Stockland (SGP.AX) Earnings Call Transcript & Summary

Welcome to Stockland's 1H '24 results briefing. [Operator Instructions] I will now hand over to Tarun Gupta, Managing Director and CEO, for opening remarks.

Good morning. My name is Tarun Gupta, CEO and Managing Director. Welcome to Stockland's financial results update for the first half of 2024. Before we begin, I would like to start by acknowledging the traditional owners and custodians of the land on which we meet, the Gadigal people of the Eora nation, and pay my respects to elders past, present and emerging. Joining me today is Alison Harrop, our CFO; Andrew Whitson, CEO of Development; and Kylie O'Connor, CEO of Investment Management. I'd like to welcome Kylie for her first Stockland results. Having joined us in November last year, Kylie is responsible for all aspects of our owned and managed operational property portfolio and the associated partnerships. Kylie will be playing an important role in driving our Investment Management business and the acceleration of our capital partnership platform as well as maximizing its returns for both our capital partners and us. I look forward to introducing Kylie personally to many of you in coming days. And as Andrew will touch on, our development opportunities are increasingly mixed use or change of use in nature, requiring cross-sector collaboration and integration. We believe that consolidating our development activities under Andrew's leadership as part of the organizational structure changes that we announced in November, will drive stronger strategic outcomes, greater efficiencies and higher returns. We are now well advanced in the implementation of the strategy that we presented to you in 2021, dynamically reshaping our portfolio, accelerating our pipeline and scaling our capital partnerships to drive sustainable growth. Over first half '24, we have positioned our Communities business to deliver a step-change in production rates in future periods through the acquisition of 12 actively-trading MPC communities for $1.06 billion and the activation of additional MPC and Land Lease Communities within our existing pipeline. This increase in production rates will be predominantly in partnerships, optimizing our capital requirements and enhancing the returns we generate on that capital. We continue the reshaping of our portfolio toward targeted growth sectors and further scaled our capital partnering platform. We delivered strong operational performance from our Commercial Property and Communities platforms, notwithstanding a material second half skew in MPC settlement volumes this financial year. And we have maintained capital discipline. In addition to the MPC portfolio acquisition announced in December, we expanded our LLC platform through the acquisition of 5 additional development projects. These two transactions have increased our capital allocation to the residential sector in line with our strategy, facilitated the further growth of our capital partnership platform. and enabled us to accelerate the delivery of our Communities pipeline, by the end of FY '24, we expect to be actively trading from 66 MPC and LLC communities compared with 36 at the end of FY '23. We expect this increased level of portfolio activation to drive a material uplift in the volumes of affordably priced homes that we are able to deliver in future periods. We are actively recycling our capital to fund this growth. Over the half, we sold $380 million of non-core Town Center assets, redeploying the capital into higher returning opportunities and making further progress towards meeting our strategic capital allocation target for Town Centers. The benefits of the repositioning and remixing of this portfolio over several years are evident in the strong operational and financial metrics that it delivered over the half. Our Logistics portfolio also continues to perform strongly, and we are supplementing its strong organic returns with development upside. We expect to commence construction on the majority of our $1.1 billion active Logistics pipeline over FY '24. High-quality capital partnerships are an essential component of our strategy to drive sustainable growth. And we were pleased to establish two new partnerships in our MPC business over the half. We continue to explore further capital partnering opportunities across our platform. So now turning to the first half '24 financial results. Funds from operations for the period was $266 million compared with $353 million in first half '23, and FFO per security was $0.112. The quality and the capital allocation of our portfolio to stronger sectors has delivered a relatively stable NTA outcome in a period of declining values across the property sector. Our high-quality Commercial Property portfolio continues to deliver strong performance, as does our MPC business. We have seen an increase in inquiry and sales rates over the second quarter. That has continued in the new year. And our LLC business continues to perform strongly, with an increase in first half '24 net sales and continued price growth across active communities. This business is well positioned to grow strongly in future periods. I'm also pleased to report on the progress that we're making in implementing the refreshed ESG strategy that we announced in August last year. Our strategy is designed to be commercially sustainable, combining our scale and innovation to make meaningful impacts in decarbonizing our business, embedding circularity principles across our operations, enhancing our social impact by supporting the continuum of housing and First Nations engagement and strengthening the climate resilience of our portfolio. Over the first half, we announced a large-scale commercially attractive and innovative renewable energy solution in partnership with Energy Bay. This industry-leading initiative utilizes inter-asset trading and will allow us to power our Commercial Property portfolio in Land Lease Communities, with 100% on-site renewable energy generated from solar panels installed across our extensive Logistics and Town Center rooftops. The partnership is expected to make a significant contribution to our net zero targets by abating our Scope 2 emissions and mitigating an estimated 50,000 tons in carbon dioxide emissions annually while providing Stockland with a cost-effective energy solution and delivering solid commercial returns. I'll now hand over to Alison to take us through the financial results in more detail.

Thanks, Tarun, and good morning, everyone. There are a couple of things I'd like to call out before we get into the detail. First, our strong capital discipline has seen us maintain our gearing well within our target range. Our active capital management and access to multiple funding sources has allowed us to increase the pace of our Communities development spend and absorb a material second-half skew in MPC settlements. And second, in an inflationary environment, we've kept our overall overheads across the business flat while continuing to invest in targeted growth areas. We ended the period with gearing at 26.8%, up from 21.9%, and we expect gearing to remain in the upper half of our target range for the full year. Our weighted average cost of debt for the first half of '24 was 5.1%, and we continue to expect it to be around 5.2% for the full year. Our fixed hedge ratio for the half averaged 56%. And for the full year, we expect this to average approximately 60%. We've optimized our debt book for both availability and cost, which has seen us utilizing bank debt for new borrowings and refinancing over the half. This has seen our weighted average debt maturity shortened to 4.1 years versus 5 years at June. We continue to monitor the pricing and depth available across a range of debt capital markets, and we'll look for opportunities to extend the maturity profile over time. Our near-term debt expiry profile is very manageable, with approximately $600 million of drawn expiries between now and June 2025, and we have $2.6 billion of liquidity, providing good forward coverage of expiries as well as funding flexibility for the group. Turning to FFO. You'll note that for the half, we have continued to report using our previous business units of Commercial Property and Communities. For the full year, we will be adjusting our reporting to align with the new operating structure that we announced in November last year, with Investment Management and Development business units. On a pre and post-tax basis, the first half of '24 funds from operations and FFO per security were both down 24.7% relative to the first half of '23. You'll recall that we only returned to an income tax paying position in the second half of '23, so there was no tax expense in our FFO for the first half of '23. There is also no tax expense in this period's FFO result, primarily reflecting low MPC settlement volumes during the half. We continue to expect the full-year effective tax rate to be in the high single digits. Moving to the key line items. Commercial Property FFO was up 2.9% versus the first half of '23. Our Commercial Property portfolio generated comparable FFO growth of 3.1%, and this was supplemented by contributions from Logistics developments completed over FY '23 and the first half of '24. This was offset by smaller contributions from Commercial Property development and management income, primarily reflecting lower levels of [ CP ] development activity over the half. FFO for our Communities segment was well below the previous corresponding period. We expect development FFO for both MPC and LLC to be heavily weighted to the second half and the material second half skew in MPC settlement volumes also flow through to lower development-related fees, reflected in the Communities management income line this period. Unallocated corporate overheads grew by 4.5%, just below inflation. Across our business, we've managed overheads lower in both the Commercial Property and Communities businesses in the first half of '24 versus the first half of '23. For the full year, we expect overheads to be broadly flat across the business. Net interest expense was up materially. There were three primary drivers for this: One, a circa 100 basis point increase in our weighted average cost of debt for the year; two, a higher period average debt balance, noting that this line also includes our share of the interest expense of our partnerships; offset by, three, an increase in the amount of interest capitalized as we progressed MPC, LLC and Logistics development activity. Now on to cash flows. Including payments for land acquisitions, operating cash flow for the period was negative $362 million. Excluding land payments, operating cash flow was positive $67 million, reflecting elevated development spend in our MPC and LLC businesses over the half, along with limited MPC settlement volumes. We expect operating cash flow to benefit from stronger settlement cash inflows in the second half. This is likely to be offset by another half of elevated land payments and development spend as we position the Communities business for higher production rates. Over time, operating cash flow, including land acquisition, should average out broadly in line with FFO, given our focus on cash-backed earnings, but this will vary from period to period, given timing lags when we are scaling volumes up or down and the lumpiness of land payments. So as you can see, we are positioning the business for growth while maintaining prudent balance sheet settings and a sharp focus on costs. I'll now hand over to Kylie to take us through the Commercial Property and Investment Management results.

Thanks, Alison, and good morning, everyone. I'm delighted to be joining you today in the newly created role of CEO Investment Management here at Stockland. I've had the opportunity to visit many of our assets since joining the company just over 2 months ago. What has stood out to me and as you will see in today's results is that the portfolio is high quality and well positioned to deliver solid performance despite the recent volatility across the markets. The capability and expertise of our people is impressive, and I'm excited to be part of the next chapter of growth. The new business line of Investment Management will cover all aspects of our operational property portfolio, with an overlay of strategic asset management and focus on the upscaling of our platform to accommodate future growth in capital partnerships in line with strategy. The Commercial Property numbers are the result of the work done over the last few years to remix and reposition the Town Center portfolio and divest non-core assets, our high-quality, well-located Logistics portfolio and associated development pipeline, the planning, delivery and capital partnering of Workplace and living projects and the deep capabilities of the team. The $10.6 billion Commercial Property portfolio delivered 3.1% positive comparable FFO growth over the period. Contributing to this result was strong growth from our Logistics portfolio, underpinned by continued tenant demand and positive leasing spreads. Occupancy remains high across Logistics and Town Centers, while our Workplace portfolio delivered 2.8% comparable FFO growth despite a reduction in occupancy as a result of market conditions and assets being prepared for redevelopment. Lower development income reflects staging of MPark and decreased contribution from build-to-sell Logistics projects, while the reduced management income is due to lower development-related fees. Looking at valuations, cap rate expansion across the sectors was largely mitigated by strong income growth, which reduced the impact to a 0.5% decrease compared to June 2023. Over the 6 months to December 2023, 69% of assets were independently valued, resulting in an expansion in cap rates of 28 basis points. This expansion reflects some transactional evidence and market movement. However, the strong rental growth across our portfolio materially offset the impact. This was particularly evident in Logistics with growth of 2.1% across the portfolio despite a movement in cap rates of 46 basis points. Our Logistics portfolio delivered very strong performance with comparable FFO growth of 6%, underpinned by positive leasing spreads of just under 40%. This result reflects the high-quality nature of the portfolio and the assets benefiting from access to strong market rental growth. Occupancy remains consistently high at close to 100%, with a significant amount of leasing completed over the period. The portfolio WALE at 3.5 years allows us to capture further rental growth, as will the ongoing delivery of the development pipeline. Completions at Ingleburn, Leppington and Truganina contributed to our positive results during the period. Our Workplace portfolio at $1.9 billion represents a lower exposure to this sector, with the majority of assets positioned for future redevelopment. While these assets are strategic holds with significant future value, commencement of work will be subject to a favorable view on markets and adequate risk mitigation, such as precommitments and capital partners. Andrew will speak to these opportunities in more detail. Comparable FFO growth of 2.8% represents increases in rent from existing leases, with lower re-leasing spreads and portfolio occupancy reflecting challenging market conditions. The increase in WALE from 4.4 to 5.6 years reflects completion of buildings A and B at MPark. Our Town Centers portfolio delivered FFO growth of 2.1%, underpinned by strong leasing spreads of 3.5%. The higher weighting towards nondiscretionary categories within our smaller portfolio has underpinned the performance. Occupancy remains high at over 99%, with retailer occupancy costs sitting at a sustainable 15.1%. We have continued to optimize the portfolio, finalizing circa $380 million of non-core asset disposals and continuing the re-weighting towards high-performing assets and essential-based town centers. Our Town Center FFO has been impacted by continuing increases in nonrecoverable outgoings, including statutory expenses, energy and insurance, with these categories expected to remain elevated in the short term. The portfolio continues to trade well, with comparable sales growth of 5.4% and specialty sales growth of 2.6% compared to the prior corresponding period. At $10,400 a meter, our specialty sales are above benchmark. Retail sales have moderated across the market generally, and we have observed this within our portfolio. However, as mentioned, the positive result is a reflection of a high weighting to essentials-based categories, with more than 70% of turnover across our portfolio coming from this sector. This has allowed us to access uplifts in rent while maintaining occupancy costs within our retailer base. Overall, I'm very positive about the performance and opportunities within the Commercial Property portfolio. Our teams have worked hard and have been effective in executing this strategy, which has set the portfolio up to extract further value and continue to deliver performance through market cycles. Looking forward, our focus will be on harnessing the new operational structure and establishing a fully integrated investment management platform. I'm really excited about the momentum the team has already established in our existing capital partnerships and the prospects to further scale the platform. Thank you, and I will now hand to Andrew.

Thanks, Kylie, and good morning, everyone. Over the past 2.5 years, our relentless focus on executing our strategy has resulted in material progression of our development pipeline. This positions the business to ramp up production over the next 12 months to take advantage of a potential recovery as it emerges. One of the compelling attributes of Stockland's diversified platform is the number of cross-sector development opportunities that are embedded in our portfolio. Our strength in Masterplanned Communities has allowed us to rapidly scale up our Land Lease Communities business. We've also demonstrated our ability to secure Logistics development sites from within our existing MPC portfolio. Our Workplace portfolio is largely an income-producing mixed-use development pipeline. And we also have a deep pipeline of community real estate development sites, which support essentials retail, health and education uses. Our near-term development focus within CP development is the delivery of our $1.1 billion active Logistics pipeline. We expect to commence construction of the majority of these projects over FY '24, generating a targeted yield on cost of approximately 6%. The next wave of commencements is skewed towards Sydney and Melbourne and is positioned to take advantage of strong population-induced Logistics demand. Turning to our Communities segment. As Alison has touched on, the Communities contribution was down this half, reflecting the material second-half MPC settlement skew that was called out in August and the timing of profit on transfer of Land Lease Communities into partnerships. Now on to the results for our MPC business. Settlements in the first half were in line with expectations, and we're on track to deliver 5,200 to 5,600 settlements for the full year. We continue to expect our margin to be in the low 20% range for the full year as our geographic mix of settlements normalize and volumes increase in the second half. We saw a further moderation in construction cost inflation over the half, and the rate of cost growth has now returned to normalized levels for both civil works and home building. The recent stabilization of interest rate outlook has led to a noticeable pickup in inquiries, and we've seen this start to translate to some improvement in sales. This has driven improvement in our sales rate for the second quarter that has continued into the new year. With early signs of a market recovery, we believe the MPC portfolio acquisition that we announced in December represents a compelling opportunity to strategically restock our pipeline at an attractive point in the cycle. We're currently working through the regulatory approval process. The acquired portfolio has the potential to drive around 2,500 additional settlements from FY '25. We're also launching additional projects from our existing pipeline, with a focus on bringing more product to market in future periods and playing our role in addressing Australia's chronic undersupply of affordable housing. Whilst production time frames remain elongated, we've seen a steady improvement in the time between sale to settlement over recent periods. We currently have around 5,400 lots under production, providing good coverage of our near-term settlement targets. The medium-term drivers underpinning the residential market remains supportive, and the stabilization of interest rates is driving increase in both our inquiry levels and, to a lesser extent, conversion rates. Southeast Queensland and Western Australia are currently the strongest markets, reflecting their relative affordability advantages and positive net interstate migration. We expect to see further volume improvement in New South Wales market over the next 12 months and some price growth, although this is constrained by ongoing affordability challenges. The recovery in Victoria is lagging other states, but we do expect pent-up demand to translate to high volumes and see some modest price growth. Turning now to our LLC business. We expect the FFO contribution from LLC development to be weighted to the second half of this financial year. We have good earnings visibility, with 474 contracts on hand at an average price of 9% above first-half settlements. Demand for our Land Lease product has remained strong, with sales rates increasing each quarter since late FY '23. We're also seeing price growth for new stage releases, a normalization in the rate of construction cost inflation and strong operating metrics for our established portfolio. We've positioned our Land Lease business as a key driver of growth for the group in future periods, and our focus is on accelerating the release of additional communities. This will see us trading from up to 17 communities by the end of this financial year compared to 5 at the end of FY '23. We see the potential for our newly acquired MPC portfolio to add around 2,500 additional LLC home sites to existing pipeline. In summary, the development business is well positioned to take advantage of the market recovery as it emerges, with a focus on three key near-term priorities. First, delivering FY '24 settlement target for MPC and LLC and our active Logistics pipeline. We are well advanced on all three fronts. Second, accelerating the activation of our MPC and LLC pipelines to drive a step-change in production in future periods. And finally, progressing additional mixed use and adjacent opportunities across our portfolio to ensure that we're maximizing the value of our asset base. I'll leave it there and hand back to Tarun.

Thank you, Andrew. So in summary, the consistent execution of our strategy is driving strong operational and financial outcomes, as reflected in our first half '24 results. Our Commercial Property portfolio is well positioned. Our Town Center portfolio's resilience in a moderating consumer environment is underpinned by its high weighting to essentials categories. And our Logistics portfolio is benefiting from strong supply-demand fundamentals for high-quality, well-located assets. We are seeing early signs of residential market improvement, and we are positioning our Communities platform to deliver materially higher rates of production in future periods, leveraging an expected MPC market recovery and the structural growth drivers that we believe underpin demand for high-quality, well-priced LLC product. We are pleased with how we have delivered on our strategic priorities over the half. While we will be continuing our focus on executing the strategy, we are particularly increasing our focus on production and delivery and on extracting value from our repositioned portfolio. Finally, our disciplined approach to capital management and access to third-party capital provides us the flexibility to fund an increase in production rates across targeted growth sectors while maintaining a prudent balance sheet position. We are maintaining our guidance for FY '24. FFO per security is expected to be in the range of $0.345 to $0.355 per security on a pretax basis, with tax expense expected to be a high single-digit percentage of pretax FFO. The distribution per security is expected to be within our targeted payout ratio of 75% to 85% of post-tax FFO. We'll now open the lines for questions and answers.

[Operator Instructions] Our first question today comes from Tom Bodor from UBS.

Alison, Andrew and Kylie, just was interested in the comment around the mixed-use and Workplace development pipeline. Is there -- a comment there around maintaining optionality. And I just wanted to understand, would you look to sell those Workplace projects, if you could? And what's your thinking on mixed use?

Yes. Thanks, Tom. Yes, the focus with that pipeline is adding value as we go through the approval processes. They're strategically located when you think about Macquarie Park, North Sydney and Central Sydney. So we think there is an opportunity to continue to add value, and that maintains our optionality into future periods, and it also adds value to our asset base. So that's the real focus of the business right at this stage. We obviously continue to assess all options to add value in the best interest of security holders.

Okay. And just within that, what's the thinking around [ BTR ] and the [ build-to-sell ] apartments? Are you sort of looking into these projects actively? Or have you got enough on your plate with MPC and Land Lease?

From a strategic perspective, Tom, obviously, build-to-sell apartments when you look at the spread to the established house prices, they're at record levels. And we see as our cities continue to densify that that's a strategic opportunity. But I think as we've said in the past, that's more of a medium- to long-term opportunity for us. We've got a pipeline within our existing land bank of some near-term opportunities, but I would think about that more in the medium to long term.

Okay. And just a final one on the capital partnering across logistics and retail. What's sort of time frame are you looking at with respect to those potential partnerships?

Tom, we were pleased last half, we've launched two new partnerships in Communities. So we continue to make progress. Retail, logistics, further partnerships in a living platform, they are all focus areas for us. And I think it just depends on what opportunities we have and also the capital markets outlook. So we continue to work on all those strategies as we flagged, and we put some runs on the board last half.

I think the stuff you've done recently, though it's been more development based, I mean, is the appetite for core product at this point in time? Or is it more on the development side you're saying?

Yes. I think we are much more developed to core platform, right, across even in Logistics, in essentials retail. We've got a number of shopping centers coming up for development. So we will be -- and that's where current capital, as you would appreciate, capital is a bit cautious at the moment. But where they are investing, it's more in the higher risk of developed to core -- development is where we're seeing demand for capital. So that's where our nearer-term focus will be. Not to say that with cap rates starting to expand in some sectors like retail, there could be opportunities for some more core partnerships as well.

Our next. question today comes from Lauren Berry from Morgan Stanley.

Got a question around how we should think about land payments going forward. I mean, you've traditionally put $400 million to $500 million of capital towards land payments a half. Will that kind of come off now that you've got the Land Lease Communities acquisition settling and you're much more exposed to the residential segment?

Yes, you're right. We do -- we have, in the past, spent $400 million, $500 million every year. I guess the way that you have to think about that, obviously, we are committed to some of that out into the future anyway. So regardless of the acquisition that we made and we -- recently, we're still committed to certain amount of that into the future. So it will continue for the next few years. I mean it is -- it does vary. As you know, it can be particularly lumpy. It's often dependent on conditions precedent and so on. So it's a little hard to be exact in that forecast, but there will continue to be land payments through our cash flow into the future yes.

And Lauren, just to build on that -- yes, restocking. Just -- I was just going to build on that. Obviously, the Supalai partnership, the future land payments will come through that partnership, the structured deal we've done on that portfolio. And restocking for the business, we've done pretty well, last 12 months. As we flagged, we were looking to redeploy the balance sheet from here on. We -- our focus is on delivery and execution. But again, we're an active business. We sell and settle a few thousand lots every year. So selectively, we'll look at things, but our focus is shifting, as I said, to delivery and production.

My other question is around sales rates. How should we think about resi sales rates from here, now that you've got Land Lease Communities and activating another -- a couple of other residential projects? You've given a medium-term target for Land Lease of 1,000 lots. Just wondering, what you would think about for Communities?

Yes. Thanks, Lauren. Probably a couple of building blocks to think about when you're thinking about total land sales moving forward. We're sitting there at the moment. Around 1,200 a quarter last quarter. You look at where that growth has come from. It's Queensland, New South Wales and WA, this step-change from here is going to depend on the rate of recovery in Victoria. We've spoken about from our core portfolio in the past, that 5,000 to 6,000 range. And then we've spoken about the Land Lease portfolio delivering 2,500 from FY '25. Clearly, if we get further improvements in market -- underlying demand with market conditions, we've got the opportunity to deliver more.

Our next question today comes from Sholto Maconochie from Jefferies.

Just following up from Lauren's question on the sales and settlements. I think you're up 23% year-on-year and [ 6% to 10% ] quarter-on-quarter at that 1,200 rate. Is that how you're thinking about sales going forward until Victoria improves? Is sort of in line with 1Q [ '20 ] sort of stabilize at this level, so we think that's sort of a stable level going forward for sales?

Yes, Sholto, it's going to be around that level. We've obviously started the year with some -- a good step-up in inquiry that we've seen. That's driven some improvement in sales, but you'd still you'd still not say it's at a normalized level of conversion. So we're still in the early stages of that recovery. And as I said, the three states ex Victoria are performing reasonably well, and [ Vic's ] lagging.

Okay. And then just on the guidance, as you've got about -- on the midpoint is 70% the second-half skew, which you already flagged. Does that include any Land Lease settlements in that number? And are you assuming anything from the Land Lease acquisition this JV in this financial year?

Thanks, Sholto. So as you appreciate, we're still going through a bit of a process with that acquisition, so the number of settlements and the impact on guidance is very limited. So it's not a material amount for FY '24. Obviously, '25 will have a much bigger impact. For '24, it's really not material to that guidance range.

Okay. And then just on -- I think you just touched on the production. It's obviously -- you've got more land payment, and Land Lease efficient gearing is going to be towards the top end of the range. Is there any asset sales you're looking at doing across the business in -- of retail, office and Logistics at all?

Yes, Sholto. As you've seen, we're now redeploying capital into our growth sectors living in Logistics, quite -- and then we've got quite a clear path over the next couple of years into production. So we'll be continuing to look at some recycling of capital out of our other sectors. But also, as we've shown, capital partnerships is the other path for us to continue to introduce capital, improve ROIC and generate more management fees. So when we look out the balance sheet capacity, access to third-party funding and recycling ability, we have our assets that are very salable, as we just demonstrated. We feel pretty confident about managing our capital requirements, going forward.

Great. And then just one final one for Kylie. I know she's new in the seat. But the Workplace taken MPark out with the North Sydney one, a new head office, workplace is a pretty small part of your capital. Is it really something -- would you look to get out of that category outside of MPark? Is it some -- have you got a view on that? And I know you're in new in the seat, but have you got a view on the Workplace strategy?

That's okay. Thanks, Sholto. Yes. Look, as I mentioned, the majority of the assets in that portfolio are strategic sites and held for redevelopment. So I think we -- as Andrew mentioned, we will continue to look at what the opportunities are. There could be varying opportunities for those. I think we're quite comfortable with the weighting that we're at, at the moment and really focusing on what the opportunities are across those sites.

Our next question today comes from Richard Jones from JPMorgan.

Just -- Tarun, just wondering if you can comment on the ACCC inquiry, and just how you think you're placed in relation to that? I imagine you've done a fair bit of work prior to the acquisition on whether that would be an issue, and what impact it may have on settlement timing?

Yes, Richard, as we've flagged and has been reported, the ACCC and as part of our regulatory approvals with FIRB, they're going through a review process. That needs to run its course. Best guess is around April when we hear the outcomes of that. So I think it's best to wait for that process to finish before we can comment on outcomes.

Okay. But any comment just on kind of work that you've done prior or as part of the acquisition process around market control and dominance in catchments that...

Yes. Again, Richard, I think we're in a regulatory process, and we've got to respect that for the time being.

Okay. Fair enough. Just one for Andrew. Just in relation to the MPC sales in the second quarter, can you just clarify what proportion of those are unconditional, as in not subject to finance?

Yes, Richard, for the overall quarter, I have to get you that specific figure. What I can say is for all of the contracts on hand, we're running at above 70% unconditional, but I don't have the figure for the second quarter isolated within that. We'll come back to you, we'll get that number.

Our next question comes from Suraj Nebhani from Citigroup.

So just a couple of quick ones. So firstly, on the commercial development for you, Andrew. You highlighted the $1.1 billion development pipeline. Can you just confirm for me the expected completion timelines over here, please?

Yes. So with regards to this financial year, it's going to be just around $100 million for FY '24, and then we've got a number of completions in the first half of [ $25 million ]. But moving forward, you'd think around that $400 million range would be a reasonable estimate. Yes. Exact timing is obviously dependent more on planning approvals. Yes, there's a couple of key strategic sites within our portfolio of working through that approval process, but you'd use those sort of metrics to think about moving forward.

Sure. And the primary reason for delay is planning approvals for FY '24, is that right? Or -- trying understand the reason for...

Yes. So there's been some elongation in those construction programs, but that's just pushing it out from last quarter '24 into the first half '25.

And I think the second one on the mixed-use project. Just trying to understand that a bit better. I know there was a question earlier about this. How near term is that an opportunity? And how should we think about that with respect to when it starts coming through?

There's a range of different projects that we put within that opportunity basket. When you think about MPark, I use that as an example, we've got 4 properties within that MPark precinct. There was the announcement around the upzoning at MPark for mixed-use opportunities in November. . We're working with the state government to maximize our asset base there and leverage those opportunities. So we'll be going through an approval process, and then each site has got its own pathway. But yes, you'd be thinking about more of those opportunities over the medium term.

Any that you would want to flag near term, I guess, over the next couple of years?

No. They're all, as Andrew said, value-adding opportunities, but we are likely to start anything for 2 to 3 years at the earliest. It all depends on planning, and we're working through it. But the key point is almost all our sites that -- in Sydney are now very close to our own metro locations. And as you know, the state government is focused on increasing density, mixed-use housing on those locations, so assets are quite well placed, and we are working with the authorities to master-plan those right now.

And just one final one for me. The federal government legislated this shared equity scheme late last year. I'm just wondering if you're seeing any, I guess, benefit or any buyers who are taking up those equity scheme benefits or if you can quantify the demand from those kind of [ buyers ]?

Suraj, we don't get exact visibility to the numbers that are broken down, but we have seen an improvement in first home buyer numbers. We've seen a pickup in first home buyer numbers because together with that, you've had the doubling of the first high amount of grant in Queensland, which is read through to some immediate demand from first home buyers. And then you combine that with some of the federal government schemes, and shared equity is one of them. It has driven an improvement in first home buyers, but still sitting well below longer-term levels of around 50% for us historically. We've ticked up into the mid-30s, but still not back to what we'd consider a normalized level. And that's what we see the big -- when you think about pent-up demand, unlocking that is going to be one of the big opportunities.

[Operator Instructions] our next question today comes from James Druce from CLSA.

Question for Andrew. Just wanted to talk about the contingency that you have for the second-half skew. I remember last [ point ], you had a decent buffer. Can you just talk to what you have this year?

Yes, yes. Sure, James. I think the -- one of the benefits of the second-half skew this time is it's more in April and May than June when we look at that settlement profile while still back ended, and we're working hard to get that more normalized in future years. We've got it forward marginally from prior years. So that's one thing to note. With regards to contingencies and rebates that we're carrying for wet weather, we're carrying reasonable contingencies still in the 2- to 4-week range, depending on project, depending on location. And then we're carrying about $10,000 per lot for lot settling in the fourth quarter. So that's around a $30 million allowance that we could utilize to manage settlements together with an allowance for pushouts and defaults that are at similar levels to last year. So all of that gives us confidence that we're going to be -- deliver within that range that we've guided.

Fantastic. Is there anything that you're looking at for different previous averages, I suppose, in terms of [ superlot ] revenue? Do you have a feel for what that will be in the second half?

Yes. And I think we said previously, it's going to be up on prior years. We've got a couple of nonresidential lots that are likely to fall in this year. The exact range depends on timing of these -- of the settlement of these opportunities, but that's what it's looking like for the full year.

All right. I was interested in your comments around price growth in land. It sounds like you're getting a little bit at the moment. Is that net of incentives? Or is that really a [ phased ] basis? And if it is on a net basis, can you give us the numbers on a net basis?

Yes. So on a net basis, it varies by state. In Victoria, we're flat. And then we've seen across the rest of the country, in the mid-single-digit range, with Western Australia being the strongest. That started the recovery probably earlier than the other states. And then we've seen Queensland and WA following. With regards to incentives, we've run we've run a January campaign, as we normally do, which had targeted incentives applied to certain stock. It wasn't a broad-based offer across the marketplace. And depending on the state, that ranged in the 10,000 to 20,000 range. That's pretty normal for us to run some sort of select campaign to start the new year.

Our next question comes from Ben Brayshaw from Barrenjoey.

I was just wondering if you could discuss the, I guess, the rationale for committing to the $1.1 billion in Logistics projects. And also, if you could touch on -- I mean, you just committed to acquiring a joint venture Land Lease Communities. Does the balance sheet have enough flexibility to deliver the pipeline for Logistics as well?

Yes. Yes, it does. As I said before in another question, we've got we've got a number of levers that we continue to pull. And again, it's third-party capital, we've got continued non-core assets that we are looking to either recycle into partnerships or [ settle ] down. . So yes, we have, regard to all that, as we make forward commitments. Obviously, not everything is committed at once, we have staged commitments, and that's the, I guess, feature of our pipeline. If you look at Land Lease, MPC and even Logistics, we are incrementally committing. So if capital markets turn or they are not in the -- as favorable, we can always slow down because we're not committing to 5-year high-rise developments. These are stage developments of smaller assets.

Sorry, Ben, I was just going to add to that. When you think about the Logistics pipeline and what we've got under construction, what's completing this year, 100% precommitted. And then moving into next year, it's sitting at about 40% at the moment. So we will lease that up progressively. So it's been significantly de-risked.

And just on the target yield on cost of [ 6% ] just revalued your existing portfolio at 5.3%, are you comfortable that there is enough margin in that backlog to reflect the risk?

Yes. And that's the average number for the existing pipeline that we've got under active development. we're looking for future developments to grow that above 6%. With regards to where rents are, looking at construction costs and being obviously cognizant of where cap rates are, we'd be looking for that to be above 6%.

Your next question today comes from Alex Prineas from Morningstar.

A few of my questions have been answered. Just on the retail portfolio, can you just comment on what arrangements you have with the supermarkets? Are they typically paying rent linked to turnover? And where you've signed new leases perhaps with supermarkets? Are the terms pretty similar to existing leases that you already had? Or is there any kind of evolution in the type of leases that you're signing or links to sales or turnover?

Yes. Thanks, Alex. So typically, with our supermarket and major leases, there is a base rent that we agree at the beginning, and then there's also a provision for turnover rent during the term of the lease. What happens on renewal of those leases is generally whenever there's turnover and payable in that first term, it's crystallized into new rent, into the base rent upon expiry or upon the end of that term. It hasn't really changed. That's -- we're continuing to do those type of deals, where we get base plus provision for turnover rent. I suppose there's a negotiation around what the level of turnover rent where that kicks in. But generally speaking, we've got a very strong portfolio of assets on the essential side of things and where you've got high-performing supermarkets, they're looking for tenure. And so we're able to negotiate rent reviews along those same lines.

Okay. And then just more broadly on the retail portfolio in general, not just the supermarkets, but across everything, can you just provide a bit more and sort of any comments on the outlook beyond maybe over the next 6 months and beyond as well? In terms of -- clearly, it has been delivering pretty good results in terms of tenant sales and positive leasing spreads and so on. Is that expected to be maintained?

Yes. Look, we're watching that pretty closely, given some of the cost-of-living pressures and pressures on consumers. But we've had, I think, it's about three consecutive years of positive leasing spreads from our Town Center portfolio. And that really dug those towards, that weighting of 70% of the discretionary -- nondiscretionary area. So we're still pretty positive. We think that there may be a slowdown slightly towards the end of this year. And looking at maybe next year with the effect of some of the tax cuts coming in, might help offset some of that. But we're still positive that we'll see that similar level of sales growth across our portfolio.

Thank you. There are no further questions.

Great. Okay. Thanks, everyone, for joining and for your questions. We look forward to talking to you all as we commence our roadshows. So thanks again, and we'll see you shortly.

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