This article is from the Australian Property Journal archive
STOCKLAND is forecasting a 10% fall in earnings this financial year. Outgoing managing director Matthew Quinn said this is worst new housing market he has seen in over 20 years.
“I said in August that without a significant improvement in the residential market in the first quarter, our earnings per share in FY13 will be lower than last year. Unfortunately, it is now clear that this will be the case,” Quinn said at yesterday’s AGM.
Earnings per share are likely to plunge by around $50 million, or 10% on last year’s results, and could sink a further $30 million if conditions didn’t improve in Victoria, where Stockland’s profit per lot is significantly higher than the rest of its portfolio.
State government stimulus had ended in Victoria on June 30 and Quinn said sales volumes had halved as a result, with aggressive discounting required to clear stock.
“Our operating profit margins for FY13 are expected to be in the range of 12-14% depending on the performance of our Victorian projects. Margins in the first half will be even lower due to more settlements coming from low margin NSW projects and less from higher margin Victorian projects,” Quinn said.
“Furthermore, while it is normal for our business to see a skew in profit to the second half, this year this skew will be larger than usual – around a 30-70 split,” he added.
While margins are expected to improve in the 2014 financial year, it looks like a long road back for Stockland, with Quinn saying that two or three years of good volume and price growth were needed to restore margins to historical levels.
Quinn said that while conditions remained challenging in the residential market, the bulk of Stockland’s earnings are recurring income from rent generating assets.
“While there is always a big focus on our Residential business, the majority of our assets are investment properties where the profits are very predictable from secure, rental-backed contracts,”
The group’s $5 billion shopping centre portfolio was expected to achieve 2-3% comparable net income growth in this financial year.
Commercial Property overall profit was also expected to be down on last financial year due to reduced income from the selling-off of non-core assets, while soft residential market conditions were to dent the Retirement Living business profits.
Quinn was positive Stockland could recoup is earnings per share growth in the 2014 financial year.
“Our confidence in this rebound in earnings is demonstrated by our decision to maintain our 24 cent dividend in FY13, even though this will likely require a payout ratio around 90-95% of underlying profit.
“This is higher than our target ratio but is justified given our positive outlook for FY14, mainly due to our major new Residential projects and recently completed Retail projects coming on line next year and not just market improvement.” Quinn concluded.
Stockland’s share price fell 13 cents, or 3.66% yesterday to $3.42.
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