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Edited Transcript of LIC.AX earnings conference call or presentation 14-Aug-19 5:00am GMT

Full Year 2019 Lifestyle Communities Ltd Earnings Call

Aug 16, 2019 (Thomson StreetEvents) -- Edited Transcript of Lifestyle Communities Ltd earnings conference call or presentation Wednesday, August 14, 2019 at 5:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Darren Rowland

Lifestyle Communities Limited - CFO & Joint Company Secretary

* James Kelly

Lifestyle Communities Limited - MD, Founder & Director

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Conference Call Participants

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* Aaron Muller

Canaccord Genuity Corp., Research Division - Head of Research of Australia

* Michael Peet

Goldman Sachs Group Inc., Research Division - Executive Director

* Raju Ahmed

CCZ Equities Pty Limited, Research Division - Equities Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Lifestyles [Lifestyle] Communities Full Year Results Conference Call. (Operator Instructions) Please be advised that this conference is being recorded.

I would now like to hand the conference over to your speaker today, Mr. James Kelly, Managing Director for Lifestyles Lifestyle Communities. Thank you. Please go ahead.

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James Kelly, Lifestyle Communities Limited - MD, Founder & Director [2]

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Thanks, Vincent, and thanks, everyone, for joining the call. I thought I'd just kick off with Slide 3, which is in the information pack, which is titled Our Story. And the thing that's probably changed there is that we've welcomed our 3,000th homeowner to move into Lifestyle Communities. And we very much focused on this sort of thinking around, "It's been a consistent strategy of delivering an amazing lifestyle to our homeowners and sustainable returns to our shareholders." And that philosophy and strategy hasn't really changed since we started. I think these results just fairly -- further indicated our Lifestyle strategy. So in terms of the purpose, again, that's not really changed either except the median wealth of Australia continues to creep up with property values. But our service strategy and our product strategy has kept evolving around meeting the needs of the baby boomer generation.

Page 4 really is about the growing annuity income streams that obviously then drives dividends to shareholders. And in 2019, we generated about $20.5 million in rental income and $4.2 million in deferred management fee. And that's what drove the $0.055 dividend that we declared. And obviously, what we're -- I'm particularly enjoying as this is sort of a shareholder page is the fact the shape that, that is getting a little bit more exponential in terms of it curving up. And you also read in the results that we had quite a still low number of homes come to market -- resale homes come to market to be sold, that kicked up number of homes attracting a DMF that we sold down to 54. But what that's saying is that, that orange component of that graph could only but keep increasing as people continue to age in their communities.

Page 6 is really the overview of the results this year. We did 337 new home settlements. That was within our range of 310 to 350, and we really bumped some over from June to July really just with a slightly slowing market when there was less surge of our property prices are doing and property guys are doing, but we just don't see that recover fairly quickly.

We've now got 2,284 occupied home sites, over 3,000, obviously, homeowners now living in our communities. We acquired 2 new sites, one at Plumpton and also one at Tyabb and also bought some additional land for our community at Wollert. And that took our total portfolio now to 3,563 homes/home sites either developed or to be developed. I mentioned the resales, 53 resales, they are now 54 during the year net that, really the factor that we just didn't get the listings to resell, and so we sold what we could. The underlying profit attributable to shareholders increased to $41.4 million (sic) [$41.1 million] compared to $33.8 million in the prior year. And again, we declared $0.055 dividend.

Page 7 talks a little bit about how that portfolio has rolled through.

Page 8 talks a little bit about where our communities are located, and we still remain focused in Victoria, still seeing very low saturation of landless communities in Victoria. And obviously, we've got good development land and good certainty around regulation, also planning legislation. So that keeps us motivated to be buying. In terms of the land market, always lots of opportunities that we're looking at and always juggling half a dozen. We've not yet quite the cycled stuff barring the next parcel of land which we've already acquired that's coming up, and we've got plenty to look at, at the moment, which is good. The focus remains around Melbourne and then Geelong still because that's really high sales rates. In terms of our Shepparton project, that's nearly at completion. We've only got 10, 12 to sell, which is good news. That's going to give us something around 304 homes in total. So it's a very good community, which will be a great annuity income generation over time. But for us, region of choice is not quite as -- in terms of sales risk, crazy light, purely for us we don't mix up the capital as quick as we'd like.

The next page, the beautiful picture of a clubhouse, and that's the new clubhouse that we're doing at Mount Duneed. So we're amping up the offer slightly in terms of what we're providing to the baby boomer generation that is a little bit more aspirational to sort of tick their box in terms of what drives them to downsize into these type of communities. Again, with all our clubhouses they're walking in, they're usually blown away in terms of the quality of the offer and the facilities that we provide.

Page 10 talks a little bit about sales and settlements. You'll see this year, our total sales was 209 compared to previous year of 335. So what we saw was really just enough phasing of projects. We've got a lot more projects in that sort of beta phase of sort of where we haven't built the clubhouse and we haven't built -- in some cases, like the time and stuff when we'll start construction. So you're basically selling on a promise of something to come, and we included in the pack, on Page 12, a sort of a really good diagram in terms of explaining how our sales cadence moves around. So a customer will buy, to a certain point, a vacant piece of land with no excavational construction commencing and we got the sales staff catch up and start selling. What they're then really trying to look for is proof of concept. So they look for -- once they get friends, to start going up, that is the first thing where we start to see a bit of a sales tick.

You can see that on the previous graph from Page 11, where you see these spike ups. So that sort of start validating their decision to say, yes, it's got to definitely happen. And when a community then opens, their first homeowners move in, that gives another tick in the sales rates because that also starts driving great referral and also it's a further indication that it's the right decision, it's the right thing to do. And also we haven't displayed at the same time which means same people, good stuff, same product. And then usually, the sort of the closing out thing for us is when the clubhouse opens, that then really proves up to people that they can get a really good sense of the lifestyle that these type of communities offer.

I've just included a page on Page 13. We included a page on just our product evolution over the last 12 months and some sort of things that we're doing. I think this is really big part of Lifestyle differentiation in terms of creating communities that are highly attractive, highly appealing, but also offer a variety of things to do, things to be challenged with and opportunities that homeowners wouldn't have previously seen. At least of those outlined, chiefly like (inaudible) this whole shift to being an electric smart community, and I think that's very much around this issue that gas is not a renewable energy, electricity is a renewable energy. Only gas is of much higher rate than electricity will, so it's going to be a -- longer term burden to our homeowners than, say, electricity. So bridging a hole on things around (inaudible) without taking gas out of our most recent communities with (inaudible), electric town car, (inaudible) to drive. We've got recharge stations. We're putting solar in standard (inaudible) and then facilitating (inaudible) in our communities. We're starting to put smart homes as well with smart -- some smart technology. So that's really well received by customers, and it's also assisting in driving interest.

So just a couple of other things to close up on. We do have some -- we announced this slight turn delays on 2 projects. Nothing to do with the projects themselves, just to do really with the current difficulty with some councils. And there's one council particularly, I don't know how old, but we're having trouble with just about, sort out those issues. So no concern with any of those issues. It's just really a matter of timing, but hopefully, we'll get that sorted in the next 4 weeks to get those out and issued.

Overheads. Certainly, overheads went up. We flagged this at the half, and we should have flagged this last year as well. We had a sort of normalization of this investment that we made in the human resource within Lifestyle Community and now starting to see the impact of that starting to flow through. That was all gain for that being a much bigger number. While FY '20 is slightly softer than what we originally forecast because a project slipped out. Certainly FY '21, where we're talking about 320 to 420 settlements, now that really -- that sort of 400 number has started to become the new norm for Lifestyle Communities, and that's really what that platform that we've created now within Lifestyle Communities is there to generate. So we see that corporate overhead will normalize in FY '20. We would like to see such green spots of increases like that.

So that's pretty much all I've got to cover. And I'll hand over to Darren just to pick up some of the finer financials.

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Darren Rowland, Lifestyle Communities Limited - CFO & Joint Company Secretary [3]

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Thanks, James. I'll just touch quickly on the balance sheet. There's been few moving parts in the balance sheet this year, most notably the debt refinance. So we completed our refinancing at the end of March. We're very happy with the outcome of that, and we welcomed CBA, NAB and HSBC to the business. We've been engaging with them recently just to see what other areas we can look to improve, particularly around some of the technology that's now in the market. So we're looking forward to implementing some of that too. But the debt piece was really around setting the business up for the next 5 years and supporting this sort of new normal that James talked about for FY '21. So we've sort of got the human resource. We've now got the capital resource. And then, honestly, the FY '21 will be where that starts to play out.

The only thing that's happened is the debt itself has increased this year, and that's as a result of settling 5 blocks of land. In particular, we had Bittern and Ocean Grove, which in a normal cycle would have settled the year before. So our starting debt position was probably a bit lower than it otherwise would have been just through some delayed settlements of those projects, even though it can delay us settling homes with homeowners according to the unique situation there though. That's all caught up now. So we settled Mount Duneed, Kaduna Park and also one of the blocks at Wollert. So into the next financial year, we've still got Plumpton to settle the second block at Wollert and then Tyabb after that.

On the cash flow, we had quite a different year this year to last year. And our cash flow because of the way our structure is set up and with the structure going through our operating cash flow, we tend to have a lower cash flow year when we're in heavy development phase. And so at Ocean Grove, Mount Duneed and Bittern were sort of right in the thick of that. And you can see the breakdown of those cash flows in the appendix to this presentation.

And finally, a final call out we made on the other costs in the P&L. Those costs are made up predominantly of the cost of the refinance and also the move of our support office here in South Melbourne. So those won't repeat into next year.

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James Kelly, Lifestyle Communities Limited - MD, Founder & Director [4]

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Fantastic. So we're really up for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question today comes from the line of Michael Peet from Goldman Sachs.

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Michael Peet, Goldman Sachs Group Inc., Research Division - Executive Director [2]

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My first question just on the resale side of the business. Obviously, hard to predict and, I would say, hard to get listings. But I think I'm right in saying that you've put a bit of cost into that side of the business. I can see from the DMF expenses side. Could you just talk a bit about what you're doing there in terms of resourcing and the strategy going forward to sort of help maybe accelerate that, if you can?

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James Kelly, Lifestyle Communities Limited - MD, Founder & Director [3]

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Yes. It's interesting, we sort of sales those up with some bigger numbers, expecting some bigger resales coming through, and that didn't actually -- that didn't trade. It's not that we're having problem selling the product, since we can't get the product to sell, which is the good news. With our restructured market, what's interesting we've got into these clusters now. So we've grouped our business to 4 clusters where there is a more shared resource. That's going to give us a better efficiency and better utilization of how we spread resource streams, new homes and resales, so we can better align resource around that as well. So yes, it's a -- it was -- and we're also putting a little bit more marketing, obviously, into resales as well as both -- the 2 increases in those costs needs a little bit more marketing and some more salary method, I think about 30% salary and about 70% for additional marketing costs to position those communities and to come getting the phone line, replace signboards and keeping them fresh. So -- as well as a lot of database management and database cleanup as well. So what we're trying to do is having very active engagement with the databases so that we keep those on the database merchant. And we're obviously warm in terms of when we have product coming up for resale.

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Michael Peet, Goldman Sachs Group Inc., Research Division - Executive Director [4]

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And maybe one for Darren. So just drilling down on some DMF sort of gross and net costs. If I look on Page 31, that Casey

Fields, I think you reported $527,000 of gross DMF revenue, I believe. And then 32, the net number in the cash flow here is minus $110,000. I'm just wondering how that sort of plays through?

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Darren Rowland, Lifestyle Communities Limited - CFO & Joint Company Secretary [5]

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Sorry, Mike, I'm just trying to find your numbers there.

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Michael Peet, Goldman Sachs Group Inc., Research Division - Executive Director [6]

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I didn't maybe catch it on the hop. But yes, I guess, that negative net contribution in the cash flow, particularly for Casey Fields, are they extra costs that are one-off in there? Or is that where an allocation of the cost -- your costs go? Just interested in how that sort of plays through.

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Darren Rowland, Lifestyle Communities Limited - CFO & Joint Company Secretary [7]

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Yes. Casey Fields is a joint venture. So that does factor in because, obviously, we share, really the cash flows there. Obviously, on the resale themselves, it's a pretty low turnover year. We only had just 3 resales there. So some of those were the database management costs that James talks about there and, obviously, defraying the cost of the resales team itself. That's what's driven that result there, Michael.

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Michael Peet, Goldman Sachs Group Inc., Research Division - Executive Director [8]

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Got it. Maybe just one over the top, James. In terms of -- from the top down, in terms of housing, house prices for next year, if you take into account your mix, you still have some Shepparton. But I guess I'm thinking about locations of the other products you've got, but also 1-bedders versus 2-bedders plus studies. How should we think about the average house price that you'd likely to realize this year?

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James Kelly, Lifestyle Communities Limited - MD, Founder & Director [9]

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It's no doubt that, Michael, with the baby boomer generation, it is going up in a sense that they're wanting bigger houses. So we do make better margin on the bigger houses and, obviously, Shepparton is now settling out. That's coming out of the margin mix, which was a pretty low margin. So you will see the gross margins start to keep up with both, try to -- just getting more lands that obviously flows through the gross margin, but also where we are seeing the baby boomers' appetite for a bigger product. And so we've actually introduced a couple of new big products into the mix as well and done some redesigns in existing products to bring in, eventually, the whole range of things and floating bare lease. And these are the things that, that market is after as well. So yes, I think you will start to see that gross margin tick up as it has since last year.

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Operator [10]

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Your next question today comes from the line of Aaron Muller from Canaccord.

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Aaron Muller, Canaccord Genuity Corp., Research Division - Head of Research of Australia [11]

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Darren, just on the community cash flow margin, probably similar saying to what Michael was talking about. Community cash flow margin dropped from 45% -- from 50% last year to about 45% and, obviously, part of that is the jump in DMF expenses. The other is the management rental expenditures, which was up by 10%. Can you maybe talk about that? Is that sort of relating to the -- some of the added services you're providing at the communities, if that makes sense?

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Darren Rowland, Lifestyle Communities Limited - CFO & Joint Company Secretary [12]

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Sorry, Aaron, it's Darren. Yes, it's a bit of a strange unit climb, but what this is actually caused by is the clubhouses that we're opening during the year, the new communities that we're ramping up. So we don't charge rent until the clubhouse opens. But in a number of cases, for this particular year, we had communities with lots of people living there well before the clubhouse itself opened. So it's a bit of a timing issue is probably the way to think about that. Once the clubhouse opens, then the rent kicks in and the margin sort of comes back to more normal levels. The actual operating cost of the communities itself hasn't changed a great deal. It's more about timing of when the rent kicks in.

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Aaron Muller, Canaccord Genuity Corp., Research Division - Head of Research of Australia [13]

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Okay. And so how should we be thinking about the community cash flow margin, I mean, on longer term? Is it sort of sitting around that 50% or sort of rebounding back up a bit 50%?

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Darren Rowland, Lifestyle Communities Limited - CFO & Joint Company Secretary [14]

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Yes. It will swing around a little bit just when there's a clubhouse opening event. But in the next 12 months, there's no clubhouses due to open. So we'll foresee the impact of Mount Duneed first settlements coming in midway through the year, but rent for Mount Deneed won't kick in until next year. But after all of that, all the other communities will revert to that sort of more traditional level.

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Aaron Muller, Canaccord Genuity Corp., Research Division - Head of Research of Australia [15]

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Yes. Okay. Okay. And then just on resales, how many homes have you got for resale in the portfolio up the line?

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James Kelly, Lifestyle Communities Limited - MD, Founder & Director [16]

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That's 43, I think.

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Aaron Muller, Canaccord Genuity Corp., Research Division - Head of Research of Australia [17]

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It's sort of up from last year. I think it was roundabout equal.

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James Kelly, Lifestyle Communities Limited - MD, Founder & Director [18]

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Actually, it's -- sorry, it's 38. That's a moving figure as opposed to 30 up there, that one. Trial year is 38. So actually we had last month our record ever month for resale. So fairly said, we're getting better visualized and resourced and doing a lot of work around how we better manage the process. This is all just evolution, really, in that constant refine, refine, refine, then I suppose without taking over the resale. It's very different to what we took 6 months ago. We just try to keep financing, doing a lot more -- we actually do displays in empty homes, that sort of stuff. So...

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Darren Rowland, Lifestyle Communities Limited - CFO & Joint Company Secretary [19]

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We expect the number to tick up, Aaron, which is partly why we've sort of increased the headcount around that resales function. And as the portfolio grows, obviously, the percentage that's turning over and if it remains -- stays at the absolute number of homes that we'll have on the market at any time will tick up. It's just actually ticking up a little bit slower than what we thought it might be at.

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Aaron Muller, Canaccord Genuity Corp., Research Division - Head of Research of Australia [20]

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So is that record number, what, sort of, at 7 or 8 for the month of July?

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Darren Rowland, Lifestyle Communities Limited - CFO & Joint Company Secretary [21]

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We have 12 for the month.

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Aaron Muller, Canaccord Genuity Corp., Research Division - Head of Research of Australia [22]

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So your guidance states you have 60 or 80 for the year. I mean it's obviously very difficult to predict, but...

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James Kelly, Lifestyle Communities Limited - MD, Founder & Director [23]

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Yes, it is really hard to predict, I'll be honest. And yes, one of the key measures we have on the timing is time on market. That's the one that really, really -- wanted very hard and looked at the top buyers who are coming in. And that also we -- have slightly different tactics, strategies in each communities based on affordability to the customers. Yes, so we are getting much smarter in terms of where we target. And we're doing a lot more below the line activity in terms of engagement and getting potential homeowners community and merchant databases. So...

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Aaron Muller, Canaccord Genuity Corp., Research Division - Head of Research of Australia [24]

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Yes. Okay. And one last question for me. Just on the debt profile for FY '20. Where do you estimate you sort of end FY '20? And where do you think that will take? I mean, obviously, you've got quite a big facility there. But just where it will take this year?

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James Kelly, Lifestyle Communities Limited - MD, Founder & Director [25]

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Yes. We haven't disclosed where we think it will take. But it certainly -- the expectation is that it will increase, as we said on Plumpton, the second block at Wollert. And if you look at the timing of projects, we're sort of heading into a fairly heavy construction period. So we've got Kaduna starting, Wollert starting, Plumpton starting during the year, Mount Duneed still in a fairly early phase. So certainly, our expectation is that the debt is going to tick up from here. In terms of a big -- I mean we don't really sort of think about it as a take and then a reduction because the plan is to sort of continue on the journey that the business has had of evolving new communities. So we've set the debt facility up with a view that we would -- so basically continue the same sort of growth profile with a slow and steady sort of increase in the number of communities we're doing, and that is the plan over the next sort of 5 years.

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Operator [26]

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Your next question today comes from the line of Raju Ahmed from CCZ.

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Raju Ahmed, CCZ Equities Pty Limited, Research Division - Equities Analyst [27]

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Couple of questions. Just following up on your prior answer. Of the 38 resales that are currently on the book, are there any first year resales in there?

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James Kelly, Lifestyle Communities Limited - MD, Founder & Director [28]

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That don't attract a DMF?

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Raju Ahmed, CCZ Equities Pty Limited, Research Division - Equities Analyst [29]

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Yes.

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James Kelly, Lifestyle Communities Limited - MD, Founder & Director [30]

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No. I don't have it off the top of my head, but one thing we have focused on, and we have seen it reduced since the previous year, is the number of resales that don't attract a DMF. It's not like the ones that don't -- actually it's not what I was going to tell you. And so we reduced it -- we've seen that actually reduce. And we're refocusing on people inducting and onboarding people into the communities and creating that (inaudible) experience. But I don't have off the top of my head, so I can't answer out of the 12 that we sold in July, how many are DMF-attracting and how many are not.

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Raju Ahmed, CCZ Equities Pty Limited, Research Division - Equities Analyst [31]

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Okay. All right. Then let's probably just look at the -- so in FY '19, I think somewhere in your presentation, you've got total resales of 71, of which 53 attracted the DMF. So that don't tell us 18. I think what is -- am I correct in hearing from you that, that number 18 will diminish over time or -- because of the rebating process? Or...

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James Kelly, Lifestyle Communities Limited - MD, Founder & Director [32]

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No, it's really -- if you're looking back, in fact we're also increasing the number of settlements over the previous year. So it's more -- there's more people who could take up the smart buy guarantee. So the delta is not really on the total number of resales and how many actually took up smart buy guarantee. Really, the denominator is the total number of resales and the total number of new sale settlements, that's really the denominator. So yes, if we're doing 400 settlements a year plus another 100 resales a year, so it's 500, then my sense is that 18 that we sold last year were probably great, just a much greater volume of people in the communities moving in.

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Darren Rowland, Lifestyle Communities Limited - CFO & Joint Company Secretary [33]

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We also get a part of those that are held for the best reasons, Raju. So we sort of have to take those out when we look at sort of what we can control in that scenario.

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Raju Ahmed, CCZ Equities Pty Limited, Research Division - Equities Analyst [34]

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Yes. Sure. Understood. Just one more detail on that number. Are there opportunistic buyers in there -- in that they look at the market, the pricing is quite compelling. Okay, they moved in, but they can make an upside of whatever the number is, 10 -- 5%, 10% and they start to move on. Do you see any of that?

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James Kelly, Lifestyle Communities Limited - MD, Founder & Director [35]

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Not really. No. It's such a big life decision to downsize. You don't see people who make a living out of it. So I know there was one that -- I can really think of one off the top of my head at Chelsea Heights about 3 years ago, but she did it for other reasons. She just realized that she could make a lot of money. She never had any money, and she spent a little money, she downsized. I think she paid sort of like $150,000 in the first downsize. And then she resold that 6 months, so it was extraordinary the rate of spend, and then realized she had not much money left. And so she did it again. But she wasn't really speculating, I guess. I just remember, in particular, out. But no, you can't really say that people who does all that work and all that process in moving in just so they make a quick buck and then do it again. By the way, that 12% of people who move out of Lifestyle Communities move in between Lifestyle Communities, so it's interesting that they might buy, say, at Shepparton, which is a much cheaper community and pay out some more equity that way.

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Raju Ahmed, CCZ Equities Pty Limited, Research Division - Equities Analyst [36]

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Okay. Understood. Your customer sales referral rate, I couldn't find it on the presentation today. What is it now?

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James Kelly, Lifestyle Communities Limited - MD, Founder & Director [37]

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54%. So I think it's in the annual report. Sorry, we didn't actually put it into the presentation. So it's remained pretty consistent.

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Raju Ahmed, CCZ Equities Pty Limited, Research Division - Equities Analyst [38]

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Okay. And so the question for me on that one was, are you seeing any -- have you quantified, I suppose cost savings, this referral rate gives you as a company?

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James Kelly, Lifestyle Communities Limited - MD, Founder & Director [39]

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No. What we have is the additional sales it's going to give us. So what we've done, as we said, we'll keep spending the same number of marketing, but we have a much higher expectation of sales. But the one thing we do know also is that it's not necessarily -- referral is a combination of who we engage for advertising and also someone who tells them it's good. They've earlier disliked our community, yes, yes, yes, that's really good. I love that. So it's not all just straight. They would've never move if they haven't had the referral. They probably see a level of marketing before they start talking to friends and then they may find a friend of a friend who have moved into a Lifestyle Community and then they've got to talk to them and they get comfortable about what the offer is and then on that [pace] they buy. So yes, we don't view referral as a way of saving costs. We view referrals as a way of building sales numbers.

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Raju Ahmed, CCZ Equities Pty Limited, Research Division - Equities Analyst [40]

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Sure. Okay. And the last question for me was, on your outlook statement, you commented that you've entered FY '20 with 1 less project than planned. Are you just able to elaborate on what you meant in there? And what -- how should that comment shape our thinking as you certainly move to the forward years?

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James Kelly, Lifestyle Communities Limited - MD, Founder & Director [41]

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It shouldn't shape our thinking. It's purely -- the only thing it should shape is that we manage shareholders' capital very carefully. And we actually sort of stayed out of the market on an acquisition in FY '19. The market was just red hot in the early part of FY '18 and early part of FY '19. So really, it was -- we just decided to stay out of market. And -- until we could find the right piece of land rather than just buy any piece of land because we had to tick a box in terms of buying land. So it was more -- I think the way to say it is that we are very cautious with shareholders' capital, and we only buy the right sites that tick all our boxes. We just don't buy any site because we're in cycle to buy another piece of land. So FY '20 is a little bit of that because we would normally have one extra project we'd be building out, and we haven't got that. So you actually don't see us tick as much any else, Raju, in the sense that we're in a long-term business, and we're very cautious of our shareholders' capital. We can't raise equity. So yes, we're very cautious with what we do and what we buy. We want make sure every purchase we buy is going to be a great success.

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Raju Ahmed, CCZ Equities Pty Limited, Research Division - Equities Analyst [42]

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I guess -- no, I understand that. But I guess, that's a reflection of your asset revaluation to an extent as well, isn't it?

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James Kelly, Lifestyle Communities Limited - MD, Founder & Director [43]

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Sorry, I didn't take the link. Sorry?

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Raju Ahmed, CCZ Equities Pty Limited, Research Division - Equities Analyst [44]

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No. In terms of -- if you're -- if the market conditions are quite hot, that it's not conducive for you to buy a parcel of land for future development. Is it also a signal that there might be further asset revaluation on the cards? Or that's already been reflected in the 0.5% reval that your auditors sort of ascribed?

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James Kelly, Lifestyle Communities Limited - MD, Founder & Director [45]

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Two different things, I'd say. One is that, that what we're saying is the land market's quite hot, which is -- as a slightly different driver to say what our market does in terms of valuing completed communities. So they're not necessarily so linked. So I don't see where they're sort of cash flow valuation, which is very different to what land development, the value there. So we just saw a lot of -- particularly, overseas money certainly pour into the land market that drove land prices to some ridiculous levels, which now, fortunately, have sort of settled back down again. And it was at that time with these ridiculous land prices we just decided better to stay out. And unless we find something that's a peaked up offer, we weren't just buying land for land's sake. Our valuation issue is another whole different story. Again, that's a cash flow valuation, and we -- the market -- the value sort of fit to drop it from 10.5% cap rate to a 7% cap rate. It's interesting that the same assets in America are currently being valued at 3.8%. So -- and so again, we always think about this saying, here it is that you've got community of, say, 200 homes, they're locked in for that use, coming up the -- they can see it's bigger than a whale of body use. And yes, you see small, mid-regional shopping centers doing for 5% cap rates, you go wow, where's the different risks that are -- the various, I guess (inaudible) fairly considerably geared. I think it's sort of still conservative days, I think. So -- and I guess our market cap shows that.

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Operator [46]

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Your next question today comes from the line of Michael Peet from Goldman Sachs.

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Michael Peet, Goldman Sachs Group Inc., Research Division - Executive Director [47]

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James, I've just got a couple of follow-ups. Just on the outlook for '20, with the range on the settlements. I imagine, is it Kaduna Park, the one that's still got to get planning approved. Could you just talk us through where that is and the timing risk on that?

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James Kelly, Lifestyle Communities Limited - MD, Founder & Director [48]

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I'm really comfortable with where that is. Just actually had a meeting with our planning team over that, the 2 issues. So -- and it totally -- that will be fixed. So that's very close.

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Michael Peet, Goldman Sachs Group Inc., Research Division - Executive Director [49]

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Okay, great. Darren, you pointed out that the -- in the P&L, there's a few one-offs, obviously, the refi and the move of office. Could you just quantify those one-offs? And I imagine this is in the finance cost line and the other expense line. Just clarify where those are and what we should be modeling going forward for those lines?

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Darren Rowland, Lifestyle Communities Limited - CFO & Joint Company Secretary [50]

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They're in the other expenses line, mate. So the finance cost is sort of the usual normal finance cost. Those ones sit in that other expenses.

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Michael Peet, Goldman Sachs Group Inc., Research Division - Executive Director [51]

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So if I look at the $2.3 million from FY '18 on other expenses, is that more an underlying number for '19 and a go-forward into '20?

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Darren Rowland, Lifestyle Communities Limited - CFO & Joint Company Secretary [52]

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In the presentation, that $2.3 million includes the utilities cost. If you go to the P&L in the actual annual report, there's a more detailed breakdown in it. So the one-off costs were roughly $700,000.

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Michael Peet, Goldman Sachs Group Inc., Research Division - Executive Director [53]

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$700,000. Right. Okay. Great. Just a question generally around build costs with infrastructure and civils and clubhouse. And I guess in the context, the clubhouses are looking maybe even better and better every time you build one. But what are we looking at there in terms of both inflation, but also absolute cost?

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James Kelly, Lifestyle Communities Limited - MD, Founder & Director [54]

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Since inflation's still being pretty much matching CPI, so we're still sort of 2% on build cost. On the clubhouse cost, that clubhouse you're looking at is about 15%, 20% more expensive than our current clubhouses, but it's got more features. Also, what the season is really doing more -- we've got fewer communities. We build those types of clubhouses because they've got the integrated aqua clubs. So we have to build a separate aqua club. The club work has outshined the bigger communities, because the big communities don't have the clubhouse and aqua club now that we integrate them with doing 2-for-1. So we put those 2 together, that affords us to do the big clubhouse pretty much as a breakeven to what we would have spent.

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Operator [55]

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(Operator Instructions) James, we have no further questions on the line today.

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James Kelly, Lifestyle Communities Limited - MD, Founder & Director [56]

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Thank you, Vincent. Thank you, everyone, for dialing in.

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Operator [57]

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Ladies and gentlemen, that does conclude the call for today. We thank you all for your participation. You may now disconnect.