Ladies and gentlemen, thank you for standing by, welcome to the Ingenia Communities Group first-half 2019 results presentation. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question and answer session, at which time, if you wish to queue for a question, you will need to press zero followed by one on your telephone. Please note that this conference is being recorded today, Tuesday the 19th of February, 2019. I would now like to hand the conference over to your speaker today, Mr. Simon Owen, Chief Executive Officer and Managing Director. Thank you, sir.
Here, I'm really excited to be presenting Ingenia's results today. Right off the bat, I want to make it very clear that we are confirming full-year guidance. EBIT growth of 15%-20%, underlying EPS growth of 5%-10%, and 350-plus settlements. Ingenia's business model is uniquely leveraged to the intersection of three key thematics: an aging population, a housing affordability crisis, and several generations of people retiring with limited savings beyond the family home. Furthermore, our recently announced strategic partnership with Sun Communities, a longstanding global leader in manufactured housing, only strengthens our capability to deliver, grow, and lead. I'm very confident that we're in the early phases of an extended period of compelling earnings growth for security holders. Before we go into the details, I would really like to focus on four key themes today: portfolio construct, market leadership, deal flow, and innovation.
Number one, portfolio construct. The residential property market is tough. I'm not going to pretend otherwise. We are having to work harder for sales and settlements. Our portfolio is uniquely leveraged to the continuing aging of the population. Every day, some 700 Australians turn 65. That's 700 people every day, this will continue for the next 30 years. Ingenia is firmly focused at the lower and mid-quartile price markets in outer ring metro and accessible sea-change locations, where there is genuine resilience in home prices and underlying demand. Our incoming residents are not requiring a mortgage or refinance. They are downsizing, both in terms of property size and financial commitment. Our incoming residents are typically selling to first-home buyers or upgraders whose stability is supported by generational low unemployment levels.
I think it is also sometimes overlooked that our business is underpinned by owning land and collecting rent. We presently have over 7,700 income-yielding homes, cabins, and sites, and this number continues to grow every week as we sell new homes and add new rental and tourism cabins across our portfolio. Every week, we collect more than AUD 2 million in cash rent, with a significant component of this underwritten by government-based payments. Our portfolio construct is based around growing an increasingly deep pool of rental income that gives the business fantastically reliable weekly cash flow. Number two, market leadership. This year, Ingenia remains on track to become the leading developer of lifestyle communities in Australia. In addition, the group has an incredible growth runway in place, and our development pipeline of 3,984 home sites is larger than our next two peers combined.
The end sales value of this development pipeline now exceeds AUD 1.2 billion and would add over AUD 34 million to recurrent annual cash rent. The size of the lifestyle community pie is growing, and so is Ingenia's share of the pie. It remains our absolute resolve to be the clear market leader, as measured by settlements, pipeline, profitability, and most importantly, resident satisfaction and engagement. Number three, pipeline opportunity. Since announcing the strategic development partnership with global leader Sun Communities last November, we have been able to secure six development projects totaling some 1,200 home sites. These projects are now all under due diligence and detailed commercial assessment. Competition for quality development sites is markedly lower, whilst at the same time, small and mid-tier developers are increasingly looking to offload projects as credit tightens and the resi market continues to slow down.
We're also seeing a lot of quality mature acquisition opportunities start to become available. Number four, innovation. Ingenia is a genuine leader and innovator in our sector, and this should assist to deliver longer-term peer outperformance. We are already a leader in the build-to-rent sector, where we own and manage already over 2,400 rental homes. We've developed considerable intellectual property in this space. We also have first-mover advantage in some compelling high-growth sector adjacencies, including importing flat-pack homes and rental units, which of themselves could be an entirely new business segment for Ingenia and our security holders. I'm now going to move to the presentation. Joining me on the call today is Scott Noble, our Chief Financial Officer. Nikki Fisher, our longstanding Chief Operating Officer, is up in Cairns today and unfortunately, can't be with us.
There's about 10 slides that I would like to talk to today before opening the call up to Q&A. Let's start on page two, which are a few of the key highlights. Our EBIT are up 15% on the prior year to AUD 22.4 million, and our operating cash flow is up 51% to AUD 17 million. This would be substantially higher except for the deliberate investment in inventory at our new Plantations project, which has 52 new homes under construction, including six display homes, and our first residents are scheduled to move in during May. I've touched on lots of positive news, but there are always a few areas where we can do better. Probably the lowest hanging fruit in the business today is continuing to improve the incoming customer journey for new lifestyle residents.
This would include better alignment between project launch and home settlement, and increased responsiveness on defects management. Addressing these issues would likely significantly improve referral sales and potentially lower our above-the-line marketing spend. On page three, today, Ingenia is pleased to announce two new acquisitions. Back in 2015, Ingenia acquired a partially built lifestyle community in Lara between Melbourne and Geelong. At acquisition, this had 177 development sites, which have now been largely fully built out and sold. We have now been able to secure, on acceptable terms, to acquire the 68,000 sq m site directly adjoining the community, which, subject to council approval, could house an additional 181 homes and create one of the largest lifestyle communities in Victoria.
We are also pleased to announce the acquisition of an established mixed-use holiday and lifestyle community in the Byron Bay region of Northern New South Wales, which upon settlement, will be immediately accretive to FY 2019 earnings. This acquisition will nicely fit into our market-leading portfolio of holiday and mixed-use communities along the New South Wales and Queensland coastline. On Page four, I'm really excited to announce the tremendous progress made since November on our new development JV with Sun Communities. From Brisbane to Melbourne, we now have six projects locked down, including three that are DA approved. There are also a few more projects that we're about to put forward. Our JV with one of the clear global market leaders in our sector, is tracking well ahead of plan.
On Page six, I would like to briefly comment on the market landscape in which we operate, and this is a new slide. Whilst demand for quality, affordable seniors accommodation continues to expand, as evidenced by our order book for 272 new homes, without exception, the greatest near-term uncertainty is when aggressive politicking commences for the 2019 federal election, which is likely to be held in May. This may cause some prospective residents to sit on their hands. We continue to tightly manage our expense line, looking for cost outs and leveraging our growing development spend. However, utility costs, including power, continue to grow at a multiple to CPI. Building comps remain flat, and we are continuing to see builders bid aggressively in order to secure work. I'm now going to hand over to Scott to walk through the financials and capital management, commencing on Page eight.
Good morning. Thank you for joining our half-year results call. Revenue increased 21% and EBIT increased 19%. These improved results were driven by the growth in rental income from our lifestyle and holidays business and the growth in revenue from our development business, which delivered 25 traditional settlements and a 22% increase in average sales price. Underlying profit increased 20% to AUD 17.5 million, and underlying earnings per security increased 14% to AUD 0.0810 per security. Statutory profit declined 24%, impacted by fair value and statutory differences between the current and prior periods. This period's statutory result includes an increased reduction in the fair value of development property due to the higher level of settlements and higher margins being realized. The impact is transaction costs and stamp duty on the Rivershore acquisition, the write-down of the value of the Avina development land, and impairment of other non-core assets.
Higher operational CapEx on facilities which did not directly contribute to operating income improvements, but which will add value in the future. The group's operating cash flow for the half was up 51%. Net asset value per security increased 2% to AUD 2.62. Directors have declared an interim distribution of AUD 0.054 per security, up 6% on the prior period. Turning to slide nine. Development EBIT increased 115% to AUD 8.8 million, with development EBIT margin growing 590 basis points. This improved result was driven by a combination of increased settlements and higher margin projects. Lifestyle and holidays EBIT increased 4% to AUD 13.5 million. The lifestyle and holidays margin declined slightly to 39%. However, the margin on our stable assets was marginally higher than prior period.
Lifestyle and holidays EBIT and margins were adversely impacted by the disposal of non-core assets in 2018. The closing of Rouse Hill, which is planned for settlement this financial year, and the commencement of our key developments, which are not yet delivering positive operating income or margin. Ingenia Gardens continues to deliver strong cash flow to Ingenia. The EBIT result was impacted by the sale of the 5 Tasmanian villages in April 2018. On a like-for-like basis, Ingenia Gardens delivered improved EBIT for the group. Corporate costs increased 5%. This was primarily driven by higher D&O and liability insurance premiums in the period. Consistent with prior years, there'll be a greater percentage of annual EBIT in the second half of the year, driven by new acquisitions and higher settlements, which are supported by a record level of contracts and deposits on hand. Turning to capital management on slide 10.
During the half, we completed an accretive placement to Sun Communities at a 13% premium to the closing share price prior to the placement, raising AUD 75 million. We've entered into a strategic partnership with Sun, which will accelerate development and create new fund management revenue streams for the group. We have progressed the contractual conditions on the sale of Rouse Hill, which is now planned for settlement in quarter four. This sale will release AUD 22.9 million in proceeds to the group. At 31 December, gearing was 22.3% and LVR was 27.8% compared to our covenant for 50%. Weighted average debt maturity was 3.8 years and the cost of drawn debt was 3.85%. Post 31 December, the board approved the AUD 0.054 distribution, which will be 17% tax-deferred.
The DRP will remain in place and will be 75% underwritten to partially fund the accretive acquisition in the Byron Bay region we announced today. Turning to page 11 on valuations and cap rates. During the half, we externally revalued 27 assets. We've seen the average cap rate of the lifestyle and holidays portfolio improve by approximately 24 basis points since June. The location of our properties, the high level of corporate activity in the asset class over the last 12 months, and improved scale of our villages has helped support the improved cap rates in a declining housing market. Ingenia Gardens cap rates remain stable at 10%, reflecting the lack of market transactions in this high yield, stable cash flow business. I will now hand you back to Simon. Thank you.
Thanks, Scott. I'm going to recommence on our group strategy slide, which is on page 13, which is also a new slide. Our entire portfolio construct is based around creating deep pools of boringly predictable weekly cash rents, primarily focused on the aging of the population and largely supported by government transfer payments. On slide 17, which is our key lifestyle and holiday segment. As Scott noted, portfolio segment in this business was marginally up to AUD 13.5 million for the half. EBIT margin was down slightly to 39%, impacted by start-up operational costs associated with our new greenfield projects at Latitude One and Plantations. Over the medium term, we expect the operating margin to expand into the mid-forties. For the first time, we have disclosed our re-leasing spread, which is 13%.
This represents the difference between the final rent paid by a departing resident and the new rent for an incoming resident on the same premises. Like-for-like rents is up 4.2% on the prior period. These are some really strong numbers which demonstrate the scale benefits now being delivered across the portfolio, but with plenty more to come. I'm now going to move on to slide 18, which is our Ingenia Holidays business. This is again, where we're really enhancing returns through active management. The cash flow from this business does certainly have a seasonal bias, but from experience, tends to be highly predictable year on year. Ingenia now has a unique database of over 220,000 people who we communicate with on a regular basis. Our strategy with holidays is about owning the customer and creating unique experience.
It's about controlling the sales channel where possible and focusing on yield optimization and length of stay rather than chasing the market for rate. Our holidays business is a compelling and complementary opportunity with significant attractive earnings upside. I'm now going to move on to page 22, which introduces development. Put simply, we're selling more homes at higher prices and better margins every year. Our development margin expanded 590 basis points over the past 12 months, with further growth expected as we commence settling projects like Plantations and increasing our volume. Our home sales prices are up 22%, and our above-ground profit per home up 21% over the past 12 months. This is just as we started assertively leveraging our development runway.
On page 24, I would like to briefly discuss our second greenfields project, Plantations, which is located just north of Coffs Harbour on the New South Wales North Coast. To date, 98% of the first release stage of 45 homes have been deposited or contracted at a weighted average sales price exceeding AUD 450,000. This builds upon our highly successful Latitude One project on the New South Wales Mid-North Coast, where weighted average prices now exceed AUD 500,000. In the coming months, the group intends to formally commence civil works on our third greenfields project in Hervey Bay on the Queensland Fraser Coast, where we already have a strong pipeline of deposits in place. Moving on to slide 25, which remains one of my favorites. There's no other lifestyle community operator that has a pipeline offering anywhere near this quality or breadth of projects.
In addition to the 10 projects Ingenia already has in development, we now have an additional five expansion projects and 12 new greenfields projects. A majority of these new projects have been secured via an option where the land does not need to be acquired until all development approvals are in place. Our strategy over the past few years has been, where possible, to acquire or secure the land adjoining existing communities. Today, we own or have options for land adjoining Chambers Pines, Bethania, Latitude One, Hervey Bay, and Lara. We're currently negotiating the acquisition of expansion land adjoining another three communities. Our experience is that when you're acquiring the land next to an existing community, that it typically provides for very low risk and highly profitable development. I respect that the market remains nervous on the outlook for residential property.
I'd like to briefly touch on slides 26 and 27. The chart on page 26 shows that the real price weakness in the market at the moment we've seen experienced in the top end of the capital city markets. On the flip side, there remains firmness in the mid and lower deciles, which are the markets where Ingenia plays. There is no doubt we are having to work harder for sales, but I do think the combination of our attractive price point, our geographic diversification, demographics, the quality of our offering, and the growing awareness of both the land lease model and Ingenia will support our settlements target in 2019 and beyond. In recent months, we've established an internal call center and are actively mining the 12,000 open leads in place across our lifestyle business.
As of the 17th of February, we have 272 deposits or contracts in place, which, combined with 143 year-to-date settlements, represents over 120% coverage of our forecasted 2019 settlements of 350-plus homes. This gives us great visibility for the run home to 30 June and confidence that even in a slowing housing market, of the resilience in affordable seniors housing. I'll now touch briefly on page 28. As I noted previously, we remain on track to deliver our FY 2019 guidance. 350-plus new home settlements, EBIT growth of 15%-20%, and underlying EPS growth of 5%-10%. This comes on top of our greater than 50% growth achieved last year. There is certainly some market risk, particularly the pending federal election. However, all remains on track at the moment. Finally, on page 29, which is our management focus.
Picking up sales, integrating recent acquisitions, asset recycling, sourcing deal flow, and procuring project approvals, and lastly, commencing our first new development project with Sun remain a key focus for management over the next year. On closing, I think this result again demonstrates the quality of Ingenia's management platform, the resilience of our business model, and the unparalleled growth opportunities that providing quality, affordable lifestyle communities to Australia's aging population offers. On that, I'll now hand back to the moderator.
Thank you very much, sir. Ladies and gentlemen, if you wish to queue for a question, please press zero followed by one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press zero, then two. Once again, that is zero followed by one on your telephone. Your first question comes from the line of Michael Peet from Goldman Sachs. Please go ahead, sir.
Good morning, Simon, everyone. Congratulations on the result. Could you talk a little bit more about time on market that you're seeing. You mentioned that days on market sort of extending a little bit out there. Could you say, do you track that for your incoming residents and maybe has that changed at all in the last 6 to 12 months?
Hi, Michael. Good to speak, and a great question. Firstly, every single one of our salespeople has an iPad and a subscription service to residential data. For every single person who's deposited or completed a First Choice Club, every week we're tracking what's going on in their local housing market, time on market, how realistic is their sales price. We're typically talking to their real estate agent who's selling their home. We're watching that very closely. Notwithstanding what you read in The Sydney Morning Herald or The Age, there's not one homogenous housing market in Australia. When we look across the 10 projects we have in-market at the moment and the 3 or 4 that we're going to launch in the next 6 months, we have some markets that are very strong.
Lara down in Victoria at the moment, time on market there is around the 20 days. Probably our slowest market at the moment would be The Grange up in Morisset, where time on market's around 80 days, so it does vary. I've clearly called out that we're not trying to pretend that we're not in a challenging housing market. We're continuing to hit our numbers in a couple of select projects where offering 6 months rent-free. We haven't had to do any sizable discounting to date, but you can see that our margins and our above the ground profits continuing to grow. Broadly speaking, the coastal sea change markets are holding up.
I think if we look at Latitude One, and I was up there on Friday with Sheree, our sales agent, we've probably seen prices come off around 5%-7.5% in the last few months, and the time on market there is around 60 days. Every single person who we're expecting to move into our community by 30 June currently has their house on the market, and we're working with them very closely. We put on a couple of additional people in our sales team. As I mentioned, we've set up a call center where we're working with our 12,000 open leads and really working on that. We're running some internal promotions on trying to increase our internal referrals. There's a lot of moving parts at the moment, but we're sitting in an incredibly strong position. The demand at our Plantations project up near Coffs is really strong.
As I said, we've got 98% of the new homes that we're bringing to market in May and June have already been deposited or contracted. Demand's very strong at Latitude in the last month. We've seen a little bit of a pickup in Brisbane. Probably just a couple of regional projects, Hunter Valley, and Albury, and the last one or two homes at The Grange is probably where there's been the greatest weakness.
Okay. Just on the operating margin, it did fall a bit. I know, Scott, you mentioned it a little bit there. A little bit more color on that, and just could you clarify, you said mid-40s or something like that is what you expect over the long term. Could you give us a sort of timeframe roughly on that?
Yeah. Mid-40s is where we expect we're going to land, and the speed at which we get there will depend on, I guess, the mix of greenfields development projects as a mix of total earnings. Just to give you by way of example, a typical project like Latitude One, we would need somewhere around 80 to 100 residents paying rent for that community to hit breakeven, and thereafter, every dollar of rent is a dollar of profit. Typically, six months before the first resident moves in, we're employing the village manager, an activities manager, and someone in grounds and landscaping. That cost, which goes through the profit and loss, there's basically no revenue. At this point in time, excluding development profit, Latitude One is making a loss.
We've already got a team in place up at Plantations in anticipation of the first resident moving in in early to mid-May. It is not a huge cost that we're carrying, but it is enough that it drags the margin down by a little bit less than 100 basis points compared to 12 months ago.
Okay. Just lastly, just on Lara, that expansion, will that share the facilities of the existing community?
Yeah, I would say a great question. We would anticipate that it would, we would also be looking to build some complementary and ancillary community facilities next door. I would imagine, Lara's got a very nice AUD 3.5 million community facility, including an indoor heated pool, the pool's probably a bit small. I would imagine we'd probably look to put in a smaller, maybe 200 sq m clubhouse, and maybe another slightly larger pool. I would be anticipating that the clubhouse spend on expanding Lara will be less than AUD 2 million. Another reference point would be at Bethania. When we bought the Bethania Village, it had a DA approval for 133 homes. We've now got a DA on the adjoining land for another 196 homes, and we're putting in a sort of AUD 2 million clubhouse there.
All right. Thanks, Simon. Cheers.
Thank you very much. Your next question comes from the line of Steven Lam from CLSA. Please go ahead, sir. Thank you.
Hi, Simon and team. Just want to ask, was the skew in terms of settlements slightly bigger than expected?
No, Steven, the skew that we have experienced is broadly in line with what we are expecting. We are certainly at the moment, we have got 120% coverage of the full year settlements. Every one of the rest people who we are expecting to move in by 30 June currently has their home on the market, and we do expect that it will be a very strong close to the year. By way of reference point, in June 2018, in the month of June, we settled 76 homes. From our experience over the last five or six years, and it is not inconsistent with what you see in the DMF space, quite often Christmas is a time when the family gets together, and that can often be the catalyst for mom and dad or grandma and grandpa putting their home on the market and starting to think about their retirement living options.
We are broadly pretty happy with where we are tracking at the moment. I think as I called out at least twice in the presentation, when we look at all the risks in front of us, I think the federal election, when that starts to get into some pretty aggressive politicking, that is probably something that we are cautious about at the moment.
On the federal election, are there any specific policies from either parties which makes you particularly concerned right now? Is it more watch and brief for now?
Well, I think generally, and I've been in the seniors housing space for over 12 years now. Elections, federal elections, and we do have a New South Wales election in April, do tend to cause residents, incoming residents, to sit on their hands. I do think, two of the key policy platforms that this election is going to be fought on is going to be what happens to the housing market, if Shorten proceeds to remove negative gearing on housing, on investment housing. Secondly, for self-funded retirees and the cash rebate, what that has. It's not specific policies, but I think they're policy platforms that are going to make a lot of seniors or pensioners quite nervous and cautious about what the future holds. Balanced against that, we've got 10 projects actively in market.
Plantations is streaming ahead. We expect to have the first residents moving in in May. I think at Latitude One, we've got one home that's built that's not sold. We've got around 240 homes that are under construction at the moment. We've got significant pent-up demand. We've probably got 30 or 40 people staying in our various holiday parks at the moment, waiting for their home to be completed. Our demand outlook is very strong. We've never had this many deposits or contracts in place. We still absolutely remain on track to hit our earnings guidance. We just want to call out that the housing market is slowing down and we are going into a federal election cycle.
On Plantations, first settlement is in May. I think at the FY 2018 results in the bubble chart, it looked more like the first settlement target was February. Was there anything that caused a slight pushback?
I could let Henry, our development manager, answer that. Really what happened is we experienced some wet weather in late 2018 calendar year. Unlike Latitude One, which is on sand and the water drains away very quickly, Plantations has got a clay base and we couldn't actually get the slabs in. We had a weather related event which probably took two or three months out of our schedule. We've got 44 residents who have got their home on the market or who have already sold, who are all coming out of the local market, who are all ready to move in in May and June. We believe that we are firmly on track for first residents to move in in May. This is entirely consistent with what we experienced last year at Latitude One and our Conjola project.
Again, both of those projects weren't ready till April, May, June for new residents to move in and we were able to comfortably hit our numbers.
Okay, thank you. What's your CapEx for the full year? I notice first half was a little bit lower than first half 18.
I know Scott's champing at the bit to answer a question, I might hand over to him.
Okay.
Thanks, Steven. We're expecting probably the second half, AUD 25 million-AUD 30 million of CapEx spend across both construction and our operating CapEx. That would take the total between AUD 55 million and AUD 60 million for the year.
Of that, how much of that is the cabin accelerator, cabin rollout that you guys were planning after the JV equity injection?
Yeah. Good question. Bear with me. I think we've spent about AUD 3 million in the first half, and we're probably expecting about the same in the second half.
Average sale prices, I noticed that obviously with more Latitude One selling, what are you assuming for second half or full year? Because I think it was up 12% already on the full year 2018 number.
Yeah. Look, if all goes well, slightly above what we're currently selling at, just because of the higher contribution from Latitude One and Plantations.
Rouse Hill, the sale, is it a condition precedent on that sale vacant possession? How's that going?
Yeah, that's correct. We are really well-placed. We expect a vacant possession by the end of this month.
Oh, okay.
Settlements, I think we're targeting the 1st of May, late April, 1st of May.
You were saying Avina, I think I missed a bit. I heard that you've written down the value of this development now. Basically you're no longer assuming that will go ahead because I think previous comment regarding your FY 2019 to FY 2020, targeting EBIT growth of 15% plus, you had assumed Avina to occur in second half 2020.
That is correct. We're still comfortable with that guidance. We've got replacement assets, which we're identifying, such as the Lara one that was announced today. In terms of Avina, we've written that down just by about AUD 2.5 million, the development land piece. In accordance with the accounting standards, it's now valued on a rural land basis due to the negative outcome from the Land and Environment Court.
There's no plans to appeal in the near term?
We're still looking at all our options at the moment. That is one thing we are considering. There are also a number of options we're looking at.
Stephen, when we look at Avina, that's obviously one setback that we have had. That's an incredibly valuable strategic land holding in Western Sydney where the median house price in that Vineyard precinct is over AUD 1 million. Our balance sheet is not designed to be a long-term owner of non-yielding property. When we look at Sydney, there's seven land lease communities. When we look at the smaller cities of Brisbane and Melbourne, which is around 1 million people, there's 30 or 40 land lease communities across both of those markets in total. Sydney's massively under-bedded in terms of land lease communities. The New South Wales government's approved a massive new housing development directly across the street. We are still working out what our longer-term options are. We've taken the future development potential for Avina out of our development pipeline.
Notwithstanding that, we still have a pipeline now of 3,984 sites, which is bigger than our two largest peers combined.
Thank you. Last one from me. Gross profit per home for the second half. Would it be?
I'd maintain a similar sort of level to what we've got at the moment. We're slightly above the AUD 140K, in terms of gross development margin. We'd like to get a little bit higher, obviously with, I suppose pressures on the outlook on the market, we'd probably keep it at a similar level for forecasting.
Thank you very much, guys.
Thank you very much. Once again, that is zero followed by one on your telephone keypad, and wait for your name to be announced. That is zero followed by one on your telephone. Your next question comes from the line of James Barker from Morgans. Please go ahead, sir. Thank you.
Morning. Thanks for taking my questions. Most of them have been answered, just was interested in the tax rate for this year. It seemed a little bit lower in the first half. Maybe just your expectations for the full year.
Yeah. Look, expectations for full year is still at 14%-16%. Lower in the first half because of the lower number of settlements and the skew towards the second half will be higher.
Okay, thanks. Maybe just on the trajectory of the sales performance throughout the half, did you see it sort of deteriorate into the second quarter? Maybe just some comments on pricing versus selling cost as a % of sales. Has that gotten tougher in the last few months?
Yeah. Our sales tracking tends to be very similar to what you see in the residential market. December and January are traditionally quite slow and then the market launches pretty aggressively after Australia Day. We're now in our peak selling period. We didn't experience any unusual events in the first or second quarter of the current financial year. I didn't quite catch your second question, but generally speaking our cost of sales and marketing is somewhere in the region of 5%-5.5% of the gross sales realization. We are putting a little bit more money into our sales and marketing team. As I mentioned, we have established a three-person call center up in Brisbane to mine our 12,000 open leads. We put a little bit more money into above-the-line marketing.
Up in the Brisbane market, you probably see us sponsoring the Vic Lorusso traffic helicopter again very shortly. We're working with some of the local community clubs to sponsor events. Up in Plantations, we recently were the key sponsor of a major festival up there, which has generated great awareness of our products. We are putting more money into sales and marketing. Our margins, so our total gross sales realization price is higher. Our above the ground development profit is higher. We may have to give away a couple of additional AUD 1,000 there just to make sure that we're maintaining our sales volume. Broadly speaking, market conditions are buoyant. We're very focused on what's coming up ahead.
Okay, thanks. Maybe just the swing factors in terms of your guidance. Is this relating to the number of settlements, or is it just what we've spoken about there in terms of selling costs to achieve those settlements?
I think I used the words, fantastically, boringly predictable, which describes the land rents. That part of the business, it would take something pretty catastrophic for that to unwind. The key swing factors, if I had to think of three, one would be, if for whatever reason, we had a delay at Plantations. We know the demand is there. A delay at Plantations would probably have to be some sort of construction snafu. Everything's on track at the moment. That is a risk. I think secondly, we've got plenty of residents who are ready to move into our communities. A lot of them just need to sell their home. If we see the time on market, across our 10 projects, I think the average time on market is around 42 or 45 days.
If that pushed out to 70 or 80 days overnight, that could slow down our settlements rate. It's not like we're selling airline seats where once the plane takes off, you can never sell the seat. A few settlements may drift into July. I probably can't think of any other major swing factors other than those two.
That's all from me. Thank you.
Thank you very much. Once again, that is zero followed by one on your telephone and wait for your name to be announced. We have a follow-up question from the line of Michael Peet from Goldman Sachs. Please go ahead, sir.
Hi, Simon or Scott. Can you remind us what's got to go out the door in terms of acquisitions to be paid for and the divestments that are coming?
We've announced the acquisition today of Byron Bay and Lara adjacent land. That'll be AUD 15.3 million of outflow. Of that, we're underwriting the DRP to the equivalent of 75%. That'll give us AUD 6 million of additional capacity there to help fund that, because we normally get about a 25% take-up in the DRP. We've just completed Aspley, last week. That was AUD 31 million from memory off the top-
Twenty-nine.
AUD 29, off the top of my head. I think that's the only other acquisition-
There was another acquisition at the time, wasn't there, of Aspley?
Aspley, yeah, we just mentioned Aspley, Michael. We've just completed that.
At the time of that JV being set up.
Michael, Rivershore and Aspley were announced at the time we made the 14% above-market placement to Sun. Rivershore, which is a premier holiday park on the Queensland Sunshine Coast, settled last calendar year, and Aspley settled last week. Look, I wouldn't be surprised if we settle on one property going into the Sun Ingenia development JV before 30 June.
Yeah, just on that JV, the deployment of capital. Can you give us a picture, if you can, over the next sort of 12 months of how much you think you'd be deploying?
I can't just yet. We've given you great clarity on how many projects we've secured, where they're located, the fact that three of them are DA approved. Our broad intention is to start a project this calendar year and then start a new project every six months thereafter. We are clearly running ahead of that at the moment, the three DA-approved projects, should we proceed to acquisition with all of them, they could potentially all be under construction this calendar year. Until Nat and her acquisitions team finish their due diligence, until we go through the final bankable feasibility analysis, it's really hard to give you a lot more timing.
I might just add to that we're really well progressed on debt within that vehicle as well.
Okay.
That'll be both equity funded from ourselves and Sun, as well as having a debt component as well.
Okay, good. Just on the rent discount you mentioned, sounds like a good strategy just to offer a bit of a rent break upfront and not a big cost for you to pay. Is that a hit to the rent on the permanent rental income, say for the first six months? How many are you generally offering or take up this offer?
It's only at a couple of communities that we're offering the six months discounted rent. At a community like Plantations or Latitude One, where we're really struggling to build the homes quick enough at the moment. We have three builders in place at Latitude One, and we're probably not that far away from having to put a second builder in at Plantations. We're certainly not going to offer any rental discounts. The total P&L impact of that rental discount for six months would be in the order of three and a half thousand AUD or AUD 4,000. When you're talking about a gross realization of somewhere between AUD 450,000 and AUD 500,000, it's a very small impact on our P&L.
Michael, just to add to that, you'll actually see that come through. If it's offered as part of a sales incentive, that'll come through our fee development margin that's coming out. You'll actually see it-
That's what I was getting to. Does it come out of developed margin or does it come out of rent?
It'll come out of development margin if it's a sales incentive.
Got it. Just any flippers in the half?
Yeah, we had five in the half. Six in the half.
Okay, great. Thank you very much.
Thank you.
Thank you very much. If there are no further questions at the point, I would now like to hand the call back to Mr. Owen for any closing remarks. Please go ahead, sir. Thank you.
Well, thanks everyone for dialing in today. We're really excited where the group's positioning. We think we've got a great short, medium term, and longer term outlook. Donna and I and Scott look forward to catching up with all of you over the next few weeks. Thank you very much for your time today.
Thank you.
Thank you, sir. Ladies and gentlemen, that does conclude our teleconference for today. Thank you for participating. You may all disconnect.