Full Year 2022 Ingenia Communities Group Earnings Call Sydney NSW Aug 24, 2022 (Thomson StreetEvents) -- Edited Transcript of Ingenia Communities Group earnings conference call or presentation Wednesday, August 24, 2022 at 1:30:00am GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Matthew Young Ingenia Communities Group - General Manager of Tourism * Scott Cameron Noble Ingenia Communities Group - CFO * Simon Richard Owen Ingenia Communities Group - CEO, MD & Director * Yvonne Slater Ingenia Communities Group - Head of Development ================================================================================ Conference Call Participants ================================================================================ * Andrew MacFarlane Jarden Limited, Research Division - Analyst * James Druce CLSA Limited, Research Division - Research Analyst * Michael Peet Goldman Sachs Group, Inc., Research Division - Executive Director * Tom Bodor UBS Investment Bank, Research Division - Director ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Thank you for standing by, and welcome to the Ingenia Communities Group FY '22 Results Teleconference and Webcast. (Operator Instructions) I would now like to hand the conference over to Mr. Simon Owen, CEO and Managing Director. Please go ahead. -------------------------------------------------------------------------------- Simon Richard Owen, Ingenia Communities Group - CEO, MD & Director [2] -------------------------------------------------------------------------------- Good morning, everyone, and I am pleased to be presenting what I believe is a strong result in an incredibly challenging market. I thought I would make a few opening comments before getting into depth by PowerPoint. Let's get the challenges and bad news out of the way. Our holiday parks in New South Wales and Victoria were effectively closed to short-term guests for the first 4 months of the year. Many of our development sites, particularly in Southeast Queensland was significantly impacted by constant heavy rain at the beginning of this calendar year, forcing multiple site closures and construction delays. We continue to experience chronic labor shortages at both our development sites and regional communities and the cost of attracting and retaining great talent continues to escalate. We are continuing to navigate unprecedented supply chain and sequencing challenges. Construction costs are up at least 25% over the last 12 months and the time frame for new home construction is now up from 4 months to between 6 and 8 months, depending upon the location. And the near-term economic outlook indicates that we are entering a recession with gaping interest rates, rapidly rising inflation and declining consumer sentiment. But there are some positives. Across basically every aspect of our business, rental, new home, home sales and holidays, we are grappling with incredibly strong levels of demand, which show absolutely no signs of dissipating. In the key out of metro and regional markets, where we are building communities and selling homes, we are just not seeing the evidence of the impending 10% to 20% drop in resi markets to the experts in the metro broad shapes keep (inaudible). In markets like Geelong, Port Stephens, Moreton Bay, Toowoomba and Hervey Bay, prices for freestanding homes are broadly holding, volumes remain strong and days on market remains tight. Ingenia employs over 30 in-house residential sales experts who are interacting with literally thousands of customers every week. And today, I'm not getting any suggestion of a market in decline. The key demographic drivers that underpins Ingenia's business model remain firmly in place, an aging population, a housing affordability crisis, especially with rental accommodation, the population drift to the regions and strong domestic travel. We are enjoying strong pricing power, and we have in-built inflation protection. Our business model remains highly leveraged to the COVID reopening play. We are enjoying increasing demand from changing work habits and Ingenia is a sector leader with sustainability and carbon reduction. At its essence, Ingenia's business is underpinned by owning land and collecting cash rent. A significant component of this rent is supported by Commonwealth pension and rent assistance. This is supplemented by low-risk, high-velocity and profitable development of regional and outer metro lifestyle communities geared towards the rapidly growing number of downsizes and young retirees across the East Coast. The COVID and subsequent supply chain blockages and labor shortages continue to impact and disrupt elements of our business model, but it has also accelerated macro trends and consumer behaviors, which is hugely positive for both Ingenia's immediate and longer-term growth aspirations. Many companies have used COVID as an opportunity to shrink or resize their operations. After some careful consideration, Ingenia use this period as an opportunity to significantly expand our market share and operational footprint. Ingenia is a significantly larger business today than when we were -- when we entered into COVID back in February 2020. The value of investment properties we own or manage is up over 90% to $2.1 billion. The number of communities we own or manage is up 46% to 110 communities and the size of our development pipeline, a great indicator for future growth and profitability has increased by upwards of 55%. Ingenia is one of the fastest-growing REITs in Australia, and I would comfortably predict that we are only several years into a 30-year super cycle being driven by the aging of the population and the desire for high-quality community living. Joining me on the call today are a number of the Ingenia executive team, including Scott Noble, our CFO; Donna Byrne, who heads up Investor Relations and Sustainability; Natalie Kwok, our Chief Investment Officer; Justin Blumfield, who heads up residential communities; Matt Young, who heads up our holiday parks; and Von Slater, who leads our Development business. I'll now move on to Slide 2, which is about executing on strategy. As noted earlier, Ingenia has utilized the disruption of COVID as a once-in-a-decade opportunity to build longer-term sustainable market share and slingshot past the competition. We have unrivaled networks across the sectors that we operate in and our ability to originate and execute upon M&A opportunities is without peer. Over the past 12 months, we have increased our total assets under ownership or management by some 61%. And Lifestyle communities now represent over 55% of group assets and our development pipeline comprises some 6,580 future development sites, which will underpin many years of future growth. Over 90% of our development pipeline is located in Queensland or coastal New South Wales, which is increasingly where many downsizing Australians wish to live, driven by quality of life, value and the ability to release equity from the sale of their family home. The holiday domestic thematic will be with Australians far longer than many of us are thinking, and Ingenia is strongly leveraged to this story. Our forward bookings are up strongly when compared to pre-COVID levels, and Ingenia is now the largest owner of holiday parks on the East Coast. The 2 most popular regions in Australia for caravanning and camping is both heading north and heading south out of Sydney. And these are 2 markets where Ingenia is the clear unassailable market leader. The group continues to prioritize our ESG program, which remains core to our strategy and align with our vision, purpose and values. We remain a leader in diversity and inclusion, and are well advanced with our Green Star strategy for pending new lifestyle community developments. I'll now just touch on Slide 3, which is the results summary. As noted previously, today, Ingenia announced a strong result, but not without its challenges. Our revenue was up 14% to $338 million. Our underlying earnings per security was marginally down to $0.233, reflecting the drag on earnings as we move to deploy the proceeds from last year's capital raising. Over the course of the year, we completed over $650 million of acquisitions. We added 30 communities in development projects to our business, and we settled a record 409 homes. I'm now going to hand over to Scott to discuss in more detail the group's financial performance and capital management. -------------------------------------------------------------------------------- Scott Cameron Noble, Ingenia Communities Group - CFO [3] -------------------------------------------------------------------------------- Thanks very much, Simon. Let me start on Slide 6. Good morning, everyone, and thank you for joining our call today. 2022 was both a transformational year and also another challenging year. While we started the year with mandated lockdowns and managed through cost growth, supply chain and labor shortages, Positively, we've seen the demand grow for our lifestyle rental and holiday businesses. We've grown the group's total assets by over 60% this year. We materially increased the group's recurring rental cash flows, and we grew the group's development pipeline by a further 2,360 sites, which underpins future growth and future development returns. During the year, we added 28 individual assets to Ingenia balance sheet with a further 2 greenfield development sites added to the joint venture. We now own or manage 110 individual properties. While revenue grew 14%, pleasingly, the group's nondevelopment revenue grew 35% on prior year through acquisition, inflation-linked rental increases and strong growth in occupancy and rate in the tourism business, once COVID restrictions eased. The group's statutory EPS was up 19%, driven by positive valuations as cap rates continue to compress across the portfolio through the year. Underlying EPS was marginally down on prior year. While underlying profit increased $10.7 million, EPS was adversely impacted by lost earnings from tourism and development due to the impact of COVID-19 restrictions and supply chain constraints. EPS was also impacted by the November equity raise, which increased the mix of earnings to yielding assets and increased securities on issue. A final distribution of $0.058 per security has been declared, taking the full year distribution to $0.11 per security, up 4.8% on prior year. Moving to Slide 7. The group delivered an 8% growth in EBIT, driven by strong growth in the group's lifestyle rental and holidays businesses, offset by a reduction in development earnings. Our lifestyle rental business result benefited from new acquisitions and rent increases linked to inflation, with lifestyle EBIT growing 62% on the prior year result. While our development business experienced significantly stronger demand and settlements grew in prior year, the major focus is on the management of supply chain, labor and cost increases that impacted the business. As flagged to the market, we recorded a lower above-ground average development profit in FY '22 following the completion of the group's Latitude One project in 2021. The development business also incurred increased costs in FY '22 associated with projects that will deliver future settlements. The Ingenia Gardens result grew from the acquisition of the new Victoria Village and continue to deliver strong cash flow and margin to the group, ending the year with an occupancy of 95.5%. After a slow start to the year with lockdowns, the holiday result was up 23% on FY '21, driven by acquisitions, rate growth and increased occupancy. The contribution from our capital partnerships was positively impacted by performance fees and realized gain on co-investment on the wind up of the group's fund that held 3 lifestyle assets in Victoria. Earnings from the JV with some communities grew strongly on the back of increased settlements. As we've materially increased our asset base, corporate costs have increased to support this growth. Turning to Slide 8. The group's balance sheet and capital position are well positioned for current economic conditions. With gearing of 20.6% and an LVR of 25.7% at 30 June compared to a covenant of 55%. The group's debt facilities increased $255 million to $780 million. These facilities have a weighted average debt maturity of 4.4 years. Our current hedging is 51% of our 30 June drawn debt level. At 30 June, we had $125 million of fixed debt in place and increased our hedging by a further $100 million in late July and early August when pricing eased. The group's $225 million of hedging has a weighted average tenor of 3.7 years, with an average hedge base rate over the next 2.5 years through January 25, being a minimum of 1.5% and maximum of 1.83%, depending on the prevailing BBSY rate due to having colors in place. At 30 June, the average cost of debt drawn -- inclusive of margin was 2.1%, and the fixed base rate on the $125 million of hedging in place was 0.7%. While we're facing cost growth pressures through higher inflation interest rates, revenue from our residential rental contracts are inflation-linked and delivered a 5% like-for-like rental growth across the year, outperforming median inflation. Moving to Slide 9. Strong valuation gains were delivered over the year and in the second half with growing demand for lifestyle assets driving cap rate compression. Average cap rates in lifestyle compressed by 59 basis points over the year to an average of 5.21% with our premium Latitude One project now valued at a 4.65% cap rate. While the average cap rates compressed marginally in our holidays and Ingenia Gardens portfolios over the year, the cap rates used by valuers still remain high at 7.45% and 9.02%, respectively. The positive impact of valuation uplift to the result was partly offset by transaction costs, stamp duty on acquisitions and the realization of development profits on development projects. Thank you. -------------------------------------------------------------------------------- Simon Richard Owen, Ingenia Communities Group - CEO, MD & Director [4] -------------------------------------------------------------------------------- Thanks, Scott. I'll now move to Page 12 and discuss our lifestyle rental business, where we grew the number of income-producing sites by some 57% over the year. We're also able to expand our operating margin by 170 basis points and achieved same-store rent growth of 5% for the period, which compares to weighted CPI for the same period of around 3%. The quality and resilience of this business cannot be overstated. We have high-quality CPI-linked rent supported by government pensions or transfer payments, and Commonwealth rental assistance. We are experiencing rapidly growing demand, both for over 55s and all age with limited new supply being delivered, particularly at the lower and mid pricing quartiles. We are scalable in both metro and regional markets. We enjoy strong pricing power with new homes, and we are delivering quality, measurable and increasing social and sustainability outcomes. And Ingenia has the first mover advantage. On Slide 13, we discuss Ingenia Gardens, which is Australia's original build-to-rent business established over 20 years ago. During the year, we were able to hold record levels of occupancy, expand our operating margins by 140 basis points, grow rents in line with CPI, acquire an additional community in Melbourne, Southeastern suburbs and enhance ongoing resident health and welfare with our unique Ingenia Connects program. Let's move to Slide 14, Lifestyle development. Over the course of the year, we settled a record 409 homes with a further 18 homes in our Funds Management business. Margins contracted by around 500 basis points when compared to the prior year principally driven by a lower average sales price. This is a sales mix issue and reflects the 2021 sellout of our highly successful Latitude One community in Port Stephens. This also impacted the development earnings. I would expect both margin and earnings to recover and improve in this current financial year, reflecting the higher priced projects, we are now bringing to market, as well as scale efficiencies. I think the virtue of developing land lease communities cannot be overstated. You can achieve a return of your capital plus a profit during development, then you get an ongoing return on your capital, which is the rent on the asset you have created. You certainly don't get that in office, shares, retail or most other commercial property classes. Our development business has absolutely been impacted by supply chain disruption and labor shortages over the course of the year. And as noted earlier, demand currently strongly exceeds our near-term ability to supply. However, we are presently sitting on over 430 deposits and contracts, which provides us with great visibility on future settlements. On Page 16, we have mapped out the median house price and price growth achieved over the past 12 months in the regions where our core developments are underway as well as in a few new plan communities. That we are about to commence. As you can see, 14 of the -- 14 of the 17 regions where we have projects in market or soon to launch, have experienced price growth over the last 12 months of at least 20%, with several materially above that level. Our sector remains supply constrained and demand continues to grow. Prices in these markets are generally holding firm and demonstrating much greater resilience than Metro Sydney and Melbourne. Ingenia also continues to offer a broad range of price points, both within individual projects and between projects, enabling us to gain the maximum share of the addressable market. And finally, on development on Page 17. Our Greenfield development strategy remains a major driver of future growth in rental earnings and delivering sustainable communities. Demand remains very strong and price is robust. However, supply constraints and labor shortages remain key near-term risks. We presently have 12 projects underway and we are forecasting a further 10 projects commencing development in the current year. We fully intend to maintain our position as the leading developer of land lease communities in Australia. We also presently have over 500 homes now under construction or ordered with our core builders with more to follow. In the current financial year, we are targeting between 525 and 550 new home settlements and between 2,000 and 2,200 new home settlements over the next 3 years, and we would see further growth beyond that. There is a risk to the upside and the downside on these forecasts, principally around access to labor. I'll now touch on our holidays business, which is on Pages 19 and 20 of the presentation. Ingenia now owns the largest portfolio of holiday parks in the East Coast with the network extending from the Great Barrier Reef to the Great Ocean Road. Over the course of the year, we added 11 parks to the network and increased our site numbers by 36% to over 7,200 income-yielding sites. We grew holidays park income by 35% to over $71 million. Earnings were up by 23% to over $35 million, and we expanded our operating margin by 90 basis points to 39.7%. On a same-store basis, we were able to grow our room rate by 30% and our occupancy by 7%. I would also note that these numbers would have been materially stronger had our parks in Victoria and New South Wales not effectively being closed to short-term guests for the first 4 months of the year. Based on forward bookings, and the inconvenience and costs associated with traveling overseas, we anticipate strong demand for our holiday parks to continue for the foreseeable future. On Page 22, we discussed our development partnership with Sun, who is the largest global owner, operator and developer of lifestyle and holiday communities. Our partnership is progressing well, and we're reporting strong sales at our first development project at Burpengary just north of Brisbane, and we have several new projects breaking ground as we speak. Our share of earnings from JV was up sharply to over $8 million, driven by improved underlying profits from selling new homes and investment property gains. Once the community has been developed in the JV and it's been sold down, then Ingenia has an option to acquire Sun's interest at market value, which continues to feed our origination machine. Touching on sustainability on Page 25, I would like to highlight a couple of key achievements. We completed the construction of our first Green Star home under the GBCA pilot program in recent months. And this home located on the New South Wales Mid-North Coast is presently undergoing final certification. For the second year in a row, in June, we ranked second nationally for women in executive leadership roles as per the CEW Senior Executive Census. And we are making great progress towards our goal of a carbon-neutral operation by 2035, with the continuing solar and LED investment program now in place across over 52 communities. I'll now finally move to outlook on Page 31. In the current year, we would anticipate further modest levels of acquisitions. However, the key focus will be on accelerating the build-out of our development pipeline, organic expansion and platform enhancement. We are categorically not looking at raising new capital within Ingenia. We are anticipating strong trading conditions for our holiday communities, both in terms of occupancy and rate growth, and continuing strong performance with our lifestyle and seniors rental communities. As noted previously, we are targeting between 525 and 550 new home settlements in the current financial year and between 2,000 and 2,200 new home settlements over the 3 years to FY '25. The key risk here, as I've noted previously, is around labor availability and our ability to complete new homes in a timely and cost-effective manner. In terms of guidance, we are forecasting EBIT growth of between 30% and 35% and underlying EPS growth of between 5% and 10%. There is both some modest down side and upside risk to these targets, noting that we presently have over 500 homes under construction or an order and have some 433 contracts and deposits on hand. That's all Scott and I were going to present today. So we're now delighted to hand over to Q&A. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Your first question comes from Michael Peet from Goldman Sachs. -------------------------------------------------------------------------------- Michael Peet, Goldman Sachs Group, Inc., Research Division - Executive Director [2] -------------------------------------------------------------------------------- Hi Simon and Scott, congratulations on the results in a difficult environment. First question, just on the guidance on developments 525 to 550. Could you give us a rough split on what do you think it might be the joint venture sort of contribution there? -------------------------------------------------------------------------------- Scott Cameron Noble, Ingenia Communities Group - CFO [3] -------------------------------------------------------------------------------- Thanks very much, Michael. Look, the joint venture is probably going to deliver about 10% to 15% of that. -------------------------------------------------------------------------------- Michael Peet, Goldman Sachs Group, Inc., Research Division - Executive Director [4] -------------------------------------------------------------------------------- Great. Just on the rents, 5% last year on the permanent side. What sort of rent increase do you envisage for '23? -------------------------------------------------------------------------------- Scott Cameron Noble, Ingenia Communities Group - CFO [5] -------------------------------------------------------------------------------- Yes. Look, we would like -- we'd be anticipating to at least keep up with inflation, Michael. So it will depend on where the inflation lands over the year, but we'd certainly like to exceed inflation. -------------------------------------------------------------------------------- Michael Peet, Goldman Sachs Group, Inc., Research Division - Executive Director [6] -------------------------------------------------------------------------------- Okay. And just final 1 on acquisitions and CapEx. Simon, what was your thoughts in terms of pursuing further acquisitions? What's the pipeline like? And do you expect many completions this year? And then just on CapEx, if I could, Scott, what's the sort of guide you could give there maybe a rough split between the CapEx associated with new homes and the other parts of the business? -------------------------------------------------------------------------------- Simon Richard Owen, Ingenia Communities Group - CEO, MD & Director [7] -------------------------------------------------------------------------------- Yes. Look, I think around acquisitions, look at leads an acquisitions team of 8 people, and we're not doing feasibilities for practice. So we're going to continue to acquire additional properties, and that will be mature, stabilized, land lease communities, iconic coastal holiday parks, and we're going to continue to option up land in the key growth corridors that we're looking at, but I really don't think we will be looking at any portfolio. So it will be more targeted assets and sites in the key growth corridors that we have identified. And I would expect that between now and our next reporting season in February, we'll probably announce another 4 or 5 acquisitions. -------------------------------------------------------------------------------- Scott Cameron Noble, Ingenia Communities Group - CFO [8] -------------------------------------------------------------------------------- Michael, just to answer your question on CapEx. Yes, for sort of FY '23, just in terms of where we are at this point in the year, I'd be penciling in around $100 million to $110 million of CapEx with the Ingenia headstock. That will be sort of in that $70 million to $75 million range for development E&W or, earthworks. [10 to 12] new tourism cabins and refurbishments, $8 million to $10 million in continuing to roll out our rental cabins and operating CapEx across the group of about $10 million to $12 million. There'll be a further $50 million to $60 million of CapEx within the joint venture as well, but that's obviously funded separately through equity contributions from both Ingenia and Sun as well as its own debt facility. -------------------------------------------------------------------------------- Operator [9] -------------------------------------------------------------------------------- Your next question comes from Tom Bodor from UBS. -------------------------------------------------------------------------------- Tom Bodor, UBS Investment Bank, Research Division - Director [10] -------------------------------------------------------------------------------- I'd just be interested in the leading indicators of development being sort of sales and inquiry and more specifically, sales in June, July and what you've seen in August so far, and sort of more of that inquiry piece. Has it sort of changed in the last couple of months? Or has it been relatively consistent with last year? -------------------------------------------------------------------------------- Simon Richard Owen, Ingenia Communities Group - CEO, MD & Director [11] -------------------------------------------------------------------------------- I think, Tom, firstly, the level of settlements in July and August will be relatively modest. We [swept] forward a lot of settlements that we would have otherwise expected in July and August into May and June. So at all of our sites, we had -- our traditional May-June scramble. So there won't be a lot of settlements in July and August. We have changed our sales strategy. So in years gone by, we would typically start selling a stage at the same time as we committed to the builder. And then by the time the homes already we would have residence ready to move in. We've now changed that so that -- we're really not releasing homes to the market until we have absolute certainty on the final costs in the homes that are approaching completion. So that's, I guess, the change that we've adopted over the last 6 to 12 months. In terms of what we're hearing at the site level, what we're experiencing, there's been no significant slowdown. There's certainly a lot of cautiousness out there from seniors. They're reading what's in the headlines and listening to the radio about what's going on in the residential market, but they're still coming out. They're still making their deposits. They're still commencing their sales journey. Those key out of metro markets in the regional markets that I noted, markets like Hervey Bay, Port Stephens, Geelong, Toowoomba, the markets are holding pretty firm there. So we're getting a lot of interest in those markets. Probably our softer communities at the moment would be the 2 communities we have in Logan, where they are in effectively a broader part of Brisbane, and that has slowed down marginally, but we're very confident that we remain well positioned to hit that 525 to 550 settlements. No, I think probably going back 6 months ago, when we would have been thinking about the settlements for the current year, I would have thought we would be on track to achieve a higher level in this current year, but we've had to temper our forecast slightly just as an acknowledgment that it is incredibly challenging out there with labor, particularly down in Victoria to get the trades and I referenced the sequencing challenges there that if your roofers don't turn up on a particular day, then you can't do all the tiling and putting in the windows. And so it is incredibly challenging out there, I think, in 30 years that I've been doing this, I've never experienced market conditions like that. -------------------------------------------------------------------------------- Tom Bodor, UBS Investment Bank, Research Division - Director [12] -------------------------------------------------------------------------------- That's clear. So just on the sort of inquiry though, has there been a drop-off in monthly inquiry since, say, the May interest rate increases? Or has it just been steady? -------------------------------------------------------------------------------- Simon Richard Owen, Ingenia Communities Group - CEO, MD & Director [13] -------------------------------------------------------------------------------- Look, I think absolutely, the level of inquiry has dropped off slightly, but not in any way that we still -- and I think I mentioned it 4 or 5 times during the presentation that we are not experiencing any challenges with demand. We're experiencing supply chain challenges. And so we have 0 homes in inventory at the moment, every home that we have under construction at the moment has already been presold and that's well in excess of 250 homes, we won't be releasing any of the homes that we're about to start construction on until they're probably 3 months into the journey. So the level of inquiry has dropped off slightly, but certainly not that it would cause us to change our forecast. And we're in a position where seniors have been sitting on their hands right through COVID, the pent-up demand is immense. When we do release product to the market, it's traditionally deposited out within days or weeks of release. And so we're not concerned with that anyway. We just have to be realistic that the RBA has been raising interest rates. I'm not pretending that consumer sentiment hasn't moved to -- from a positive bias to a negative bias, but consumers are sitting on a lot of money. We've got wait lists of people who are interested in the next releases, which are incredibly deep, and we are very confident that every new project we're bringing to market, we'll be able to sell that down at very profitable margins as quickly as we release it. -------------------------------------------------------------------------------- Tom Bodor, UBS Investment Bank, Research Division - Director [14] -------------------------------------------------------------------------------- Clear. Now just on to the supply chain issues. Some of your peers not probably land lease peers, but some of your resi developer peers have talked about very early signs that some of those pressures are easing. Have you seen anything to suggest that, abide on the material side? I appreciate labor is still very hard, but any signs? Or is it still just as it was, say, 3 months ago? -------------------------------------------------------------------------------- Simon Richard Owen, Ingenia Communities Group - CEO, MD & Director [15] -------------------------------------------------------------------------------- Look, we're definitely seeing that going back 3 or 6 months ago, the ability to access steel and timber in particular, but also tapware, glass, gyprock, some of the other key inputs into building a home, that was incredibly challenging. That has broadly eased up now. Labor is the key challenge. I think Von, our Head of Development is on the call. So Von, why don't you give Tom, I guess, your assessment of what you're experiencing? -------------------------------------------------------------------------------- Yvonne Slater, Ingenia Communities Group - Head of Development [16] -------------------------------------------------------------------------------- Simon's right. Certainly, labor is the most challenging to supply -- a lot more manageable and somewhat easier to mitigate. We've got a fantastic pipeline at lifestyle communities at Ingenia communities. And we are really focused on pairing up with key suppliers all the way through specifications, that's giving us great pricing. It's giving us that front of [2] access, and that's really helping us, I guess, shore up some of the delays in supply. Really, it's the labor and there's a number of things we're doing with our contractors where we can to help with labor, but we're feeling a lot more comfortable in the supply side rather than the labor. -------------------------------------------------------------------------------- Simon Richard Owen, Ingenia Communities Group - CEO, MD & Director [17] -------------------------------------------------------------------------------- And Von, I'm glad you clarified [where you were]. -------------------------------------------------------------------------------- Yvonne Slater, Ingenia Communities Group - Head of Development [18] -------------------------------------------------------------------------------- Cannot believe I just said that. -------------------------------------------------------------------------------- Tom Bodor, UBS Investment Bank, Research Division - Director [19] -------------------------------------------------------------------------------- Okay. No, that's great. And then just 1 final 1 on the hedging. I suppose clearly that costs are going up hedging relative to low and there's some different instruments used there to protect you on the rate. How do I think about hedging, say, at the end of FY '23 and into '24? And where do you want to be hedged ideally from a debt perspective? -------------------------------------------------------------------------------- Scott Cameron Noble, Ingenia Communities Group - CFO [20] -------------------------------------------------------------------------------- Yes. Thanks for that, Tom. Well, look, we're going to continue to try and target that 50% level. Obviously, it depends on pricing versus market expectations. But yes, we're at 50% now, and we'll continue to try and maintain that level as being hedged. We will look at different instruments. We just placed $100 million on collars at the end of July, beginning of August. So that has given us a little bit of participation going forward, but it also gives us, I suppose, a cap level as well. So I'll conclude those in the presentation. -------------------------------------------------------------------------------- Tom Bodor, UBS Investment Bank, Research Division - Director [21] -------------------------------------------------------------------------------- So okay, is that additional to the 51, sorry? Or is that included in the 51? -------------------------------------------------------------------------------- Scott Cameron Noble, Ingenia Communities Group - CFO [22] -------------------------------------------------------------------------------- That's included the 51. This is pricing declined in -- at the late July, we took opportunity to put on some additional hedging. -------------------------------------------------------------------------------- Tom Bodor, UBS Investment Bank, Research Division - Director [23] -------------------------------------------------------------------------------- Okay. And can you confirm that you haven't used capital to put hedging in place or you haven't paid anything for the hedges? -------------------------------------------------------------------------------- Scott Cameron Noble, Ingenia Communities Group - CFO [24] -------------------------------------------------------------------------------- On the collars, we've just put it in late July, August, there's a premium of $1.4 million. -------------------------------------------------------------------------------- Operator [25] -------------------------------------------------------------------------------- Your next question comes from James Druce from CLSA. -------------------------------------------------------------------------------- James Druce, CLSA Limited, Research Division - Research Analyst [26] -------------------------------------------------------------------------------- Can we just talk about margins next year? So you're expecting a bit of a bounce back. What is sort of the -- what kind of bounce back are we expecting? -------------------------------------------------------------------------------- Simon Richard Owen, Ingenia Communities Group - CEO, MD & Director [27] -------------------------------------------------------------------------------- Yes, James, I would think that we'd be targeting a reversion to the margin that we enjoyed in '21 -- in FY '21. There's a number of factors at play there. Firstly, a majority of the new communities that we're bringing to market are priced at a much higher level than the communities that we have had in the market. So back in FY '21 and FY '20, we're selling basically 100 homes a year at Latitude One for close to $400,000 margin, which is around double what we are currently achieving. And so when we strip that out, in the year that just finished, that obviously had a significant impact on the EBIT and the margin in our development business. But the new projects we're bringing to market are increasingly going to be priced at a similar level to Latitude One and the higher priced homes, the greater, typically the margin is. Secondly, we are getting scale efficiencies. So we've got great sales and development teams in place and the more homes that we can pump through the system that ends up lowering the dollar cost of producing those homes. And so that has a very significant impact as well. I guess, the unknown at the moment is just where we are going to be with the cost of building homes and labor typically represents around 55% of the cost of a home. So that is continuing to go up. And I was pretty clear that over the last 12 months, we've seen the cost of building a home go up by at least 25%. So that has impacted our margins. But equally, I wouldn't believe everything you read in the age of The Sydney Morning Herald. If you look at the data that we put into the presentation, the markets where we're building the vast majority of our homes, which is up at Port Stephens, Toowoomba, Hervey Bay, out at Redlands, those housing markets are remaining very firm. Volumes are continuing to flow through and days on market are remaining tight. So we think we're going to have additional pricing power. There's very little stock out there in the market, whether it's land lease or new residential homes. I mean apartments is a little bit different. So we fully expect that we'll be able to raise our prices sufficiently to recover any additional input costs that we experienced in the current year. -------------------------------------------------------------------------------- James Druce, CLSA Limited, Research Division - Research Analyst [28] -------------------------------------------------------------------------------- Okay. That's clear. And what sort of skew do you expect first half, second half is going to be similar to the prior year? Or is there anything to call out there? -------------------------------------------------------------------------------- Simon Richard Owen, Ingenia Communities Group - CEO, MD & Director [29] -------------------------------------------------------------------------------- Look, we would only be 1/3 first half, 2/3 second half, and I would expect the SKU will be possibly even more profound than that. And the primary reason for that is that pre-COVID, it would take us on average 12 to 16 weeks to build a home. So from the time we appointed the builder to the time we could hand over the home to the incoming homeowner, completely landscape, completely finished was between 12 and 16 weeks. And now we're looking at, at best, it's 36 weeks -- sorry, 24 weeks, and it can be as long as 36 weeks. And so that means that the homes that we don't currently have under construction aren't going to be completed until well into the second half of this year. That, combined with the additional 10 communities that we're launching this year, I would expect that we could be looking at something like 25% of new home settlements in the first half and 75% in the second half. -------------------------------------------------------------------------------- James Druce, CLSA Limited, Research Division - Research Analyst [30] -------------------------------------------------------------------------------- That's clear. And maybe 1 just more if I may. If you look at the holiday results, we sort of the run rate for '23, are we kind of doing a bit more than the second half annualized -- or how are we thinking about that? -------------------------------------------------------------------------------- Simon Richard Owen, Ingenia Communities Group - CEO, MD & Director [31] -------------------------------------------------------------------------------- Look, Matt Young, who heads up our holidays business is on the line. So Matt, do you want to take that question from James? -------------------------------------------------------------------------------- Matthew Young, Ingenia Communities Group - General Manager of Tourism [32] -------------------------------------------------------------------------------- Yes. Thanks, Simon. And hi James. Look, we are seeing exceptional short lead trading at the moment. So the next 3 months is looking very positive. Obviously, the summer period for us is our peak period through the year. And then we also see April around that Easter holiday period, showing strong trading conditions. -------------------------------------------------------------------------------- Operator [33] -------------------------------------------------------------------------------- (Operator Instructions) Your next question comes from Andy MacFarlane from Jarden. -------------------------------------------------------------------------------- Andrew MacFarlane, Jarden Limited, Research Division - Analyst [34] -------------------------------------------------------------------------------- Just some questions around the guidance. You mentioned on the call just around some up and downside items. Can you just sort of talk to what actually are the pillars or the constituent sitting within the guidance for FY '23? -------------------------------------------------------------------------------- Simon Richard Owen, Ingenia Communities Group - CEO, MD & Director [35] -------------------------------------------------------------------------------- Scott, I think that's got you (inaudible). -------------------------------------------------------------------------------- Scott Cameron Noble, Ingenia Communities Group - CFO [36] -------------------------------------------------------------------------------- Thanks, Andy. Look, really top end and bottom end are really driven by settlements and that settlement range we've provided. And there's also a little bit of a mix in there in terms of some of that coming through the joint venture and also within Ingenia with the split, which we haven't -- we've given a bit of a range around that. Tourism is probably the other one. So there is a bit of certainly flexing the forecast around that, depending how the tourism result goes and should there be any events during the year. But main one is settlements. -------------------------------------------------------------------------------- Andrew MacFarlane, Jarden Limited, Research Division - Analyst [37] -------------------------------------------------------------------------------- Got it. And in terms of the tourism, you're sort of thinking status quo on this year and [then afterwards] if you... -------------------------------------------------------------------------------- Scott Cameron Noble, Ingenia Communities Group - CFO [38] -------------------------------------------------------------------------------- It will have the impact of the acquisitions we made during this year. So you'd expect to see the full year impact of that come through for tourism. You're also going to see recovery of the loss revenue that we lost in the first half from the COVID lockdowns. -------------------------------------------------------------------------------- Andrew MacFarlane, Jarden Limited, Research Division - Analyst [39] -------------------------------------------------------------------------------- Yes. Got it. That makes sense. -------------------------------------------------------------------------------- Simon Richard Owen, Ingenia Communities Group - CEO, MD & Director [40] -------------------------------------------------------------------------------- I would expect -- sorry, I just fully expect that -- further material upside in our holidays business for this financial year compared to last year because we -- as I noted, we had effectively no short-term income coming through our New South Wales and Victorian holiday parks for the first 4 months of the year plus interstate travelers could not travel into our holiday parks in Queensland. We've also undertaken a significant organic investment program, putting in additional cabins, and we're also continuing to find that as we keep pushing prices, particularly for cabins that we're not meeting any real resistance yet. So I think we're going to get a full year contribution from a lot more parks plus further rate expansion and occupancy growth. And in holiday parks, we basically segment the year into off-peak, shoulder and high. And at the moment, in winter, this would be our off-peak time and pretty much every one of our holiday parks within 2 or 3 hours, the capital city is full every weekend. We've got families, bringing their young kids out of school on a Thursday, going up to the parks on a Friday. We're seeing great nomads with their new caravans heading out in numbers that we've never seen before. So we can't really overstate how well that holiday parks business is performing at the moment. -------------------------------------------------------------------------------- Andrew MacFarlane, Jarden Limited, Research Division - Analyst [41] -------------------------------------------------------------------------------- That's helpful. Just in terms of Sun as well, is there any assets that are planned to be acquired over the next '23 or '24? Or what's the thinking or outlook there? -------------------------------------------------------------------------------- Simon Richard Owen, Ingenia Communities Group - CEO, MD & Director [42] -------------------------------------------------------------------------------- So do you mean for Ingenia to acquire any completed communities within the JV? -------------------------------------------------------------------------------- Andrew MacFarlane, Jarden Limited, Research Division - Analyst [43] -------------------------------------------------------------------------------- That's right. -------------------------------------------------------------------------------- Simon Richard Owen, Ingenia Communities Group - CEO, MD & Director [44] -------------------------------------------------------------------------------- So the first community is still probably another 18 months away from stabilization, which is our freshwater community up in Burpengary. Yes, we would intend to exercise our option to acquire that, and then the next communities we're starting to on the New South Wales Mid North Coast. They're both premium boutique communities of typically 110 to 130 homes and I would anticipate they'll sell out within 12 months. And again, we would be looking to exercise our option there, premium irreplaceable communities in markets readily accessible to Sydney, and we would see those or consider those as irreplaceable assets. -------------------------------------------------------------------------------- Andrew MacFarlane, Jarden Limited, Research Division - Analyst [45] -------------------------------------------------------------------------------- One last 1 for me, just back sort of on the guidance pole. Is there a number that you're assuming going to be a lot of other rates in terms of making an assumption around BBSY or BBSW. Is there an assumption you guys have in your guidance for that base revenue... -------------------------------------------------------------------------------- Scott Cameron Noble, Ingenia Communities Group - CFO [46] -------------------------------------------------------------------------------- So it's just basically the latest curve at the moment. That was basically last week when we put the guidance together on Friday, just updated it for the latest current curve shape and pricing that's coming through that. But we've also got the hedging in place that we've got. That will obviously reduce the impact of that BBSY. -------------------------------------------------------------------------------- Operator [47] -------------------------------------------------------------------------------- There are no further questions at this time. I'll now hand back to Mr. Owen for closing remarks. -------------------------------------------------------------------------------- Simon Richard Owen, Ingenia Communities Group - CEO, MD & Director [48] -------------------------------------------------------------------------------- Thank you for your time this morning, and Donna, Scott and myself look forward to catching up with everyone over the coming weeks. In terms of key priorities and news flow over the next 6 months, we're going to continue to be focused around accelerating the build-out of our development pipeline, rolling out further key sustainability initiatives and priorities, progressing our successful development partnership with Sun Communities, executing on identified organic growth opportunities, particularly within our rental and holidays communities and closing on a few targeted acquisitions. So thank you for your time today. -------------------------------------------------------------------------------- Operator [49] -------------------------------------------------------------------------------- That does conclude our conference for today. Thank you for participating. You may now disconnect.