Good morning. My name is Tarun Gupta, CEO and Managing Director. Welcome to Stockland's financial results update for full year 2022. Before we begin, I would like to acknowledge the traditional owners and custodians of the land on which we meet, the Gadigal people of the Eora Nation, and pay my respects to elders, past, present, and emerging. Joining me today is Alison Harrop, our CFO, Louise Mason, CEO of Commercial Property, and Andrew Whitson, CEO of our Communities business. Stockland celebrates its seventieth anniversary this year. We are proud of our legacy and passionate about continuing to create and curate connected communities across Australia. Stockland's seventieth year has been one of delivery. We have made significant progress towards executing our refresh strategy while maintaining our focus on operational excellence across the organization.
In an environment of significant market disruption, we have delivered a strong FY 2022 financial result, with FFO per security slightly ahead of our guidance range. We enter FY 2023 in a very robust capital position, with gearing below our target range on a pro forma basis, a well-hedged debt book, and high levels of liquidity. Our high quality and well-diversified business is positioned well to perform in another year of anticipated market volatility. Last November, we came to you with three clear strategic priorities for our business. To dynamically reshape our portfolio, to accelerate the delivery of our AUD 41 billion development pipeline, and to scale our capital partnerships. When we established these priorities, we had one objective in mind. To drive sustainable growth for our security holders. Over FY 2022, we have delivered on what we set out to achieve. We have actively reshaped our portfolio.
The sale of our retirement living business, which completed in July, reshapes the composition of our portfolio while also simplifying our business, strengthening our balance sheet, and providing the capacity to redeploy that capital into higher returning activities. Over FY 2022, we also continued to refine our town centers portfolio, executing on almost AUD 400 million of non-core disposals. We have leveraged the strength of our platform and extended our leadership in the residential sector. We are well progressed in growing our Land Lease Communities business into a market-leading platform. Sales volumes and price growth for FY 2022 were ahead of the assumptions that underpin the acquisition of Halcyon's business, and the combined land lease development pipeline has grown to approximately 7,200 home sites.
The formation of the Stockland Residential Rental Partnership with Mitsubishi Estate Asia will enable us to accelerate the growth of our Land Lease platform and the realization of embedded margin across our land bank. Our master plan communities business took advantage of the strong conditions that prevailed for most of FY 2022, driving price growth and positioning the business well for a moderating market in the year ahead. We enter FY 2023 with record contracts on hand. In August last year, I shared with you how excited I was by the opportunities that existed within our land bank. Across our communities and commercial property businesses, we have grown our development pipeline from AUD 33 billion to AUD 41 billion over the last 12 months.
In just the last six months, our focus on accelerating master planning opportunities within our existing asset base has seen our logistics pipeline double to AUD 6.4 billion, providing a clear pathway for earnings growth by the reweighting of our portfolio toward high-quality logistics assets. We completed approximately AUD 300 million of logistics projects in FY 2022 and expect that number to increase to around AUD 600 million in FY 2023, tracking ahead of the five-year average target of AUD 400 million per annum that we set for ourselves last year. Stage one of our M Park project being undertaken in partnership with Ivanhoé Cambridge is progressing well and is expected to contribute to earnings from FY 2023 onward.
We will continue to explore opportunities for additional capital partnerships across our commercial property and communities platforms with the goal of aligned capital partnerships in our operating sectors over time. Our focus on executing our strategy at pace and conviction has allowed us to manage the potential near-term dilution resulting from the sale of the retirement living business. Executing the two capital partnerships and pivoting our portfolio to land lease and logistics sectors has provided us with new engines of growth and visibility of much higher quality income into FY 2023 and beyond. Turning now to the FY 2022 results. Funds from operations was up 8% to AUD 851 million. We delivered FFO per security slightly above our guidance range at AUD 0.357, which was up 7.9% versus FY 2021.
Our NTA per security is up by 8% over the year to AUD 4.31 per security on the back of solid revaluation gains across our high-quality portfolio. Our commercial property portfolio delivered comparable FFO growth of 3.3% and a rent collection rate of 99.7%. Our town center portfolio demonstrated its resilience during FY 2022, with leasing spreads remaining positive throughout the year and sales growth accelerating strongly once COVID-19 trading restrictions were removed. Our high-quality, well-located logistics portfolio saw strong rental uplifts on new leases negotiated over FY 2022 and is well-positioned to capture further rental growth with a 3.4-year weighted average lease expiry.
Our Master Planned Communities business is positioned well, driving margin expansion and record contracts on hand as we enter FY 2023, and we have positioned our Land Lease business to be a key earnings driver in FY 2023 and beyond. When we reset our strategy last November, we also introduced the discipline of return on invested capital or ROIC target ranges. For FY 2022, ROIC for our recurring income streams was 10%, above our long run through-the-cycle target of 6%-9%, while our development business generated ROIC of 16%, the midpoint of our target range of 14%-18%. ESG is at the core of everything we do and is integral to our strategy. Stockland has a strong culture of innovation, and we are leveraging this in order to maintain and extend our ESG leadership.
At Waterlea in Victoria, we have created Australia's first certified Green Star home, embedding sustainability in the heart of our communities. Our M Park development project incorporates market-leading ESG principles, including in the areas of sustainability and social inclusion. We have a strong ESG track record and are committed to continuing raising the bar. We have progressed a comprehensive review of our ESG strategy and will be looking closely at how we can further enhance our efforts in areas such as climate resilience, circularity, and social impact. We look forward to sharing further initiatives with you during the year. Our people and our brand are two essential elements of our success. We are proud of our people and continue to drive a diverse, inclusive, and high-performing culture. It is pleasing to see our employee engagement remaining consistently high at over 80%.
The well-being of our people and our customers is a top priority, especially during a year that presented a wide range of challenges for our people, our customers, and our communities. As a customer-focused organization that reaches one in five Australians every day, our position as a top 10 brand provides us with a key competitive advantage as we look to drive further growth of our platform. Before I hand over to Alison, I'd like to note that we farewelled our colleagues in the retirement living business last month. I would like to thank them for the incredible work and dedication they have brought to Stockland and wish them the best for their future endeavors. I'll now hand over to Alison to take us through what is her first full year financial result as Stockland CFO.
Thanks, Tarun, and good morning, everyone. We start FY 2023 in a very strong capital position. We have de-leveraged the balance sheet materially with gearing currently below our target range. We have AUD 1.9 billion of cash and undrawn facilities, and we have extended the duration of our hedging in an uncertain interest rate environment. As Tarun has highlighted, we ended the full year with gearing at 23.4% toward the lower end of our 20%-30% target range and available liquidity of AUD 1 billion. On a pro forma basis, following the disposal of the retirement living business, which settled on the twenty-ninth of July, we have reduced gearing to approximately 18%, and available liquidity has increased to AUD 1.9 billion.
Our weighted average cost of debt for FY 2022 was 3.4%, slightly lower than the 3.5% we forecast in February. We expect our FY 2023 weighted average cost of debt to be approximately 4.4%. This is assuming a BBSW rate of approximately 3.2% for the year. Our fixed hedge ratio over FY 2022 on our debt portfolio was 64%. For FY 2023, we expect this to be approximately 65%. Over the half, we rebalanced our hedging portfolio, reducing the absolute level of hedging in place for FY 2023 by around AUD 800 million and increasing our hedging for FY 2024 and beyond. This has extended the effective duration of our hedging to more than four years at more favorable rates than currently available in market. On to cash flow.
Operating cash flow of AUD 980 million was above FFO and comfortably covers our distribution for the year. It was broadly in line with the strong FY2021 cash flow result, both before and after allowing for land acquisitions. Funds from operations for FY2022 was up by 8% to AUD 851 million. The FY2022 result reflects strong operating performance. Turning to the key P&L line items, Logistics FFO rose by 37% to AUD 155 million. The portfolio delivered comparable FFO growth of 5.5%, with occupancy remaining high over the period and further market rental growth being captured by new leases and renewals. The logistics contribution for this period also includes AUD 31 million of trading profits relating to our develop to sell project at Gregory Hills.
We expect trading profits to again be a feature of the result in FY2023 as we settle the develop to sell component of Melbourne Business Park. Workplace FFO was flat on a comparable basis. New leases and renewals resulted in average growth of 2.3% versus previous passing rents. However, the result was impacted by the downsizing of a major tenant at 601 Pacific Highway, St Leonards, which drove an increase in vacancy. Town Center FFO was down by 6% in absolute terms, and this primarily reflects the impact of non-core disposals over FY2021 and FY2022. On a comparable basis, FFO was up by 3% over the period. Leasing spreads remained positive for the second half. Sales growth rebounded strongly post the removal of COVID trading restrictions, and debtors finished the period at pre-COVID levels.
The net impact of COVID-19-related abatements and expected credit loss provisions was an AUD 18 million reduction to FFO in FY2022 versus a AUD 9 million reduction in FY2021. The masterplanned communities' business delivered FFO up 1.5% to AUD 336 million. Settlement volumes were down slightly versus FY2021, and this was offset by higher revenue per lot and a stronger average margin. Our integrated Stockland Halcyon Communities platform delivered FFO of AUD 15 million for FY2022. This reflects a part period contribution from the Halcyon acquisition, which settled in August 2021, as well as settlement deferrals due to wet weather and COVID-19-related construction delays. The contribution from retirement living was up by AUD 43 million or almost 80% versus FY2021. This increase primarily reflects village disposal profits that were secured in FY2021 but settled in FY2022 as previously flagged.
The underlying contribution from the business also improved over the period, with settlement volumes up by 5% relative to FY2021. Both commercial property net overheads and unallocated corporate overheads were up significantly versus FY2021. Following COVID-19 cost savings measures in FY2021, there has been a subsequent normalization of our cost base, particularly for variable and discretionary costs. Other drivers include investment in technology, increased insurance premiums, and our investment in additional capability for growth. Net interest expense reduced by 16.3% relative to FY2021. This reflects lower average borrowings over FY2022, a lower weighted average cost of debt, and an increase in the proportion of interest payments that were capitalized due to higher production levels. Our total distribution per security was up by 8% to AUD 0.266.
This reflects a payout ratio of 75% at the bottom end of our targeted range of 75%-85%. Finally, with the sale of the retirement living business and the accelerated reshaping of the portfolio, Stockland Corporation will return to a tax paying position in FY2023, and in that year will we have the benefit of some remaining carry forward tax losses. We estimate that in FY2023, tax payable will be in the range of 5%-10% of pre-tax group FFO. In summary, a very pleasing FY2022 result and a strong balance sheet position. I will now hand over to Louise to take us through the commercial property result.
Thanks, Alison, and good morning. Commercial property delivered strong results across all three sectors in FY2022 and continued to deliver on the key strategic focus areas. This overall result is a by-product of strong operating performance across all sectors, underpinned by high exposure to logistics and the resilience of our essentials-based town centres. In logistics, we've delivered on the development pipeline, growing from a historic AUD 150 million per year to completing just over AUD 300 million of projects this year, and we're well underway to deliver AUD 600 million of completed projects in FY2023. In workplace, construction is advanced on the first two buildings in stage one of M Park, with the final two buildings in this stage to begin later in FY2023. We achieved the DA for Affinity Place in North Sydney and continue to make good headway on the Piccadilly approval process.
We continue the repositioning and reweighting of our town centres with AUD 388 million of non-core disposals in FY2022 and a further AUD 300 million now in the early stages of being marketed for sale. Over the past four years, we have divested AUD 1.5 billion of non-core assets, and our remaining core assets show ongoing resilience due to active remixing with over 75% of sales coming from the essentials categories. We've also completed master plans on the logistics, workplace, and retail assets with land bank opportunities for both densification of logistics and mixed use. In logistics, this has increased the previously announced AUD 3.2 billion pipeline to AUD 6.4 billion. Future town centres associated with the communities business are also proceeding through the planning phase. The AUD 10.7 billion commercial property portfolio delivered 3.3% positive comparable FFO growth.
This was underpinned by 1.5% positive leasing spreads in town centres, 8.5% average rental growth on new logistics leases negotiated in FY 2022, and rent collection across the portfolio of 99.7%. The portfolio delivered a net valuation uplift of AUD 725 million in FY 2022, a 7.3% increase on the June 2021 book value. 98% of assets were independently valued in FY 2022. In logistics, cap rates compressed 50 basis points to 4.1%, and with good rental growth, the logistics portfolio added AUD 391 million in value.
Workplace compressed 20 basis points to 5.3%, and town centres also compressed 20 basis points to 5.9% with an AUD 297 million uplift driven by strong performance across the essentials-based assets and retail transaction activity across the year supporting the cap rate compression. In logistics, we've delivered comparable FFO growth of 5.5%, underpinned by the 8.5% rent growth on new leases and the strong margins on the Gregory Hills trading project. Over 430,000 square meters was leased across the year, and occupancy remained at historic highs of 99.9%. Rent collection was also at 99.9%. The portfolio WALE at 3.4 years allows us to capture further rental growth.
I've been talking for some time about both the logistics capability we have and the land bank we've built up over time. This has now translated to the logistics development pipeline increasing from AUD 3.2 billion noted at the half year to AUD 6.4 billion now. This growth has come from significant densification opportunities currently in the master planning and planning phases at Padstow and Yennora in Sydney and Brooklyn in Melbourne. Over 60% of the logistics pipeline to be delivered in FY 2023 is now leased and more than 40% of the FY 2024 pipeline. We're seeing strong rental numbers further supported by reduced incentives on these developments.
These development opportunities in very well-located sites underpins the strategic objective of reweighting the portfolio to the logistics sector with the majority of the AUD 6.2 billion pipeline targeted for delivery between FY 2022 and FY 2027. While comparable FFO was flat at 0.2% in workplace due to the development nature of the assets, it showed good occupancy at 91.3% and rent collection at 99.9%. Rental growth of 2.3% was achieved on the 31,000 square meters leased. The WALE across the portfolio is 4.4 years. The AUD 5.8 billion development pipeline in workplace is progressing well with the ongoing delivery of stage 1 of M Park and the lodgment of the development proposal for the AUD 1.3 billion Stage 2.
In early June, we received development approval for Affinity Place in North Sydney, and we're now undertaking leasing discussions with potential tenants and detailed design work. Piccadilly is progressing through the planning with the City of Sydney. Our capability in managing detailed approval processes is adding value to these assets while we control timing and commencement based on market conditions. Our town centres have shown ongoing resilience despite lockdowns in New South Wales and Victoria, causing a dip in sales July to October 2021. As shown here, when we compare like-for-like periods, total comparable sales post-lockdown were up 8.1% and specialty sales up 10.1% versus the pre-COVID corresponding period. 75% of sales is in essentials-based categories, and this remixing outcome, combined with the disposal of non-core assets, has led to the strong sales performance.
In town centres, we delivered comparable FFO growth of 3% and positive leasing spreads of 1.5% with 4.3% rent growth on new leases. Occupancy is at 99.1%. Rent collection is now at 99.5%, and the debt position in line with pre-COVID levels. The specialty occupancy cost is well positioned at 15.8%, and incentive levels have decreased to 10.5 months. Our remixing and repositioning of the town centres portfolio has created the resilience which has underpinned performance over recent years.
Overall, I'm very pleased with the FY 2022 results for commercial property, which highlights our strong operating performance delivered by assets and sectors which we have strategically positioned for growth. The focus of commercial property in FY 2023 is to continue to accelerate the logistics development pipeline, maximizing income generation through rental growth on the existing portfolio, and progressing the AUD 6.4 billion pipeline, completing AUD 600 million of developments in the year. Noting that 60% of this is delivered in the last quarter of FY 2023. In workplace, we'll continue to add value through planning and design of both Affinity and Piccadilly and delivery of Stage 1 of M Park, whilst aiming to accelerate S tage 2 with commencement forecast in FY 2025. In town centres, our essentials-based remixed assets will continue to show resilience in an inflationary environment. I'll now hand to Andrew Whitson.
Thanks, Louise, and good morning, everyone. November last year, we made a commitment to three key strategic priorities. Since then, we've made significant progress, including extending our leadership position in Master Planned communities through taking advantage of strong market conditions, rapidly scaling our Land Lease business and introducing a high-quality capital partner, and completing the sale of our retirement living business. This has positioned the communities business strongly, with record contracts on hand across Master Planned Communities and Land Lease, setting the business up for further growth over the next 12 months. Onto the result for the Master Planned Communities business. This result highlights the strong market tailwinds for the majority of the past 12 months, with settlements in line with guidance, the default rate materially below the long-run average, and record contracts on hand with an average price 13% above prior year settlements.
This provides us with good earnings visibility for the year ahead. Our FY 2023 FFO margin guidance is around 18% and settlements around 6,000 with a skew to the second half. This outlook has been impacted by wet weather and supply chain disruptions over the past 12 months. Taking a closer look at sales and settlements. As forecast, we are partway through a cyclical moderation. Over the past four months, new inquiries moderated back to pre-COVID levels, and the sales process has lengthened. This moderation hasn't been uniform, with stronger demand being experienced in Southeast Queensland, Geelong and the Illawarra. These markets have benefited from both post-COVID net migration trends and an affordability advantage. Overall, we've experienced subdued demand to start FY 2023, and we expect purchases to remain cautious in the near term.
Our Masterplanned Communities business enters this stage of the cycle in a strong position due to our competitive advantage, which is built on a combination of three elements. The first, our land bank. Having restocked well at the start of COVID, acquiring 25,000 lots, we've further strengthened the embedded margins in our pipeline. With first settlements from 10 new projects over the next 24 months, taking total activation of our land bank back above 80%, the business is well positioned to capitalize on a market recovery when it comes. The second, our brand, which is built on the quality of the communities that we've created over the past 70 years. We know from prior cycles there is a flight to quality as the market moderates. This has driven a 3%-4% increase in our market share in the prior two cycles.
The third, our scale. This is a competitive advantage in and of itself and enables us to generate deep primary source data, which we can leverage to understand what our customers want, increase the conversion rate and lower our cost per sale. Whilst we've been able to take advantage of the market tailwind since the onset of COVID, we expect our competitive advantage will continue to drive performance as the market moderates. Our outlook for the year ahead. A number of the market fundamentals remain positive, including supply, population growth and employment. However, these will be offset by further interest rate increases, and we generally expect some price moderation and further sales volume declines over the next 12 months. In Victoria and New South Wales, affordability constraints are expected to impact price and volumes in the near term, with undersupply putting a floor under these markets.
These markets will benefit first from an expected increase in net overseas migration. In Western Australia, the significant affordability advantage to the eastern markets will limit price and volume declines. In Southeast Queensland, we're forecasting relative outperformance on the back of ongoing net interstate migration and the most acute undersupply in the country. Turning to Land Lease. 12 months ago, we set out to scale our business at pace, and that's exactly what we've achieved, setting our business up for strong FFO growth over the coming years. We've taken advantage of market tailwinds over FY 2022 and carry 499 contracts on hand to start the year at a price 18% above prior year settlements, both ahead of our forecast when we acquired Halcyon. The strength of price growth has been greater than cost increases, and this is translating to margin expansion.
We near completion of the integration of the Halcyon business, and this is delivering significant synergies in establishing a market-leading Land Lease platform. We've also established a capital partnership which will not only enhance returns, but also allow us to accelerate the organic and inorganic growth of the business. The sales and inquiry trends over the past year have demonstrated the resilience of the over fifties market, and we expect the demographic tailwinds and growing lifestyle preferences of the retiring baby boomers will drive outperformance compared to the broader residential market through this cyclical moderation. The total portfolios continue to grow through both increasing the scale of the villages on our existing land bank and new acquisitions.
The team have progressed our development pipeline, and we're on track to launch seven new communities over the next 24 months, more than doubling the number of projects in active development and significantly increasing year-on-year settlements. The number of established home sites in our portfolio has also continued to grow, and the quality of the rental income is demonstrated through 100% occupancy and rental growth in line with inflation. In summary, we've made significant progress in reshaping the business through the execution of our strategic initiatives and the Masterplanned Communities business and Land Lease business are both strongly positioned for further growth in FY 2023. I'll hand back to Tarun.
Thanks, Andrew. Last November, we set clear targets for capital allocation, income mix, returns, and balance sheet position. We are tracking well against all of these targets. The sale of the Retirement Living business has helped us to rebalance our sector exposures, and the rollout of our expanded logistics development pipeline, along with the embedded growth within our Land Lease platform, will drive an increased weighting toward these sectors over time. We will continue to reduce our overweight exposure to town centres, and as Louise has highlighted, we expect to complete approximately AUD 300 million of additional non-core disposals over FY 2023. In summary, we are pleased to have delivered a strong FY 2022 result while also making significant progress against our key strategic priorities. In an uncertain macroeconomic environment, we have a number of key strengths that position us well for the future.
The diversification and quality of our portfolio, which as today's result demonstrates, is performing strongly. We have a highly engaged and diverse team, access to high-quality capital partners, and a very strong balance sheet. Now turning to guidance. We expect FFO per security for FY 2023 to be in the range of AUD 0.364-AUD 0.374 on a pre-tax basis. As we have previously advised, we expect tax payable to be in the range of 5%-10% of pre-tax group FFO for FY 2023. We expect the distribution per security for FY 2023 to be within our target range of 75%-85% of post-tax FFO per security. Finally, I would like to thank the Stockland team for their efforts during the year.
Our team has delivered strong performance against a backdrop of COVID-19 trading restrictions, which impacted 60% of our town center portfolio for more than a quarter of the year. We had severe wet weather impacts, which saw us lose almost 40% of the year's work days on our Southeast Queensland projects. We had supply chain disruptions, rising costs, and the ongoing impacts of COVID-19 on our team and the wider community. The quality and resilience of our team positions us well to deliver on our objectives in the year ahead. Operator will now open the lines for question and answers.
Thank you, Tarun. For those registered callers on the phone line, if you have not already done so, please dial star if you would like to ask a question. I will introduce you when it is your turn to talk. You will then hear a beep indicating your microphone is live. Our first question is from Tom Bodor. Tom, please go ahead after the beep.
Morning, Tarun and team. This first question might be one for Andrew. I just wanted to ask about the contracts on hand in the residential business, 5,900. Fallouts were very low, but I just would be interested in how much those contracts are locked in and what sort of potential is for those contracts to fall over or be canceled, even if it is on a state basis that they're a bit different.
Yeah. Yeah. Thanks, Tom. Of the 6,000-odd contracts on hand, as you pointed out, 5,000 of those are due for settlement in FY 2023. In New South Wales, Victoria, the majority of those are unconditional. In Western Australia, they tend to be conditional up until three months out from settlement, so we're carrying a larger number of conditional contracts there and also in Queensland. The exact split of conditional and unconditional, I'll have to come back to you on, Tom.
Thank you. Our next question comes from Lauren Berry. Lauren, please go ahead.
Yeah, thanks, guys. Tarun, I was hoping, if you could give any more color on any progress around the retail fund that you'd flagged at your strategy update. Thank you.
Thanks. Thanks, Lauren. Yeah, firstly, as you know, we've been very pleased with the strategy implementation with key partnerships already launched in the sale of the retirement business. We are progressing, and our goal is to have capital partnerships right across our platform in our sectors and our key thematics. We are engaged with capital partners. In town centres, we are committed to the 20%-30% down weighting over time. We're selling another AUD 300 million of assets, and with the redeployment of our balance sheet over time, we see that moderating in any way. Lauren, in terms of timing, we never gave exact timing, and I won't be giving that except to say, unlikely we'll be doing a partnership in FY 2023.
That essentials portfolio, as Louise has highlighted, is performing exceptionally well, particularly the smaller sub-regionals and neighborhood centers that are actually showing approximately 5% FFO growth. We are very comfortable with the holding position of those assets.
Thank you. Lauren, any further questions?
Yeah, just in terms of the developments in logistics, I know you've said you've got AUD 600 million completions in FY 2023. Can you talk about how much you intend to start in FY 2023, and if you've made kind of any changes to that, you know, target of AUD 400 million per year?
Yeah. Lauren, at the half, we talked about. It's Louise here. Thanks for the question. We talked about going forward, having an average of around AUD 400 million a year. With the increase in the development pipeline because of the further opportunities on our land bank, that's increasing, so we will complete. They only take about 12- 18 months to go from start to completion. We would have started some of that AUD 600 million in FY 2022, and then we will complete it in FY 2023. The split will be about 20% will be completed in the first half, 20% in quarter three, and about 60% in the Q4 . Then we're forecasting similar numbers in FY 2024 in terms of sort of development pipeline completions for logistics.
Lauren, just if I can add there, you know [crosstalk]
Yeah.
All right. I was just gonna add there, so that 600 will complete more or less at the back end of FY 2023. The earnings accretion, you know, we're targeting 5%-6% yields on costs will start to flow through in FY 2024.
Got it. Thank you. Just on the residential business, you've been tracking at about 1,500- 1,600 sales per quarter. Andrew, you know, do you have a view on where that's gonna track over the next 12 months or so? Thank you.
Yeah. Thanks, Lauren. Yeah. What we're seeing at the moment, you know, when you look at the July numbers, and July was impacted by a couple of factors, lower releases, the normal winter trading, but also buyers are more cautious. Yeah, while inquiry's been reasonable and it's back at sort of pre-COVID levels, we're seeing people pausing that purchasing decision. You know, when we look back over the last two cycles, there's only been a couple of quarters where we've traded below 1,000 net sales for the quarter. I expect, you know, until we see a stabilization of interest rates that we're looking at those sort of numbers. We know from the undersupply that, you know, ultimately that pent-up demand will convert to sales.
I think the other thing to think about is, you know, the contract on hand position. We enter this stage of the cycle in a very strong position with those record contract on hand and also the new launch projects. With 10 coming online in the next 24 months, that's gonna help drive sales as well. You know, the contracts on hand gives us an ability to trade through this trough with settlements. Just coming back to Tom's original question around conditional, unconditional split. About 75% of the contracts on hand are unconditional and of that, you know, around 50%, we're carrying more than a 10% deposit as well.
Okay.
Thank you very much. Lauren, any further questions?
All good. Thank you.
Thank you very much. Our next question is Tom Bodor back on the line. Tom, apologies not for taking a second question previously. You're now live again.
Thanks very much. I'm glad people would like to see a brief call. Thank you. I just was interested in on MHE, your inquiry dropped about 25%, so not as much as the communities business. I'd just be interested in how sensitive you expect that business to be to the broader residential conditions, you know, as we head into a softer period.
Yeah, Tom. There's obviously correlation to the broader residential market, but we expect it to be less impacted through this moderating stage of the cycle. Our inquiry is down in the sort of 40% range from where it peaked in the Q1 . It's pulled back, but not as much as we've seen within our residential business. Yeah, there is those demographic tailwinds. Our buyers do have to sell a home, so there's obviously a correlation there to the broader market. We think it's gonna be more resilient. That's been our experience within our retirement living business, and it's also the experience from the Halcyon team that have obviously traded through a number of cycles.
Thanks very much. That's clear.
Thank you. Our next question comes from Sholto Maconochie. Sholto, please go ahead.
Hi. Hi, everyone. Thanks for your time. Just some follow-ups. On the contracts on hand, appreciate they're conditional, but what are you factoring for defaults where people can't settle? Obviously, rates are rising, construction costs are up, the builders going under every week. What's your sort of assumption on those contracts on hand on the default rate for 2023?
Yeah, thanks, Sholto. Our default rate for 2022 has been below long run averages. You know, we're in single digits, so we expect it to rise. The important thing to think about when you're thinking about the FY 2023 outlook is that it's, you know, very much a production-led guidance number that we're giving. That's one factor that's constraining it. The other one is really Q4 settlements. You know, we've got a skew to the second half. Settlements performance in Q4 is the factor that we've looked at, and we've allowed for those default levels to rise back to levels that we've seen through 2019 and then back to the GFC.
You know, we saw it around 10%, the default levels back in those peaks, and that's what we're factoring into Q4. It's not really a full year number because we've got more contracts from a production point of view. It's really what happens in that Q4 period.
Yeah, that's really helpful. Thanks, Andrew. Just on the guidance, it's quite a strong. It's a very good year. You've executed really well strategically. The guidance is sort of ex tax 2%-5% growth. Resi's likely flat if you look at the settlements and margin. What are the guidance blocks? I appreciate you've got lower average debt but a higher rate. You got the full year benefit of Halcyon, and, like, without the COVID hit. What are the guidance blocks for this year on that growth?
Hi, Sholto. I can take that. Yeah, you're right. What you kind of called out already are obviously some of the components. If you think about, there's a couple of other things to think about. MPC, obviously we're gonna start recognizing the initial development-related fees and realized profits at MPC. Land lease, as you've called out, that's obviously.
[crosstalk] Yeah, how much of that in July? That settled July. Sorry to interrupt. It settled July. What was the profit number that comes into this year for that MPark?
It's approximately AUD 40 million for that one. For the FY 2023. So land lease, as you already talked about, we're getting a full year contribution, higher settlement volumes. We'll also get some fees from the new partnership in that space. As Andrew's talked about, you know, we've guided to similar volume and margin in MPC, but don't forget the contracts on hand are also at a 13% higher average price point. We will get some additional NOI from the logistics completions. We're also assuming that we won't have to provide as much COVID-related abatements. Fingers crossed that COVID is behind us.
How much are you assuming in COVID abatement this year?
It's not material. Yeah, it's not material. We're really assuming that it's not gonna be a feature.
Okay. That's it.
Yeah. Don't forget that you will [crosstalk]
Okay. That's great.
You'll get some organic NOI growth from the portfolio as well. That's sort of the composition.
Yeah.
Sholto Maconochie, if I can come in there. Just as you can see, you know, the business is diversifying into new engines of growth, logistics, land lease, and of course the core businesses are performing well. I think this is, you know, that's allowed us, you know, retirement living was AUD 97 million FFO last year, and we've been able to absorb that in 2023 and still show year-on-year growth, which is the strategy in action.
Yeah, pretty impressive growth on the back of that. Just finally for me, on the resi inquiries, back to that, if you look at the, they're even a lot softer on the previous July. If you look at the deposits sequentially, we're now sort of 19% on the half and if you look at inquiries sort of 50% down on the half and sort of 30% on the last quarter in 4Q 2021. Obviously cycling some tough comps with all the stimulus and HomeBuilder. Well, just from Tom's question, do you expect sort of net deposits around that sort of thousand mark on average for the year?
Yeah. The next quarter, Sholto, we'd expect it to be below 1,000 from what we're seeing at the moment. As I said, until interest rates stabilize, buyers are cautious. Yeah, we've got reasonable inquiry out there, but you know, people are just pausing their purchasing decision until there's some certainty in that outlook.
All right. Thanks so much for your time and I've got to resolve an outlook. Thanks.
Thank you very much. Our next caller is Caleb Wheatley. Caleb, go ahead.
Good morning. Morning, Tarun and team. Thank you for your time this morning. First question probably just for Andrew, just on your commentary around embedded margins in resi. I'm conscious you've guided to 18% for FY 2022, but how should we think about the FY 2023 and moving forward? You got land price growth potentially coming off in a few key geographies, maybe a mix shift away from New South Wales, which is typically high margin and construction costs coming up. Just wondering how you're thinking about the long-term outlook for margins in residential?
Yeah, Caleb, I think there's a couple of factors to think about in there. You know, we've come through a period of strong price growth. You know, the eastern seaboard, we've seen. You know, you look at the chart that we've got in the pack, you know, we've seen 20%-30% price growth across those eastern markets, you know, over the past 12 months. We obviously also saw price growth really from the start of COVID, when you go back to mid 2020. We've restocked really well through that period. You know, the 25,000 lots that we bought, the bulk of those were in the 2020 financial year.
Yeah, we've got a pipeline that's got stronger embedded margins, and we're gonna transition off some high margin projects and we're gonna bring on some other projects that are delivering solid margins as well. You know, when you think about the portfolio, you need to think about the transition as well, which is gonna underpin those margins that we're seeing. That's flowing through to that 2023 guidance as well with the 13% increase in the price of contracts on hand. You know, we've been able to manage cost increases over the past 12 months. Yes, civil construction's been up about 15%. But civil construction, when you look to the revenue ratio, it's sort of a three-to-one split when you're thinking about that. Lots stronger revenue growth. Yeah, there's been cost growth, but we've been able to absorb that and still deliver some margin expansion.
All that considered, sounds like medium term, you're still pretty confident in being in at least the upper end of that sort of 14%-18% target range. Is that a fair conclusion?
It's gonna be around that.
Fantastic. Thank you. Second question was just around the outlook for development expectations. Conscious you've got the logistics completion through this year, and you should have some rental growth coming through to offset any of that cost inflation. Just interested to hear how you're thinking about, you know, Affinity Places and Piccadilly much larger size and much longer dated. How are you expecting or viewing returns to come through on those projects, given potentially a softer fundamental office market, with that construction cost inflation coming through?
Yeah. I think it's Louise here. It's all around the timing. Great developments, great locations. Just got the DA on Affinity and now having, you know, early tenant discussions. Piccadilly still got a longer runway in terms of authority approval. You know, at the earliest, as I've said previously, to start Affinity would be mid to late next year, and Piccadilly a year after that. That's the earliest. That's based on tenant pre-commit and capital partnering. Obviously that comes off the back of the financial feasibility. All those things have to align for us to get to the starting point. We're, you know, very positive about those projects. As I said, great sites, great locations. We will continue to work through those elements and just keep you informed each results as to progress.
Would you say at this stage, those returns are still stacking?
Oh, well, that's right. We've got to look at any cost increases, where the rental levels are, and we continue to monitor those and while we also value engineer the cost of the project. You know, it's a moving feast, but we keep track of that, and that's something that, you know, as we get closer, we'll be able to give more color on.
Thank you. Just final question from me, just around the outlook for industrial leasing. Obviously a good result in terms of the reversions there, getting towards 10%. Are you able to speak to the level of under-renting across the portfolio and any color in terms of what you might be expecting for re-leasing spreads moving forward, given strong fundamentals in the space?
Yeah. Certainly, as you say, the tailwinds are still there for logistics and, you know, being able to say, as I did in the presentation, that the FY 2023 completions are already 60% pre-leased and FY 2024 is 40% pre-leased, and we're certainly seeing double-digit rental growth come through there. You know, we're positive about the outlook on logistics through this pipeline. And, you know, the e-commerce growth is certainly still underpinning that, as well as. You know, it used to be just in time, now it's just in case. People have to onshore more in order to be able to back up supply. You know, that's all still looking very positive for logistics. And there's only, y ou know, in the portfolio this year, there's about an 11% expiry, so we'll also be expecting good rental growth out of that.
Do you have any high-level expectations of where the portfolio sits relative to market?
It's probably slightly under-rented, I think. Yeah. We're starting to see, I think with getting now those double-digit growths coming through in more recent deals, I think we're starting to see that come to fruition. I think we've still a little bit of room to move there.
Fantastic. Thank you very much for your time this morning, team.
Thank you, Caleb. Our next call comes from Richard Jones. Richard, please go ahead.
Oh, hi. Just a couple of questions. Just in relation to tax, just wondering why the guide is so wide. Back of the envelope looks like it's at somewhere between AUD 40 million and AUD 90 million in tax. That's in that range.
Hi, it's Alison here. Yeah, look, tax, as you know, you know, Stockland's only just started to come into a tax-paying position. We're still actually finalizing the gain on the sale of the retirement living business. You can't actually finalize that until you settle. As you know, we settled that twenty-ninth of July. Obviously, until you've finalized the gain on that business, how much of our brought forward tax losses that uses up. And then you're right. We have to then obviously project how much income we're gonna make in the corporation for 2023. You know, we've given a range just because it's some of that is yet to be finalized. And you know, it's hard to ultimately predict exactly how much we're gonna make in the corporation.
Okay. Can I just follow that on with some slightly related question. Just in terms of the earnings mix, I think you called out 37% of the profits of the year was development. Looking into FY 2023, I imagine that number's gonna be higher given you've got MPark and you've got another industrial trading profit as well as I would imagine some ready land sales into land lease. Just [crosstalk]
Yeah.
Conscious that.
Yeah, it'll be a little bit higher.
That's probably gonna be quite a [crosstalk]
It's not gonna be significantly higher. It'll be a little bit higher. We're obviously aiming for 40% trading income, 60% recurring. That's kind of the what, you know, what we aim for over time. If you know, to get back to the tax thing, if you assume that 40% of our earnings are trading, that's essentially what's subject to tax. If you take a 30% on that, you know, you get to a normalized range going forward, not this year, but normalized of, you know, sort of 10%-12%. Going forward, it's gonna be more in that range. Does that help?
It does help. It's gonna be a headwind again in 2024 is I guess what you're calling out. Just on the industrial developments, can you clarify what the yield on cost was on the completions this year?
Yeah. It's between 5% and 6%.
You're going for that to hold in the forward [crosstalk]
Yeah. That's right.
Tax project.
That's what we're seeing going forward. Yeah.
Okay. That's it. Thanks, team.
Thank you, Richard. Our next question comes from James Druce. James, please go ahead.
Thanks, everyone. Good morning to everyone on the team. Just on following on some of the comments from Sholto Maconochie, can you give me more color on the sort of trading profit number coming from Melbourne Business Park and maybe some guidance on super lot revenue for this year?
Yeah. I'll take Melbourne Business Park. It's Louise. It's about AUD 34 million on Melbourne Business Park in FY 2023.
Oh, James, just [crosstalk]
Yeah, maybe on super. Yeah.
Super lots are gonna be similar to the prior year. There's a little bit of variance year on year just depending on what we're selling in that period. We don't expect there to be, you know, a significant uptick in super lot transaction. Our strategy now has been very much to leverage our land bank and retain a lot of those super lots where we can, developing them and generating, you know, recurring income. We're seeing, you know, really good yields on cost for, you know, anything that we're doing on our land bank, if it's childcare, if it's medical, we're getting 7%+ yield on cost there.
Yeah. Okay. That makes sense. Maybe just to follow up, I think Alison made a comment that you just recut the hedge profile. Was there a capital cost to that? It sounded like you sort of cut in 2023 and blended that to 2024.
Sure. Let me just take you through what we did. We rebalanced the hedge book, and that was really to take into account the receipt of proceeds from the disposal of retirement living. We also wanted to put in place some additional protection for future years and bring the FY20 23 hedging, you know, down to a more normal level. As part of that, we amended the start date of a AUD 600 million swap and moved it into FY20 25 rather than this year. You're right, we terminated some swaps. The capital cost of that was very minor. It was less than AUD 15 million to terminate that sort of 200 million of swaps.
We're kind of really pleased with that because if you now take into account those forward start hedges, we've effectively extended the duration of the hedge book to over four years at rates that are, you know, more favorable than those currently available in market.
All right. Thank you. That's clear. One more, if I may. Just on the payout ratio, you've typically been at the lower end of your range. Do you expect that to continue?
Yeah, James. Again, our policy, as we've confirmed, is 75%-85% of post-tax FFO going forward. Where in the range will really depend every half year when we sit down with the board, our capital position and outlook. I think you'll have to wait and see where in the range we land in future distributions.
All right. Thank you.
Thanks, James. Our next question comes from Ben Brayshaw. Ben, please go ahead.
Hi. I just have a question on the logistics pipeline, going through AUD 6 billion in terms of the backlog for the period. I was wondering if the drivers of that has been acquisitions or, you know, master planning. You mentioned in the presentation, you know, and Brooklyn and Melbourne are key contributors. And so secondly, just on logistics, the AUD 650 million of completions that you're forecasting for FY 2023, how much of that you envisage will be, you know, funded by the balance sheet versus, you know, partnerships?
Yeah. The rollout of that sort of AUD 600 million in FY 2023, as I've said, you know, largely comes towards the back end. In relation to that growth of the pipeline and the future pipeline, vast majority of that is coming off, you know, land bank that we've held for some time. Yennora and Brooklyn, given their geographic locations, gives us densification opportunity, that's about densifying those sites. Padstow, you know, we bought sort of a year or so ago. That's also a densification opportunity, taking it from that one level and working with the authorities on that at the moment. A lot of that has come off land that we've held for some time or, you know, some older assets like parts of Yennora that we'll redevelop and densify.
Ben, if I may come in there. I think I highlighted this a few months ago in as part of strategy review. You should anticipate as we're doing more master planning on our land bank, our pipeline will grow. We can see visibility of some other great opportunities within our land bank. Today we've highlighted the work we've so far done on our logistics pipeline, but there's more to come in a secured land bank. The AUD 600 million that's underway is balance sheet funded. Although I should keep reminding you and the market that our ambition over time is to have aligned capital partners in each of our key sectors. Currently that pipeline is funded by balance sheet.
Can I just clarify? Is the J.P. Morgan Asset Management partnership still part of, I suppose, the funding optionality that you have, or could you provide any comments on that vehicle, please?
Yeah, Ben. No, that is not part of the forward pipeline. There is a couple of assets that were there, which we've acquired, and that'll be. That's where that finishes up.
Okay. Thank you.
Thank you, Ben. Our next question comes from Alexander Prineas. Please go ahead.
Thank you. Thanks for the presentation. Just on the apartment sort of component of the strategy. Can you just comment on where that's at and what the outlook is there in terms of the opportunities and where you're at in terms of is it site acquisition or are there, you know, projects that you're looking to kick off?
Yeah, sure. Our strategy, as we announced last November, so you know, it still stays the same. You know, we're still committed to building a sustainable apartment business. You know, the buying window, we believe, is going to come at some stage in the future. You know, we're looking to build that pipeline at the right time in the cycle. We know how important that is. We've got a small dedicated team that are both working on, you know, the three projects we've got within our pipeline, but also looking at future opportunities. We remain committed to that, and as we build that pipeline, we'll have more to announce.
Also, if I may just add to that. I think the master planning that I referred to, we do anticipate once we've completed work, some of that master planning work will show some attractive apartments, mixed-use sites within our land bank that we'll be bringing forward. We'll look forward to sharing that once our master planning work's more advanced.
Thank you. Just one quick one. Thanks for the comments, the explanation of the tax situation. Would I be right in assuming that all those tax losses will be used up in FY 2023, and we can sort of assume normal tax rate on the corporate earnings from FY 2024? Is that a fair [crosstalk] assumption?
Yes, that's correct. Yes.
Great. Okay.
There's a little bit carried over into FY 2023. It will all get used up, and then we'll be on a normal footing from FY 2024 onwards. Yep.
Thank you. That's all from me.
Thank you, Alexander. That is our last caller in the queue, so Tarun, I'll hand back to you. Thank you.
Thank you, everyone, for dialing in and for the questions. Thank you for your time today, and we look forward to speaking to you this afternoon and also on the roadshow starting Monday. Thanks, everyone, and goodbye.