Winton Land Limited (WIN) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Winton Land Limited FY '24 Annual Results Briefing. [Operator Instructions] I would now like to hand the conference over to Chris Meehan, CEO. Please go ahead.

Thank you. Good morning, everyone. Welcome to Winton's FY '24 Annual Results Call. It's a pleasure to be here today, and we appreciate you taking the time to dial in. Alongside me, we have Jean McMahon, who's Winton's Chief Financial Officer. Today, I will start off with a bit of a business update and then hand over to Jean for the financial overview. Then I will finish with the ESG outline and a few slides on the market and future outlook. We'll also take a few questions at the end, but investors and analysts can add themselves to the question queue at any time. So during FY '24, Winton's longstanding pre-sale strategy has served us well. And 345 units were settled, delivering $173.6 million in revenue. This is down 21.5% from the $221.1 million of revenue in FY '23, reflecting the prior year having been a significant year of delivery for residential development as well as the current difficult market conditions in a difficult market. However, we have maintained our development margin of in excess of 40%. Similar to the decline in the reported half year FY '24 results, earnings before interest, tax, depreciation and amortization of $29.5 million and profit after tax of $15.7 million were down 69.1% from the $95.6 million and 75.6% from the $64.6 million, respectively. As of June 30, we had a landbank yield of approximately 6,000 units and cash holdings of $41.7 million, 23 current projects across 12 masterplanned communities and our pre-sale book currently sits at a healthy $411.7 million. It's fair to say that this year's financial results don't fully capture the resilience and progress that the Winton team has delivered in FY '24. Despite a difficult market and very challenging economic conditions, we've continued to settle pre-sold properties, complete new projects and diversify our revenue streams. This steadfastness is a testament to our commitment and our ability to navigate the cyclical nature of the property market to our advantage. Some business highlights. We now have resource consent in place for all 5 Northbrook locations. We continue to add to pre-sale book to protect future revenues. We've opened Ayrburn to the public in December 2023 and had over 150,000 visitors year-to-date and just recently held our first mid-winter Christmas Wonderland at Ayrburn, attracting very, very high visitation. We launched the sales at Northbrook Wanaka and Northbrook Arrowtown during the year, adding to Northbrook Wynyard Quarter that launched at the end of FY '23. We won the Best in Category for Tourism & Leisure Property, NZ Property Council Awards, as well as an Excellence Award for the Heritage and Adaptive Reuses category. We continue to make progress along our ESG journey, with a lot of focus this year being on meeting the XRB Climate Standards and disclosures, which we have also released today. And we've appointed Guy Fergusson to the Winton Board. Guy is as a member of the Audit & Financial Risk Committee and the Nomination & Remuneration Committee. Guy has been a great addition to the Board and brings vast experience in corporate finance and capital markets. Our landbank pipeline has an expected yield of approximately 6,000 units, including 872 retirement units. Revenue for FY '24 from residential development was $162.5 million and EBITDA of $45 million attributable to the 345 units that were settled, made up of 158 units in the first half of the year and 187 million in the second half. So main FY '24 settlements include part of Stage 3 at Lakeside, Te Kauwhata; Stages 11 to 5 -- 11 to 15, rather, at Beaches, Matarangi; Launch Bay Townhouses at Hobsonville Point; Stages 3 to 6 at North Ridge Cessnock in Australia; some land in Parnell; dwellings at River Terrace in Cromwell and Northlake Wanaka. We settled the Stage 17b Northlake apartments, some commercial units and Stage 1 of the ALTA Villa Townhouses. The product mix in FY '24 was different compared to FY '23 as it included a lot more built product. This has increased the average revenue per unit to $470,000 in FY '24, up from $374,000 in FY '23. As a result, the average cost of sales per unit has also increased. We're pleased with this year's settlements, which reflect the success of Winton's long-term pre-sale strategy. A core part of Winton is unlocking land value from masterplanned neighborhoods and development projects. In FY '24, Winton continued the momentum with value-creating outcomes on a number of its projects. At Northlake Wanaka, the private plan change for Stage 18 at Northlake was approved, increasing the yield of this stage by 24 lots from previous assumptions, providing a total yield in this stage of 125 lots. At Ayrburn, rezoning has been approved to enable 7 prestigious residential lots. Resource consent was also granted for Northbrook Arrowtown in November, including the adjacent hotel. There's a significant milestone in unlocking value for the overarching Ayrburn precinct masterplan. Resource consent was also granted for Northbrook Launch Bay in September 2023. Winton is continuing to progress the consents for the 56 hectares of property currently zoned future urban at Sunfield in Papakura. At Northridge in Cessnock, Stages 1 to 6 are now complete and all available land lots are sold and settled. Resource consent is now underway for future Stages 7 and onwards. At Launch Bay, Hobsonville Point, Winton's waterfront masterplanned neighborhood that has been many years in the making and have seen Winton deliver 7 residential projects to date. Jimmy's Point is a high-end waterfront project with 30 apartments, but nearly 50% of those apartments are now presold. During FY '24, construction progressed at pace and the internal fit-out is all but complete in the apartments, and landscaping works are nearing completion also. This will be an exciting project to deliver in FY '25, and the Winton team looks forward to welcoming the new residents into the established and thriving Launch Bay community. At Northlake, Wanaka, it's been a big year of delivery. The Northlake team was pleased with the high-quality product that was delivered to buyers. The land lots within Stage 17b were completed in FY '24, and Stage 17a will be completed and settled within first half FY '25. Design and consenting work progressed on Stage 18 and construction will commence during FY '25. The Northlake apartments and commercial units underneath them were completed and settled, with only 2 commercial units that remain. And the construction of the ALTA Villa Townhouses have been a significant undertaking, and it's been great to share the premium finished product with potential buyers as they've been completed. Of the 24 completed homes, only a handful now remain to be sold. The Beaches development in Matarangi is now complete, and we look forward to marketing the final 20 lots or so over the summer period. Winton's delivery at Lakeside, Te Kauwhata has continued following the completion of the village center in '23. Stage 3B and 3C continue with services, drainage, roading and footpaths, and the tender for the Stage 4 civil works is well underway. The Northbrook Lake's Luxury Living is starting to carve its niche in the retirement market. It demonstrates a unique offering we've not seen before in New Zealand and is evident it is attracting residents who have never contemplated a traditional retirement village as an option for their low-living years and are drawn to the Northbrook lifestyle. During FY '24, Winton opened display suites on 2 more sites, Northbrook Wanaka and Northbrook Arrowtown. These are now in addition to the Northbrook Wynyard Quarter display suite, which opened in June 2023. All 3 villages are now registered under Retirement Villages Act of 2003. The pre-sales launch at Northbrook Wanaka in September 2023, along with the display suite, allowing potential residents to view to 2 full-size residences, one 3-bedroom and one 2-bedroom. Northbrook Wanaka is part of Winton's established Northlake neighborhood, and once finished, it will have 96 Northbrook residents and 32 Northbrook care suites. A well-known and reputable contractor has been engaged to start -- to construct Stage 1 of Northbrook Wanaka, consisting of 28 2- and 3-bedroom residences as well as the central facilities. Construction is progressing quickly, and the contractor works towards a May 2025 completion when the first Northbrook Wanaka residents will take occupation. The Northbrook Arrowtown display suite opened in late May 2024 and pre-sales have commenced. The full-size 2-bedroom apartment and sales office has an architectural model of the entire project and is located directly adjacent to the Ayrburn restaurant precinct. Northbrook Arrowtown will have 142 1-, 2- and 3-bedroom residences and 28 Northbrook care suites. Resource consent has been granted, and Winton has submitted a variation to this resource consent that includes some practical adjustments throughout. Civil works and landscaping continue on site and works for Stage 1 buildings are expected to commence early in 2025. At Northbrook Wynyard Quarter, early works and site preparation are now complete, and the main works contract negotiations are well progressed. The continuance of the piling and basement construction was delayed from February '24 due to industry-wide issues and Auckland Council consenting processes, which has resulted in us making a tough but necessary decision to change the structural engineers for the project to the Robert Bird Group. Basement construction will commence in first half 2025, with practical completion remaining on schedule for FY '28. A snapshot of the Northbrook portfolio covering what I have discussed is above. Our commercial activities include Winton's investment in properties such as our Lakeside Shopping Center and on Cracker Bay precinct and the operating businesses at Ayrburn and Cracker Bay. Revenue for this segment includes rent and hospitality revenue. In FY '24, commercial revenue was at $11 million, up from $3.7 million in FY '23. The Cracker Bay brand was launched in FY '24 and encompasses the Cracker Bay drystack and marina, the Cracker Bay offices, and eventually, the Cracker Bay restaurant hospitality precinct. It's a core part of the wider masterplan that complements the Northbrook Wynyard Quarter and The Villard precinct. The Cracker Bay drystack and marina are a prime location for convenient boat storage and launching. When Winton took over ownership of this facility, the drystack was in a much needed refurbishment to align with Winton's standard and vision for the area. Refurbishment of this drystack building is now complete, and the business has been reset to offer a best-in-class service. Renovation and refurbishment of the neighboring Cracker Bay office building have continued throughout the year and expected to complete in the first half of FY '25. Once finished, it will offer premium waterfront facilities for office tenants across 4 levels and add to our rental income pool. The building is leasing up well. The vision for the hospitality precinct is exciting and includes multiple dining venues, private functions, facilities and a members club. Good progress is being made in the resource consent for the remainder of the site. However, like Ayrburn, time is taken to get the design and the consenting right. Winton opened the first stage of Ayrburn to the public on Saturday, 9th of December 2023. There's 5 different venues to cater to different tastes and occasions, from sunny courtyard dining at the Woolshed, wine tasting in the Manure Room, sweet treats at The Dairy, cocktails at The Burr Bar, to a multitude of events and entertaining options in The Dell. In February '24, The Barrel Room was added to the venue list targeting private events and feast-style dining, with 56 wine-aging barrels lining the walls and the grand piano as the centerpiece. Since opening Ayrburn, well over 150,000 people have visited, and that's been a diversified mix of visitors from all ages, demographics and from all over the world. Locals, New Zealand residents and visitors from Australia collectively make up the majority of visitors to date. Ayrburn has also held many events so far, including private functions and activations created by Ayrburn. More recently, Ayrburn held its inaugural mid-winter Christmas Wonderland, which attracted over 20,000 people during the month of July and, by all accounts, was a successful and well-loved initiative that will continue in future years. We're very happy with the traction of Ayrburn so far, but still a lot to do. The Ayrburn masterplan has been designed to uplift the value of the neighboring Northbrook Arrowtown and Winton non-residential land that forms part of the wider Ayrburn precinct. In FY '25, Ayrburn will expand further with the opening of Billy's, The Bakehouse, RM's Butcher, and construction will start on Northbrook Arrowtown. I'll now hand over to Jean for the financial overview.

Good morning, everyone, and thank you for joining us. As Chris mentioned, we are very pleased to report our results for FY '24. Winton has delivered revenue of $173.6 million in FY '24, 21.5% down from $221.1 million in FY '23. A total of 340 units were settled, a decrease of 220 units. Cost of sales of $103.3 million is slightly higher than FY '23 by $0.6 million. This is largely a result of the 12.7% increase in built product settled by volume in FY '24, which has a higher cost per unit in land lot sales. In FY '24, Winton opened Ayrburn and continue to generate annuity income from Lakeside Commercial and Cracker Bay, generating a total of $11 million revenue for the period. A fair value loss of $1.7 million results from the revaluation of commercial assets in retirement land within the investment properties portfolio. This compares to a gain of $6.8 million in FY '23. The movement results from the timing of consents granted, the properties being revalued and the original purchase price of the underlying land. Administrative expenses increased by $11.3 million in FY '24, $7.5 million of this is due to increased employee benefits with an increased head count in FY '24 to support Winton's growth in new operating businesses. Establishment costs of $2.7 million were incurred in relation to the preopening of Ayrburn, and these include branding, marketing, recruitment and employee training. The remainder of the increase is due to the growth of Winton's operations and some inflationary pressures. Selling expenses were lower in FY '24 by 26.7% due to reduced sales commission and marketing spend. The FY '24 results include a one-off, noncash deferred tax liability adjustment of $2.9 million arising from a change in tax legislation that came into effect this year and relates to the depreciation of building. This liability does not reflect taxation payable if the assets were sold. The resultant net profit after tax in FY '24 is $15.7 million, a reduction from $64.6 million in the prior year. An increase in property, plant and equipment of $39.3 million since FY '23 represents significant investment in Ayrburn, while an increase of $69.9 million in investment properties represents progress at Northbrook Wanaka and Wynyard Quarter as well as the redevelopment of Cracker Bay. Winton entered an $80 million debt facility to support Winton's growth plans in December 2023. The facility with Massachusetts Mutual Life Insurance Company is fully ringfenced to the Lakeside development and provided an equity release to assist with the funding the development of Northbrook villages. The additional limit will be used to fund Lakeside while the proceeds of Lakeside settlements will fully extinguish the loan. As at 30 June 2024, the drawn down balance was $64.8 million. The other properties across the portfolio remain unencumbered, and we ended FY '24 with $41.7 million in cash reserves. Receipts from customers reflect units settled. We did experience some defaults at a few of our communities in FY '24. At Beaches, we had one default. At Northridge, we have had 5 lots default following 5 lots in FY '23. We have successfully resold all of these lots and realized 4% more than the original sales price, including the recovery of the deposit. At Northlake, we have had 1 land lot default. At 30 June 2024, we had 39 units of residual stock available for sale, and we have since sold 9 of these units.

Thanks, Jean. Let me go to ESG. Winton has continued to make good progress on integrating ESG considerations into the business and reporting on them. Earlier in FY '24, Winton's sustainability framework was approved by the management team and supported by the Board. It's become central to our ongoing efforts, aligning what we do with the agreed commitments within that framework. The most significant ESG milestone was completing the internal process necessary to meet the requirements of the XRB Climate Standards and the subsequent disclosures. The process reflects a company-wide input, including the Winton Board, management team and business leaders. Alongside the annual report, we've disclosed 2 stand-alone documents: Winton's FY '24 Climate-Related Disclosures and Winton's FY '24 GHG Emissions Inventory. During the year, Winton also transitioned to a new assurance practitioner for its GHG Inventory Report, which now includes all the missions from construction and the operations of the growing business. From a governance and social perspective, we implemented new internal policies covering cybersecurity, data privacy, digital acquisition and GHG inventory management. We also implemented a health and safety metric appropriate for the Winton business and have disclosed this in our annual report for the first time. We've aligned our community donations and sponsorships with the sustainability framework to contribute to the communities that we operate in. In FY '24, we contributed approximately $380,000 to benefit the community, and this has been through sponsorships, donations and other community initiatives. While there is still much to do, we do appreciate external commentators noting our ongoing progress. Turning to the market. The market, New Zealand housing, remains difficult. We expect it to continue through FY '25. You can see from this slide that house sales are down, housing stock remains high. Our new consents for dwellings continue to fall. And whilst there is no accurate data, the number of built lots have likely to have significantly decreased. We can also see that ready-mix concrete volumes remain down, which is an indicator of construction activity generally. Insolvencies are up, with the construction sector making up the highest proportion of these insolvencies, at 23%. The Cordell Construction Cost Index reflects construction costs over time, and in the quarter ending June 30, 2024, the index reported its first decline in construction costs since Q4 2012. It is our view that the residential market volumes will not materially increase until the unemployment rate in New Zealand has peaked and starts to decline. While the decrease in the OCR last week was a positive for the market, we remain cautious as inflation is still high, interest rates are still elevated and employment has continued to increase and housing affordability remains a significant issue. The property development is cyclical, and Winton's experience gives us confidence that we are planning the cycle as best we can and that we are well prepared to weather continued challenging conditions until it does turn around. It is our intention to take advantage of subdued construction pricing and commence some major projects at the bottom of the cycle so that we complete them at or near the top of the cycle. We note that our balance sheet enables us to do this effectively, which is the opposite of what many other industry players tend to do. We know this won't be the case for other industry players or enticing time for new entrants to enter the industry. Our job is to continue to progress with discipline and set Winton out well for when the market becomes more buoyant. We remain cautious about the market conditions for the year ahead, and we'll continue to operate with discipline. There's a lot to look forward to, and we thank you for your continued support. And that brings our presentation to an end, but we're very happy to take any questions from anyone on the call.

[Operator Instructions] The first question today comes from Nicholas Hill from Craigs Investment Partners.

Congratulations on the results and continuing to see them in the current market. I was just wondering if you'd be able to provide some more commentary as to what the industry-wide issues in consenting process for Northbrook that led to the change in structural engineer? And has this sort of resulted in a change in expected completion time in?

Yes. Thanks, Nick. So essentially, it was a building in town in Albert Street that was constructed. The engineer on that project was also the engineer on our project. The project in Albert Street went into some engineering difficulties and the engineer on both jobs ended up in a spat with Auckland Council. It was quite clear that, that spat wasn't going to be resolved anytime soon, and the Auckland Council had lost faith in that particular engineering company. So rather than sort of persevere with that particular engineering firm, who had, at that stage, completed the engineering design for Northbrook, we made what was a difficult decision to change engineers and start again because we felt like we were going to get caught in the crossfire and even further delayed by continuing with that particular engineer. So we made a pretty tough call, I thought, to set aside the design the previous engineer had done and embark on a whole new design with a new engineer, and that's led to some delays on site. And obviously, that design is now in front of Auckland Council for consenting and we're waiting for that to pop out. But we're confident in the new engineer, as is Auckland Council, and we think in the time line of the overall project, it was a good decision. But the current arrangements with the builder see practical completion delivered in late '27, and so we're forecasting settlements in FY '28.

Okay. That makes sense. Looking at the $412 million of pre-sales figure, I note that, well, from my point of view, they're more Lakeside development, and I'd assumed. Would it be possible to give a breakdown as to how much of this $411 million is for Lakeside and how much is for Northbrook?

No, we're not going to give pre-sale breakdown by projects for a host of reasons, but we're offering up the overall number but not a breakdown.

Okay. And for the Ayrburn hospitality precinct, I know that your employee benefit expense rose from $9.9 million to $17.4 million. Would it possible to give an indication as to how much of the $7.5 million increase is attributable to Ayrburn as well as sort of do the same for the $11 million in commercial portfolio income, like how much is for Ayrburn and how much is for Cracker Bay?

No. Again, we're running a division of the business which has operating businesses within it, and those two are Cracker Bay and Ayrburn, and we're happy to give you the total across both. But we're not proposing to break that down. And again, for a host of reasons, including competitors' analysis and things we just don't think is prudent for the business as a whole.

Okay. Would you be able to provide any commentary as to how the leasing for Cracker Bay office is progressing?

It's going well. We're happy with the progress. Winton is moving into the building in the first week of October. The floor above us is also leased, and we're well down the path with some other tenants for other tenancies within the building. But generally, we're happy given that we haven't finished the refurbishment works there yet and won't really finish those for the overall building till the very end of the year or the calendar year.

So just broadly speaking, it hasn't reached practical completion, but you've still got 1/3 of the floor plate left to lease, roughly speaking.

Full packed, yes.

Yes, full packed. And just last one from me. I noticed that the Lakeside facility was broadly level on the interim results. Just wondering, did the debt drawn down rise to a higher amount over the second half of the year before being partially extinguished by settlements? And if so, is that sort of $64 million baseline level of withdrawn debt to expect from this facility?

Yes. Sorry, Nick, that's something that we haven't disclosed in terms of how the debt balance will track, but it's in line with settlements and development works on site.

[Operator Instructions] The next question comes from Rohan Koreman-Smit from Forsyth Barr.

Congratulations on continued progress.

Thanks, Rohan.

Let me ask another question around the admin costs a different way. If you look at the second half and you take off the establishment costs of Ayrburn, it looks like it was kind of $16 million to $17 million, including share-based payments. Is that a reasonable half year run rate going forward? Or do you expect a bit more build in the second half with the other parts of Ayrburn opening?

I mean it's more of Ayrburn opening, so you'd expect more revenue and more cost as we continue to widen the hospitality precinct down there. I think that's a bit working; isn't it, Jean?

Yes, there is an element of head office costs associated with establishing the venues, and that part doesn't increase as you get additional venues. So I think that run rate won't be quite the same.

Yes. I think the back office is sufficient to run all current and/or future venues at Ayrburn, so it won't be grown from here. So the relative increase will be less.

Yes. Perfect. That makes sense. And then just on the pre-sales work. I know you don't want to split it by project, but can you split it by Northbrook and resi? You've given us that before or...

No, sorry.

Okay. And can I just confirm that it is both Northbrook and residential pre-sales in the event?

It is, Rohan. Yes.

Yes. Excellent. The -- I noticed you had a panel land sale in there, I'm assuming that's the old service station, or what was it, a garage that you purchased?

It is, yes.

Yes. Okay. So that means you're kind of looking at sites that you have within the portfolio that aren't necessarily core going forward to realize some cash. Are there further kind of opportunities like that? Or was that a bit of a one-off?

I think that was a bit of an outlier, to be honest, Rohan. I think it was just a small project we've made an offer. We didn't expect the offer to be accepted necessarily and it was. And so we bought it well, and obviously, we sold it well. So it was a good turnaround for us. But it was just a small project that was out of line with the general scale of things we do, and we just felt like it was more of a discretion than what it was and potentially worse given the offer we had on it and it was just focused on the bigger projects, which we're good at and leave the smaller projects to smaller players.

Perfect. And then also on sales rates. So you've released a few more lots down in Wanaka, and it looks like the sales rates have picked up in some of the built-form stuff. Have you actually -- I know you're cautious, but has there actually been a noticeable turn-in demand inquiries at conversions better? Or is it just -- you finally had some available stock to sell, which you kind of haven't had in the past.

A bit of the latter.

And lastly, the MaxCap fund, no comments on it here. Are there more interesting opportunities coming across your desk? You don't want to buy a stake in a large residential construction business that's supposed to be on the market?

The answer to that one, I think, you're inferring is a positive no, but we are in due diligence on one project.

[Operator Instructions] At this time, we're showing no further questions. I'll hand the conference back to Chris for closing remarks.

Okay. Fantastic. Well, thank you, everyone, for joining us today. And as always, if anyone has any follow-up questions, please don't hesitate to send them through to either myself or Jean. And thank you for attending.