And I guess, then Darren, how do you manage that sort of view of developments being cash flow neutral if you're sort of more reliant on, I guess, the pricing cycle?

Yes, it's a good question. So look, we're still aiming to recover our capital through the development cycle, but it might be more portfolio driven. So in a stronger cycle, we'll over-recover a little bit based on pricing up as the market runs. And then in a down cycle, we might under-recover a little bit. But in the fullness of time, our goal is still to recover capital through the developments.

Okay. And then just last one. In terms of the, I guess, Slide 24, that I guess, carrying value impact depending on take-up. So you'll be writing back up the value of the DMF depending on what the take-up is on the new structure.