This article is from the Australian Property Journal archive
STOCKLAND has decided to shift focus from the traditional office/industrial markets and seek retail opportunities, as Australia’s second largest property group notched up a solid 9.6% increase in underlying profit for FY10, underpinned by growth in the residential and retail businesses.
For the financial year ended June 30, Stockland made an underlying profit of $692.3 million compared to $631.4 million in the previous corresponding period. At the same time, the group’s statutory result was back in the black, $478.4 million compared to a loss of $1.80 billion in FY09.
The group’s underlying earnings per security was down 20% to 29.1 cents due to the higher number of shares on issue. And distribution per security declined 35.9% to 21.8 cents after changes to the payout ratio from 80% to 75%. The total payout for FY10 was $520 million ($674 million in FY09).
NTA was lower at $3.59 compared to $3.61 in FY09.
Managing director Matthew Quinn attributed the better profit result to the group’s 3-Rs, residential communities, retirement living and retail development.
Residential communities achieved higher sales in all market segments and made record settlements. The business settled a record 5,336 lots up 22% and operating profit jumped 16% to $213 million. Stockland currently has 2,249 contracts on hand valued at $481 million and the group has acquired an additional 10,000 lots during the year at a cost of $380 million. Apartment settlements also rose from 175 to 315 and revenue was higher at $278 million compared to $227 million.
Quinn said the retirement living has been ramped up with six projects under construction in three states and he said if the $266 million takeover of Aevum is successful, it would nearly double the group’s portfolio and accelerate growth.
And despite Aevum’s public rejection that the offer is too low, Quinn yesterday made no indication that Stockland intends to lift its bid. He reiterated that offer price represented good value to both sets of shareholders.
Retirement living notched up a healthy operating profit of $36 million – 13% higher than the pcp and occupancy rose 1% to 97% during the year.
And in the final R – there are five retail developments in the pipeline due for completion by FY2013 and four new projects expected to commence in FY2011/12.
Quinn said across the portfolio, commercial property values are also stabilising. Values dipped slightly from $7.9 billion to $7.7 billion and the weighted average cap rate has risen from 6.4% to 7.7%.
The business reported a 1.4% decrease in net operating income to $534 million, due to the reduction in income caused by non-core asset sales during FY09 and FY10 totalling $770 million. On a comparable basis overall commercial property NOI was up 1%. Operating profit was down from $532 million to $509 million.
Retail comparable NOI growth was 4% to $266 million. Growth in rents continues to be underpinned by population growth and some 500 specialty lease transactions were completed in FY10, achieving 5% average rental growth. Comparable MAT growth was a modest 2%, reflecting the ongoing impact of interest rate rises and increasing utility charges on consumer spending. Around 300 specialty lease transactions are due to be completed in FY11 and rental growth is expected to be similar to the 5% achieved in FY10.
On the other hand, Stockland recorded a decline in comparable NOI of 1% in Office to $193 million and 3% in Industrial to $75 million due to high lease incentives and longer lead times to lease vacant space. Quinn said national office vacancies across Australia are expected to peak in FY11 and Stockland’s recent leasing success has significantly de-risked the FY11 and FY12 lease expiry profile.
Meanwhile Stockland continued its orderly workout program in the UK, selling assets with a book value of around $40 million at a slight premium. The remaining book value of approximately $260 million is expected to be realised by FY12 and will be reinvested in the Australian business. A break-even operating result is expected over this period.
Gearing increased from 16% to 18%, but remains well below the target range of 25% to 25%. Stockland has an estimated $830 million of net cash flow to come from the wind down of apartments and the UK to fund growth and ensure a strong capital position.
“Stockland is in good shape; we have a clear growth strategy, good earnings momentum and a strong balance sheet,” Quinn said.
Meanwhile he outlined a shift in Stockland’s mood and said the group will be recycling capital from the sale of non-core office and industrial assets and reweight more into its retail development pipeline.
“The hard work of the last two years is paying off and our business enters FY11 in a strong position, well prepared for any further market volatility. While we will maintain our conservative and disciplined approach to capital management, we are also looking to capitalise on growth opportunities,” Quinn concluded.
Stockland expects to achieve FY11 EPS growth of 7% from FY10.
Stockland shares fell 1.05% or 4 cents lower to close at $3.78.
Australian Property Journal
