Priorities and performance
|($M, unless otherwise stated)||FY18||FY17||Change|
|Lots settled (lots)||6,438||6,604||2.5% ↓|
| - Including superlot revenue1||58||91||36.6% ↓|
|EBIT (before interest in COGS)||435||412||5.6% ↑|
|EBIT margin||23.8%||23.3%|| ↑|
|Operating profit (FFO)2||336||270||24.3% ↑|
|Operating profit margin||18.3%||15.3%|| ↑|
|ROA - core portfolio3||22.0%||20.8%||↑|
|ROA - total portfolio||20.4%||15.2%||↑|
1 30 superlot settlements in FY18; 44 settlements in FY17.
2 Operating profit is equal to FFO for the Residential business.
3 Core excludes impaired projects.
The Residential business delivered strong profit growth, up 24.3 per cent from FY17, with solid volumes of net deposits from high margin Sydney and Melbourne projects providing high profit visibility for the year ahead.
We recorded settlements of 6,438 lots, with a number of successful project launches in Victoria and Queensland – Grandview, Mt Atkinson, Waterlea, Promenade and Kalina – and the success of our existing communities at locations like Willowdale and Elara in Sydney, and Highlands and Cloverton in Victoria, contributing solid sales.
This result and the strong position we are in for FY19 and beyond reflects good sales levels despite moderating overall market conditions with 5,478 contacts on hand as at 30 June 2018. The quality of our masterplanned communities which offer high amenity, affordability and strong connections, with many close to heavy rail, is driving increased market share, up over 3 per cent to 14.5 per cent, and velocity of sales.
We are the leading creator of communities in Australia with our Residential and Retirement Living businesses providing customers with whole-of-life housing options in liveable locations with close proximity to transport, retail and services, education and employment.
We remain well positioned in the deepest part of the lending market, with over 75 per cent of our product now sold to owner occupiers and continued demand for our range of affordable house and land and townhome product.
Finance availability has had a moderating effect on the housing market, but our focus on differentiated masterplanned community creation and housing affordability leaves us well placed in this environment. We have strong pre-sales, low cancellation rates and a continued focus on delivering product to a majority owner occupier market at affordable price points.
In FY19, we expect to deliver over 6,000 residential settlements with future profit growth to be delivered through more townhome settlements and strong operating profit margins, subject to market conditions. We anticipate residential profit margins to remain around 18 per cent in FY19 and 17 per cent over the medium term.
Our business will continue to benefit from price growth realised in the Sydney and Melbourne markets over recent years, affordability, strong housing demand and supply fundamentals and increasing medium density settlements.
The Residential business is making good progress on its plans to make the portfolio more resilient and profitable in the future by continuing to focus on:
Priorities and performance
Retirement Living communities
|($m, unless otherwise stated)||FY18||FY17||Change|
|Operating profit (FFO)1||53||63||16.7% ↓|
|Cash ROA||4.6%||6.2%|| ↓|
|- Established settlements (units)||618||731||15.5% ↓|
|- Withheld settlements (units) 2||73||49||49.0% ↑|
|Total settlements (units)||691||780||11.4% ↓|
|Average re-sale price||$356k||$339k||4.9% ↑|
|Turnover cash per unit||$89k||$86k||3.6% ↑|
|Turnover cash margin||25.1%||25.4%|| ↓|
|Reservations on hand (units)||121||128||5.5% ↓|
|Average price per unit||$504k||$539k||6.3% ↓|
|Average margin - excludes Deferred Management Fee (DMF)||20.2%||19.1%||↑|
|Development settlements (units)||163||270|| 39.6% ↓|
|Reservations on hand (units)||98||58|| 69.0% ↑|
1 Operating profit is equal to FFO for the Retirement Living business.
2 Typically associated with brownfield developments like Cardinal Freeman.
Operating profit in Retirement Living was down 16.7 per cent on FY17, with sales volumes impacted by adverse sector media coverage and reduced settlements due to the timing of development completions. We are seeing some positive sales momentum in our Retirement Living business. Q4 sales are up 14.9 per cent on the FY17 corresponding quarter, underpinned by our ongoing commitment to improve contract choice, village quality and providing broader services to our residents.
The retiree market is responding well to investment in our existing villages and new developments in masterplanned communities, like Mernda Retirement Village in Melbourne and Willowdale in Sydney.
We’ve continued to improve our customer offer with Benefits Plus home care partnerships and the rollout of new contract choices, ‘Capital Share’ and ‘Peace of Mind’, with the latter placing a cap on the deferred management fee (DMF) and secures the exit value for incoming residents. We have also had success with ‘Aspire’, a new product for downsizing Australians who purchase their home and land outright under community title.
We finished FY18 by entering a project development agreement for a new vertical village in Epping, Sydney, and we continue to explore opportunities to sell non-core assets to recycle capital in our development pipeline, which is on track to deliver a number of completions before the end of the year.
We expect improvement in retirement living market conditions in 1H19 given improving customer sentiment and sales velocity.
The business remains focused on being a preferred operator and developer of retirement living villages by creating high quality retirement villages in Australia. The business has a clear strategy to continue to improve its return on assets by: