Housing slump, weak retail limit Stockland's earnings
Stockland has warned Australia’s housing crunch and weak retail conditions will limit its full-year earnings to the bottom of its guidance after a key measure of profit fell 6.7 per cent for the half-year.
Funds from operations (FFO) - an industry metric used to determine cash flow - were down 6.7 per cent for the half-year to December 31, coming in at $407 million.
“Weak housing markets and ongoing headwinds in the retail sector will likely see our full year results at the lower end of our guidance range for FFO per security growth of 5-7 per cent,” chief executive Mark Steinert said.
Half-year profit halved to $300 million from $684 million and revenue was down to $1.1 billion from $1.3 billion a year earlier, a change attributed to losses on financial instruments, downward revaluations in commercial property, fair value changes in retirement living and a tax expense.
A large skew in home buyer settlements to the second half of the year saw operating profit in the residential division fall 21.8 per cent to $142 million.
Mr Steinert said the group’s residential business was in a “good position” for the second half of the financial year where it had 5900 contracts on hand, including about 3600 that were due to settle.
The diversified developer makes about a third of its profit from residential sales.
“The housing market has moderated overall and we expect this to continue in the year ahead. Conditions in our sub markets are varied, we have seen declines in south-west and north-west Sydney land markets, and land markets in Melbourne,” he said.
“We expect further price declines in residential land of around 5 per cent over this calendar year, concentrated in Sydney and Melbourne.”
"Despite this, we are still experiencing solid demand for our well-located projects,” Mr Steinert said.
Stockland said it remained on track to deliver FFO per security around 5 per cent, at the lower end of its forecast 5-7 per cent guidance, reflecting the weaker market conditions.
Investors will be paid a dividend of 13.5c on February 28.
The half-year result was generally below market expectations, with Macquarie analysts labelling it a “skewy one” and keeping the company on a “neutral” rating.
“A softer FY19 outlook than anticipated, as well as negative comparable FFO growth in retail and limited residential net deposits are headwinds for the stock,” Stuart McLean said.
Funds from operations in its commercial property division were up 3.8 per cent to $314 million off the back of strong workplace and logistics markets.
Retail funds from operations grew 4.3 per cent to $218 million. On a like-for-like basis though, it was down 1.1 per cent.
“Our strategy of remixing and increasing our focus on services, lifestyle, health, dining and entertainment are helping to drive foot traffic into our centres,” Mr Steinert said.
“We have delivered comparable specialty sales per square metre growth of 5.7 per cent in cafes/restaurants and 3 per cent in food catering for the half, reflecting the success of this re-mixing approach,” he said.