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Operator: Thank you for standing by, and welcome to the Ingenia Communities Group 1H '26 Results Teleconference and Webcast. [Operator Instructions] I would now like to hand the conference over to Mr. John Carfi, CEO and Managing Director. Please go ahead.
John Carfi: Good morning, and thank you all for attending. I'm pleased to be presenting our first half results for FY '26 and to confirm we remain on track to deliver the targets and objectives set out in our 5-year plan, including a 10% to 15% compound annual growth rate in settlements. We are now halfway through the second year of our 5-year plan and despite growing competition in the living sector are well progressed in the delivery of improved shareholder returns. Before I get underway, allow me to introduce some of our executive team who are here joining me to present and also to answer questions. Justin Mitchell, our CFO; Donna Byrne, General Manager of Investor Relations and Sustainability; Kristy Minter, EGM Residential Communities; Matt Young, EGM Tourism; and Michael Rabey, EGM, Acquisitions and Development. I'll start on Slide 5. We started this year with a solid foundation in place, having successfully delivered on our year 1 goals, which established a more streamlined business with a clear purpose and focus on improving development returns, operational efficiency, enhanced productivity and industry-leading customer service. Our first half result demonstrates further targeted execution, which puts us on track to deliver our year 3 goals and a full year result at the top of our guidance range this financial year. New home settlements, a key driver of our result are in line with our expectations and are down on first half last year as we revert to a more traditional second half skew. We are seeing ongoing demand for our land lease communities and have increased both occupancy and rate across the Holidays business, underpinning our growth for the second half. Operationally, we are seeing ongoing strong demand from our customers with consistent momentum across all areas of the business, and I'm extremely pleased with our progress in relation to key strategic goals. Key to improving returns is the significant progress made in development, where we have established the foundations for a strong second half, growing lot settlements and improving returns in line with our 5-year plan. Over the half, we commenced 5 new projects and progressed the execution of key project milestones, including facilities delivery, display homes and home production. This timing has driven the second half skew consistent with prior years and puts us on track to deliver our 5-year settlements CAGR target of 10% to 15%, underpinned by sales in hand. With greater financial discipline in place, we are now implementing design and procurement changes across new projects as we cycle through older projects and deliver communities which have been designed with greater efficiency and improved financial goals, including cash generation. Importantly, and despite growing competition in the sector, we have managed to strategically restock and extend our development pipeline, and I look forward to announcing further details as each transaction concludes. Financial metrics will improve this year in line with our year 3 targets as we see higher return projects such as Sanctuary and Latitude One expansion contribute in the second half. Over to Justin now to discuss our financials.
Justin Mitchell: Great. Thanks, John, and good morning, everyone, and thanks for joining us this morning. I will start on Page 8 with the key financial highlights. Pleasingly, the group has maintained momentum across our operating businesses, delivering a solid performance for the first half, in line with expectations, and the group is on track to deliver at the top end of guidance. The Holidays business has continued to deliver strong results with tourism revenue increasing 12% on a like-for-like basis. While new home settlements were lower, this is consistent with previous communications with a more pronounced skew to the second half. Development gross margins has remained stable for Ingenia at 46%, while the joint venture pleasingly saw an increase to 53%. We remain focused on delivering enhanced financial returns for development and across our diversified business while maintaining a prudent balance sheet position to fund growth, which I'll talk to in more detail shortly. Now focusing on the financial results. Revenue was flat -- sorry, revenue was flat relative to the prior year. Holidays performed well, driving significant growth in revenue, demonstrating continued momentum with ongoing strategic investment to deliver enhanced value across the portfolio. Together with the growth in rents from our living business, this offset the lower development settlements I referred to before and the impact of DMF recognized in the prior period. Group EBIT reduced 1% to $85 million. This slight decline was in line with expectations, primarily due to the timing of settlements and DMF noted previously, offset by a higher composition of settlements from the joint venture projects. Overall, first half settlements totaled 248, with 29% of those coming from the joint venture. Our underlying profit was $62 million and EPS was $0.152. The decline in these metrics was the result of items noted previously as well as a higher debt cost and the normalization of the effective tax rate. Normalizing for both these tax and DMF, underlying profit was down 3.5%. Our statutory profit increased 11% to $97 million, driven by positive net revaluations across our portfolio with strong underlying earnings growth, coupled with relatively stable cap rates. These valuations uplifts contributed to an increase in our NTA to $4.10. An interim distribution of $0.048 per security has been declared as we move towards alignment of distribution with the taxable earnings from the trust. Turning to Slide 9. Whilst we have seen growth in EBIT across our nondevelopment segments, there continues to be cost headwinds with growth above CPI and in particular, council rates, utilities, waste and volume-related expenses within our tourism business. Lifestyle Rental contributed $25.7 million in EBIT, up 6%, driven by contracted and market rent reviews and new annuity income from settled homes. The Lifestyle EBIT margins have been impacted by lower CPI and legislative changes reducing rental growth in comparison to the prior year, no DMF income recognized and new community scaling as the portfolio expands. Lifestyle Development contributed EBIT of $32 million, impacted by higher marketing costs due to the launch of new projects as well as anticipated second half skew of settlements. Average home prices and gross margin were relatively flat year-on-year, but we do expect these both to improve in the second half, driven by the mix of projects. The development joint venture delivered a 56% increase in operating profit to $12 million, with settlement volumes increasing to 72 for the half, coupled with both average price and gross margin improvement. Holidays delivered a 10% increase in EBIT to $31.5 million. The business has benefited from higher occupancy and rate growth, supported by our strategic investment in new acquisitions and in new cabins. I'll now turn to page or Slide 10. We continue to actively manage capital with discipline and have maintained a prudent balance sheet position. At 31 December, gearing was 31%, comfortably within our target range and providing capacity to fund further investment. The group has circa $200 million of funding headroom, which combined with strong cash flows from lifestyle rental and holidays provides capacity for growth. The group remains well supported by its lenders. In December, we secured an additional $100 million in new facilities, and our weighted average debt maturity is 3.3 years with no expiries before January 2027. Drawn debt was 55% hedged with the weighted average cost of debt at December being 5.03%, which we forecast to increase in the second half. I want to emphasize that the group can fund its existing projects. As opportunities arise to expand our development pipeline and strategic investment in Holidays, we are able to strategically recycle capital from lower growth assets across our Lifestyle and Holidays business. This would facilitate the release of capital, reduce gearing to be invested into higher returning projects. In closing, Ingenia is well positioned, underwritten by stable and recurring income with strong momentum from our existing operating assets. The group has delivered a solid result for the first half in line with expectations and has continued to make good progress on executing our strategic targets. Based on this momentum, we expect to deliver at the top end of our guidance range. We maintain a disciplined capital position while continuing to invest in growth aligned with our strategic objectives. And we have sufficient capital available to fund this growth with multiple capital recycling options available as required. I will now hand over to Michael Bray to discuss the development results.
Michael Rabey: Thank you, Justin, and good morning, everyone. Turning now to Slide 15. We are pleased with our development performance for the half, reflecting our continued focus on scaling the business, improving project level execution and embedding a disciplined delivery model shaped by the work completed over the past 18 months. Our EBIT result reflects our expected second half skew and settlements, increased joint venture contribution and significant investment in new projects and marketing activity. We settled a total of 248 homes in the first half. And importantly, sales on hand position us well for full year growth in line with our strategy. Pleasingly, in that time, gross margins have remained stable and within our target range. We're now seeing tangible benefits from our design, cost, construction and efficiency initiatives, positioning the business to move into positive cash generation in the second half as newer, higher return projects contribute. At the same time, we continue to trade out of mature projects, reinforcing capital discipline and establishing a strong platform for scale and efficiency as future projects commence. Despite recent changes in interest rate sentiment, our position remains strong for the full year, underpinned by sustained demand for age-appropriate housing and the structural undersupply in this segment of the living sector. Moving to Slide 16. Joint venture projects contributed 29% of group settlements and are expected to peak in the current financial year. Margins remain strong with net cash generation exceeding $100,000 per lot, supported by resilient pricing, particularly in New South Wales. While these projects continue to deliver strong returns, their proportional contribution will moderate as Ingenia-owned projects increase their share of settlements, driving improved EBIT outcomes in future periods. Moving to Slide 17. We have maintained stable build times across 16 active projects and continue to align delivery tightly with demand. We completed 254 homes in the half, up 17% on the prior corresponding period and closed with limited finished inventory. As at the 20th of February, we have settled 301 homes, in line with the prior corresponding period and have a further 440 deposits and contracts on hand, representing a 23% increase on PCP and cementing our confidence in full year guidance and momentum into FY '27. Improvements to the sales journey have also delivered better sale quality, reduced cancellations and shorter time frames from sale to settlement. Moving to Slide 18. With home selling across 13 projects this financial year, we have the scale and product diversity to optimize performance across markets. In the first half, we saw improving days on market with Queensland continuing to deliver market-leading results. Pricing momentum remains strongest in Queensland, followed by solid growth in New South Wales with promising early signs of improvement emerging in Victoria, where we have seen significant growth in settlements in the first half compared to PCP. I'll finish on Slide 19. We completed final settlements at Nature's Edge during the half, now contributing stable rental returns and are preparing for final settlements at Hervey Bay and Freshwater in the second half. New communities are contributing to settlements growth in FY '26, including Springside in Victoria and the Latitude One extension in New South Wales. We are also restocking our strongest market in Queensland with 5 new communities commencing this year, delivering first settlements from FY '27. These new projects provide the opportunity to meaningfully benefit from the productivity, quality and efficiency initiatives delivered over the past 18 months. Sunbury is a clear example as the first project where we have fully embedded optimized master planning to drive yield uplift alongside cost-efficient slab and frame systems supporting gross margin expansion and disciplined specifications that meet customer needs while enhancing returns. We continue to extend our pipeline following the Townsville acquisition with 7 opportunities with potential for over 1,700 homes currently in due diligence or contract negotiation as we also explore first moves in new geographic markets. In closing, we have delivered a solid first half with strong sales momentum, supporting full year guidance and providing a firm platform into FY '27. Our focus remains on growing the pipeline, maintaining capital discipline and embedding initiatives that support scale, efficiency and returns. I'll now hand over to Kristy Minter to take us through the residential portfolio.
Kristy Minter: Thanks, Michael. I'm pleased to present the results for our established residential communities. These outcomes demonstrate the stability of our rental annuities and our focus on delivering high levels of customer satisfaction. I'll start on Slide 20 with a summary of the Lifestyle Rentals segment, which achieved 6% EBIT growth, driven by increases from existing sites and 182 new rent-producing sites. Our stabilized EBIT margin has remained steady despite challenging operational cost escalation. Turning now to our land lease communities on Slide 21. Our land lease site income continued to grow with 2 new communities completed in Queensland. Average weekly rent is up 4.6% on prior year, and we completed 133 resales, generating an additional $2.1 million in commission. Rent growth has been impacted by government legislation with Queensland rents capped at the higher of CPI or 3.5%. And in New South Wales, we have adopted a fixed 4% annual increase. Operating costs continue to exceed CPI with council rates, water and waste disposal rising by more than 20% in the past year. We are managing margin impact by resetting site rent through strategic buybacks and resales and additional focus is being applied in driving more efficiency in the operation of site facilities and services. Our commitment to customer obsession is underpinned by 4 pillars of operational excellence that boost resident satisfaction. This, together with our Ingenia Connect services, ensure our communities stand out as a preferred customer option, helping to drive market share, retention and increased referrals. Moving now to our all-age rental portfolio on Slide 22. Occupancy remains strong at 99%, thanks to continued high demand for rental accommodation in our key markets in Brisbane and Melbourne. We achieved strong rental growth across this portfolio and we will continue to maximize revenue by upgrading accommodation and adding new homes. Consistent with our strategy, we are targeting over 14% yield on future investment in new homes across these communities. Lastly, our Ingenia Gardens communities on Slide 23. Solid financial returns have been achieved through high occupancy, rental increases and diligent cost management. Our commitment to delivering exceptional support and service to our residents is demonstrated by an average 85% satisfaction rate. Ingenia Connect services are highly valued by our residents, and we are seeing a positive improvement through an increase in tenure, which is at an all-time high of 4.1 years. In closing, we have consistently shown operational discipline, strengthened our point of difference and fostered a strong sense of belonging for our residents. Thank you. I'll now pass to Matt Young.
Matthew Young: Thanks, Kristy, and good morning. Moving to Slide 26. As Justin mentioned, Holidays has delivered significant growth in EBIT with an increase of 10% for the period. Importantly, the new website has delivered a strong early performance with revenue up 18% and conversion up 32%. This has assisted in shifting approximately 8% of direct bookings that were previously made at Park to now being made via the website, improving booking efficiency, strengthening data capture and reducing pressure on park themes. Variable costs are higher directly correlated with the uplift in occupancy, including linen and wages. With higher occupancy and the average length of stay decreasing by 3%, these costs remain in line as a percentage of revenue. While EBIT growth was significant, margin has declined slightly due to marketing spend incurred as we finalize work on our new website and implemented our AI pricing tool. Ongoing cost increases in nondiscretionary expenditure included lining costs, waste counsel and rates and utilities. Additionally, OTA spend increased, reflecting the recovery in international demand, which is more costly to acquire with our global OTAs. We continue to use these channels deliberately as an acquisition tool, particularly for international and first-time guests. With around 65% of OTA bookings coming from new guests, they remain an important driver of customer growth, supported by a clear strategy to convert these guests into loyal repeat customers through targeted retention initiatives and our direct booking strategy. Moving to Slide 27. Our new acquisition in July, Kinka Beach, South of Yeppoon, has performed strongly since acquisition, with cabin occupancy up 15% and rates increasing materially, supported by improved distribution, pricing discipline and enhanced online visibility. Since going live in December, the new accommodation has generated over $85,000 in bookings with forward bookings up 48% over the next 12 months, demonstrating early outperformance against expectations. In parallel, the Rivershore expansion comprising of 80 additional sites across glamping tents, bell tents, tiny homes and powered sites remains on track for completion in Q2 FY '27. Moving to Slide 28. In summary, the Holidays portfolio enters the second half with strong momentum. Strong demand, improving margins and the early success of our digital initiatives continue to support revenue and EBIT growth, positioning the portfolio to deliver sustainable long-term returns through FY '26 and beyond. Thank you, and I'll now hand back to John.
John Carfi: Thanks, Matt. Our disciplined focus on execution continues to yield favorable results as we move into the second half with a clear pathway to projected growth targets, enhanced returns, sufficient capital to fund growth and a business that is laser-focused with a highly disciplined approach to driving efficiency and productivity. As we move into year 3, we expect gains from our initiatives to accelerate. Our people and structure are in place. We have a highly motivated workforce deeply committed to delivering on our strategy and medium-term goals with conviction. The business is generating growing cash flows. Our operating business is performing extremely well with clear strategies, targeted acquisitions and development supporting increase in a growing base of stable cash flows. Development is on track. We are seeing solid demand across our existing projects with the commencement of new projects providing a runway for growth in settlement activity into FY '27. We are on track for planned settlements in the second half, underpinned by sales in hand. We will deliver growth on second half '25 and see the peak of settlements from the joint venture. As new projects benefit from refinement of our designs and procurement, optimized project returns and cash generation will begin to be realized. Assuming no material change in current conditions, we expect settlements to grow this year and our full year result to sit at the top of our guidance range. Capital management supports our 5-year plan. We have sufficient capital for our needs and are deploying in line with our financial and strategic goals. We remain comfortably within our gearing and hedging target ranges and continue to maintain prudent capital settings with balance sheet capacity to support planned investment growth, along with the potential to dispose lower growth assets for opportunities beyond our current plan. With the foundations in place for delivery of our core 5-year plan, we continue to review opportunities to accelerate growth, including pipeline expansion and adjacencies in the living sector, allowing us to capitalize on growing demand and accelerating our scale ambitions. Finally, we have a strong position in a very attractive living sector, which remains resilient, underpinned by the fundamentals of a growing and rapidly aging population and a structural undersupply of suitable housing solutions. With an experienced and motivated team in place, we retain strong conviction in our strategy and our ability to deliver growth, scale and improve returns. That concludes the formal presentation today. But before I go to questions, I'd like to thank the entire Ingenia team for their support and commitment. I'm pleased with the position that the business is in and look forward to updating you on further progress. I'll now open the call to questions.
Operator: [Operator Instructions] The first question comes from the line of Adam West with JPMorgan.
Adam West: I'm just wondering, so you mentioned in the back of your slides that there was higher incentives across the Victorian projects impacting the development profit per site. I'm just wondering, do you expect this to be persistent? And how are the Victorian incentives sort of comparing to New South Wales and Queensland?
John Carfi: Thanks for the question, Adam. I'm not sure we agree. We haven't experienced higher incentives. We budget for incentives at the start of the year, and then we dial them out depending on needs, whether we want to accelerate sales or whether we think we've got difficult projects to move, but there hasn't been a significant increase, if anything, on last year.
Adam West: Okay. That's clear. And I'm just wondering, the second one is, I guess, how are you finding competition for sites, particularly in the Queensland region? Have you seen a step-up? Or is it pretty consistent with what you're seeing last year?
John Carfi: I think last year, we were already seeing strong competition for sites. And there's probably 2 aspects to that. One is we did a lot of work on strategically looking for areas to focus on and obviously, efficiency and what have you. We've done a lot of work in communicating strategy on the ground to external agents and dealers for one of a different -- better term. So we're getting a lot better deal flow than where we were. The other thing is we've expanded what we're looking for. And I think I've spoken about it in the last 12 months. If we see larger sites that are on the market where perhaps the land lease competitors aren't competing, let's say, a 30-hectare site somewhere, then we'll look to secure that, do 10 to 12 hectares of land lease and either develop out the other component or look for another buyer to take the other component. So pretty comfortable with the deal flow we're getting at the moment. We've got a lot of deals on the table. We're backfilling the pipeline at a rate greater than we're chewing through it. So we're pretty comfortable.
Adam West: Yes, that's clear. I guess just final one for me, but in the Holidays business, I guess, sort of mentioned you've got an AI pricing tool. I'm just wondering, can you provide a bit of color to that? And have you seen a better rate coming through since you've implemented it?
John Carfi: I'm going to have a go at answering that. But if I can't, I'll throw it to Matt because I'm really out of my depth. So we -- obviously, most tourism business use pricing tools. AI has just been helping us by being able to do it a lot quicker and more frequently on a daily basis. But obviously, we've got to plug in the core assumptions where we want occupancy to land, and it will manage around that occupancy and peak demand. What we found in prior years, we were probably selling peak periods too early. in order to get a high occupancy rate. But as we're moving through, we're able to delay those in some cases or still take the uplift in revenue based on assistance from the AI pricing tool. I'd say it's a work in progress, but probably the biggest takeaways that allow us to reprice more often on a daily basis than what perhaps it would have in the past.
Operator: The next question comes from the line of Adam Calvetti with Bank of America.
Adam Calvetti: The 1,700 homes that are in DD at the moment, it seems like quite a sizable amount. How do we think about, I guess, the quantum of that and when that potentially might settle?
John Carfi: Yes, it's a good question. And I suppose the answer to that is they're all different and over a period of time. So in many cases, our acquisitions are on a structured basis. So they might require some work, some sweat equity on our behalf to unlock, but settlement would be subject to a planning outcome or a satisfactory outcome. In some cases, it's just a deferred settlement to give us time in order to secure that outcome. And I think I've been saying for the last 12 months or longer, most of the pipeline build that we need is in later years. So we're not competing for something that needs to be able to start tomorrow. It's not to say we wouldn't look at it. So we're seeing less competition in that space. But generally, there's an element of unlock required and the consideration is generally deferred to unlock. And that's why we say comfortably we can continue on the 5-year plan without within the current balance sheet constraints. However, if we see opportunities to accelerate that by something that would need capital to settle early because it is unlocked already, then we've got the ability to do that through the sale of lower growth assets.
Adam Calvetti: Okay. That makes sense. And then on the 5 projects that are commencing in the second half, how do we think about the price point of those relative to the 646,000 average price point over this first half?
John Carfi: I think compositionally, you'll probably see that relatively stable. A lot of those are in regional areas with lower price points. So I think you'll see that relatively stable. As you'll see the JV price point stabilize as we peel off some of the high-priced projects and move more into Morisset.
Adam Calvetti: Okay. That makes sense. And then last one for me. Just on council rates and some of those stat charges that have increased. I mean, what proportion of the portfolio has kind of been hit? And what's potentially still up for, I guess, debate or councils to increase those stat charges?
John Carfi: I think you've seen in the last 12 months across the entire economy, every council in Australia has taken the opportunity to increase rates. Pretty well all our energy contracts have all but renewed. So I think we've seen the bubble come through, if you like. But the caveat there is who knows? I think there are still councils and regulatory authorities out there still trying to get their hands in everyone's pocket generally. There is a lot of lobbying happening at an industry level to try and where we think councils are getting out of control either on rates or other services. But ultimately, they're all trying to pass through costs that they're copying. But I do think we've seen the lump, and we've probably seen the lump across the portfolio, but there'll be odd battles yet to be had in won.
Operator: The next question comes from the line of Solomon Zhang with UBS.
Solomon Zhang: Just wanted to just drill into the cash profit on development. It's good to see the improving trends. You're calling out positive cash profits in second half '26 from a swing of, I guess, negative cash profits in the first half. I just want to think a bit longer term, I mean, where are you targeting cash profits on, I guess, completely new developments, which don't have those legacy cost issues, like whether that's a dollar per home or a percentage of the revenue?
John Carfi: I'd love to give you an exact number, but I'm not going to. Originally, when we set up the 5-year plan and we reviewed the portfolio of projects, we had ambitions of getting to cash neutral at a project level. We've gone from, I think, negative $25,000. We're currently sitting at negative $10,000 0 or $11,000-ish at the moment, and we've got good line of sight to positive cash flow for the full end of this financial year. I think if you look at the result for this half, it's probably more an issue of both lot settlements and composition. Our second half is skewed severely not just by lot settlements, but also by composition. And that's why confidently, we know we're getting the positive cash flow. So ahead of where we expected to be in terms of the 5-year plan this financial year. We have project composition and some internal design initiatives that we think we can continue to improve on that into FY '27 and probably '28 as we roll through composition of older projects. But I don't want to give out external targets other than to say you can expect ongoing improvement through next -- at least the next 2 years.
Solomon Zhang: Makes sense. And you've called out on the sales front, pretty strong momentum. But I guess we have cash rate hikes that have been pushed through and further expectations for more hikes for the rest of this year. Are you seeing any evidence of any slowing sales momentum or metrics? I mean some of your peers are commenting on a little bit more buyer hesitancy and elongated sale to settlement time frames, but just interesting on what you're seeing across the portfolio.
John Carfi: Yes. It's a good question. Obviously, we follow commentary coming from everyone else. Some of it gets made up by the newspapers and someone gets quoted for something you didn't actually say. Like everyone else, we're not seeing an impact at our sales suites. In fact, we've seen an increase in uptake in inquiry. The quality of inquiry has improved and our time from purchase to settlement has also decreased. Now in saying that, I wouldn't be reckless enough to expect that, that would continue. But certainly, our buyer cohort so far has not been impacted by either the interest rate increase or the sentiment associated with that. We'll continue to monitor, obviously, all of those things. But at this stage, whether we're growing market share, I'm not really sure, but inquiry levels are elevated and time to settlement has improved.
Solomon Zhang: Good to hear. Maybe just a final quick one. So when you look at your 440 deposits and contracts in place, what proportion is Victoria? And what's the settlement profile expected throughout the balance of the year? Is it pretty even? Or is it more fourth quarter skewed?
John Carfi: Look, there's a big fourth quarter skew. But let me assure you, having developed and built a lot of housing over the years, we're well placed from a production point of view. In fact, some of the lots in Queensland where we had some weather events, we were worried they would fall over are now back in order. So production is under control. We've got a lot of settlements happening in May, June, but we're geared up. We're comfortable to be able to do that. We're comfortable to be able to monitor our customers during that period of time to make sure that they've done all the things they need to do. to be in a position to settle. So we're pretty comfortable. And as we said, we aim to be at the top end of the guidance because of our comfort associated with that. Most of that is happening in Queensland. There is some Victorian stuff at Parkside and in Lucas, not much out of slower project like Springside. So we are heavily skewed to Queensland where from a production point of view, we're beyond the point where any significant inclement weather would cause a major impact. So we're pretty comfortable.
Operator: The next question comes from the line of Tom Bodor with Jarden.
Tom Bodor: Just was interested in the stabilized EBIT margins for the lifestyle communities around that 53% mark. How do you think about the gap between that number and the sort of facility or community level margin in terms of your regional overhead? And where could that stabilized margin get to over time as you scale up?
John Carfi: It's a great question. We would expect the stabilized margin to improve if we start -- as we scale up based on a lot of initiatives we have in place and obviously, the scale benefits we're getting. But also as we're bringing new projects online, I think we said early on when we produced a 5-year plan, we had some subscale communities. We had some that were just inefficient to operate because of either landscaping or other fundamentals. So as we deliver new things into the portfolio or do expansions like we're doing up at Plantations or Latitude One, we get more efficient as we go because there's less amenity and operational cost per house with rents. And the other thing we're doing to counter that is also despite the fact that we've been restrained in terms of potential rent increases in Queensland and New South Wales and probably likely in Victoria, we have a strategy around strategic rental increases where we believe we're under under-rented or where we might be constrained by a particular regulation that keeps us within the confines of the rental range within the development through buybacks and other initiatives. So we think it's a steady process of continuing to improve. There are some assets where the margins will never improve. And we'll either -- if they're good quality assets, we'll hang on to them. If not, then those are the sort of lower growth assets we might look to dispose of over time. But think of every asset gets worked over on a quarterly basis to see whether there's adjacencies or opportunities to improve margins. So the data is getting a lot better. The team is getting a lot refined, and we're doing a lot of work around efficiency from a development point of view, but also from an operational point of view. So I would see steady improvements consistently for the next 2 or 3 years.
Tom Bodor: Could they get to 60%? Or is that too ambitious?
John Carfi: Sorry?
Tom Bodor: Could they get to 60%? Or is that too ambitious?
John Carfi: I think across the portfolio, that's too ambitious. We might get the odd project that outperforms like everyone else, but I think that would be too ambitious across the portfolio.
Tom Bodor: Okay. Great. And then just on the Holidays business as well, the margin, it was a little bit lower. Just wanted to get a sense as to your full year expectation and how that might look over time? Was there some impacts from this sort of website and booking system that were in the margin that would be next period? Or I'd just be interested in your comments on that.
John Carfi: Look, there's 2 aspects to that. There's some of the marketing and website costs we took through impacting margin. The other thing is we've identified opportunity to chase revenue through taking advantage of the increase in overseas bookings, and that comes at a cost, obviously, but the revenue benefit at an EBIT level is too good to pass up. So we'll continue to chase that. We'll manage the marketing website cost. But if that revenue comes at a slightly greater expense and it's providing an overall benefit, we'll probably continue to chase that.
Operator: The next question comes from the line of Suraj Nebhani with Citi.
Suraj Nebhani: Just a couple of quick ones from me. Firstly, I guess, John, the confidence around getting to the top end of the guidance and your comments and Michael's comments around improvements in volumes year-on-year. Just keen to understand how you're thinking about that? Can you give me some color around expectations for settlements?
John Carfi: Yes, definitely. So I think you've got to look back at the first half of last year as an anomaly, both in terms of the percentage of settlements or the SKU and also the composition of those settlements. This first half has been both low numbers and a composition issue that's driven the result. In the second half, we're pretty well all but bedded down the sales we need. So by the end of March, effectively, we get to a point where there's nothing we can sell this year that will settle this year. The team, we're pretty comfortable that we've secured or all but secured what we need to do to settle this year, and they're high-quality contracts. We obviously identify every single customer, the likelihood that they're going to settle the position they're in to settle and obviously, the production. So we're fairly confident around the number of lots. And obviously, at the same time, we're betting down the composition. So we have great line of sight to both the quantity and the composition, and that is the biggest factor driving our result for the second half, and that's why we've got confidence coming out and saying we're going to be at the top end of the market. The team, for your benefit, is well and truly focused now on securing sales for FY '27 and getting FY '27 production in hand and under control.
Suraj Nebhani: Right. So I guess in terms of regular SKU, is there any period that you think might be more representative or like maybe FY '24 or something like that? Like I'm just keen to get a sense. And in terms of growth, like year-on-year, would you say you'd be in the 10% to 15% 5-year target range?
John Carfi: We certainly affirm that on a lot settlement basis, we confirm the compound annual growth rate over the 5-year period. Now that's not to say it's a consistent number every year, but over that 5-year period, we expect it. We're certainly targeting to deliver within that range on an annual basis. I don't know that there's a regular first half, second half skew in this industry. So I wouldn't anticipate that we'd end up with a similar skew next year, particularly in terms of composition, but it's hard to predict until we start making the sales. But yes, we're pretty comfortable with the 5-year plan CAGR that we've put out and delivering in accordance with that.
Suraj Nebhani: And then maybe just one question on margins more broadly across the various divisions. How do you expect that to change half-on-half, Development and Rental and Holidays?
John Carfi: I'm going to throw to Justin to take that one.
Justin Mitchell: Sir, Justin. I you're talking about EBIT margins, obviously, in relation to each division. So maybe just quickly step through. As we've previously indicated, with the second half skew, so lower settlements in the first half and obviously, the cost of marketing that we've invested, which would clearly flag. As we see that improve in the second half, you would expect those margins, the EBIT margins to improve half-on-half. So there's upside there. I would suggest that holidays as well would also see some improvement given that typically, January is probably our strongest month from a revenue perspective. And we started to see some of those costs, particularly around electricity already embedded in the first half, whereas in the prior year, we sort of like relative to that, taken a significant uplift. like electricity is something like 40% increase. So I would expect that to see an improvement as well and that Lifestyle will be reasonably flat half-on-half.
Operator: The next question comes from the line of Ben Brayshaw with Barrenjoey.
Benjamin Brayshaw: I was wondering if you could just talk high level about the outlook for the joint venture over the medium term, whether you're expecting to commit more capital to add inventory. Just how you're thinking about the joint venture in the context of ownership arrangements. You mentioned on the call that the settlement activity, if I heard correctly, would peak in the second half of this year.
John Carfi: Good question, Ben. Look, good question. The joint venture hasn't made any acquisitions in the 2 years I've been here. We've offered them every opportunity we've identified. And at this stage, they've declined each one. We are cognizant that they have a new CEO in place and presumably in the process of reviewing strategy. Justin and I are meeting with them in Miami next week to bring on discussions to see what intentions they have. They have a right to participate in acquisitions. And as I said, they've not demonstrated that. So either way, even if they started participating tomorrow, then those new projects probably wouldn't go into production for another 3 years. So either way, you will see a decline in joint venture settlements as a percentage of overall from the end of this financial year or a peak at the end of this financial year. At that point in time, the only joint venture project that will be in production is Morisset, barring 1 or 2 potential sales at Natura or Element. So we're happy to stay in that joint venture. It doesn't need any further capital investment. In fact, it's likely to make a distribution. So it won't burden the balance sheet. We're happy to do more things with Sun if opportunities arise. However, at this stage, we still feel as though we're more opportunity constrained than capital constrained, and we are sourcing enough opportunities to backfill the pipeline on balance sheet. But they do -- I must emphasize, they do have a right to participate, and we have no obligation to take them out of the JV, and they've not indicated any desire to get out of the joint venture.
Benjamin Brayshaw: And perhaps a question for Justin. If you could just talk about the operational leverage within the JV and if the settlement rate was to decline in the future, whether that -- whether you expect that would impact the margin?
Justin Mitchell: Look, as John said, we've only got one project that will be settling beyond this year. So I'm not particularly concerned around pricing in that joint venture. We have -- really the debt is secured against the passive assets, which are the 3 that will be completed. And we have a small amount of debt. As John alluded to, we're actually taking cash out of that joint venture as we're through the vast majority of infrastructure spend, et cetera, and starting to realize pretty significant returns from -- cash returns from those projects. So it's not something that is a significant concern.
Benjamin Brayshaw: In relation to the EBIT margin, you're not concerned about the margin in the future?
Justin Mitchell: Of the EBIT margin? No.
Benjamin Brayshaw: Okay. John, you mentioned that there was sales momentum, in particular for the months of January and February. I was wondering if the sales momentum also something you've seen come through for the 6 months to December? Or how you describe the sales velocity?
John Carfi: Yes. We've definitely had improving -- steadily improving inquiry all the way through for this year. Some of that, Ben, obviously relates to the timing of marketing and project launches. So it's not as steady. It can be sporadic from that point of view. But yes, inquiry levels have been steadily increasing and up. It's hard to pick, is it the market? Is it us? Is it something we've done. But certainly, we have done a lot of work behind the scenes to improve our marketing to improve our website and to improve the pain points for customers to get to an appointment with us. So all of those things, in my view, have converged to increase that activity at a customer level. We've not seen it slowing. We'll continue to monitor. But I would say all those initiatives have played a part.
Benjamin Brayshaw: So if I look at the contract and the settlement activity in the last 6 months, it looks like the net sales have been in the order of 250 lots, which is sort of flat on where you've been tracking in the last couple of years. Is that accurate?
John Carfi: I'm not sure. I'm going to throw it to Michael on that one, if I can.
Michael Rabey: No. We've seen net sales increase on PCP for the 6 months. So new sales in those 6 months grew significantly on the PCP.
Benjamin Brayshaw: Are you able to say just approximately in rough terms, what the percentage increase in the sales rate has been?
Michael Rabey: Well, I think the sales on hand, as you saw in the presentation, were up a total of 23%. So some of that is obviously going to relate to future periods, but it's in that order, if not a little bit higher for the first 6 months.
Operator: There are no further questions at this time. I'll hand back to Mr. Carfi for closing remarks.
John Carfi: Well, thank you all for your attendance and for your interest. Justin, Donna and I look forward to meeting with many of you in the coming weeks, and we will be available for any additional request. Thank you once again for attending today. I will now conclude the call.
Operator: Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect. Thank you.